Insulate electricity users from price shocks

Electricity users are in for a shock. Price hikes will zap their jobs and small businesses. Three factors converge in perfect storm. Power shortage will black out the coming year because the previous admin did not entice enough new generators. Rates of petroleum and coal that fuel existing generators continue to surge from war in Ukraine. The peso decline will further make electricity pricey since fuels and other supplies are imported, and capital expenditures and debts are in dollars.

All those will be passed on to consumers. They need relief.

Economist Rep. Joey Salceda and former Napocor president-banker Guido Delgado propose a way out.

First, a situationer. Switching to renewables – sun, wind, wave, tide, nuclear – will take five years. Coal will continue to run most power plants in the meantime. Coal rates have more than quintupled to $400 per ton as of June from only $70 before the Russian invasion. Rates of bunker and diesel, as alternatives, are zooming too; OPEC and partners have cut back production by two million barrels a day.

That coal spike translates to P54 billion a month. It burdens 20 million consumers. Except for San Miguel Global, generators have escalation and pass-through clauses. They automatically tack on increased production costs to distributors and retailers. The latter in turn collect these from customers in behalf of the former.

The previous average generation cost of P5 per kilowatt-hour has more than doubled to P11.50. In poor LeyteSamar, electric cooperatives generate at up to P21 per kWh. No micro, small or medium enterprise can survive. In Greater Manila, eight of Meralco’s 12 suppliers pass on increased costs without restraint. One, Thai-owned Quezon Power, charges P13.34 per kWh.

Simply put, the previous P500 a month bill becomes P1,150. The P1,000 becomes P2,300. The P10,000 becomes P23,000.

Most consumers partially work, moonlight or run modest livelihoods from home. Unaffordable electricity has forced many to close shop and cut service. They’ve joined the 2.86 million jobless and 25 million underpaid.

What to do? Salceda and Delgado propose a Consumer Relief Fund.

Mechanics. Put up a “long-term fund for power cost recovery.” Say, P650 billion, the equivalent of P54 billion per month for 12 months, plus handling costs. Banks can syndicate the fund. Very liquid, they will only be too willing to lend.

Don’t make consumers pay upfront the P54 billion a month, or P6.50 per kWh additional generation charge (P11.50 minus the old P5 average).

Let them amortize it over five years or 60 months. At five-percent annual interest, this translates to only 12 centavos per kWh.

In effect, the consumer will pay only P5.12 per kWh on Month-1, P5.24 on Month-2, P5.36 on Month-3 and so on. Only by Month-60 will he be paying P11.50 per kWh.

The P650 billion goes to distributors and electric cooperatives. They will then pay the generators on time. Meanwhile, customers pay only increments.

Banks earn, the power sector is given a breathing spell, electricity consumers can accelerate earnings. Win-win-win.

How to do it. Being both former government executives, Salceda and Delgado suggest five actions:

(1) National leaders must agree on duration, at least 12 months.

(2) Land Bank and DBP can lead the loan syndication.

(3) Utilities will be the borrower; the National Electrification Administration can guarantee the electric cooperatives.

(4) Although this is not a tariff, the Energy Regulatory Commission must consent to have the amortization as part of monthly electric bills.

(5) The President shall issue an Executive Order, endorsed by the Joint Congressional Power Commission.

Perhaps a sixth should be for economic managers to shed off timidity and think out of the box.

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