True intention of each sub-sector in the power industry

As I was googling for some information with regard to the current Meralco saga, I happened to chance upon the blog site of columnist Manuel L. Quezon III, which has lead me to the website of the Philippine Free Press featuring an old article circa 1971 about Meralco's battle against the government then of Pres. Marcos. The scenario then seems parallel to the present situation as far as Meralco is concerned, i.e., the government is blaming the distribution utility for the hike in power rates.

However, the only difference with now and then is that today we have a deregulated power industry. Nonetheless, in this EPIRA regime, the distribution sector remains a regulated entity together with the transmission sector, whereas the generation and supply sectors are unregulated.

Thus, a distribution utility cannot just increase its price without going through the tedious process of rate approval by the Energy Regulatory Commission (ERC). As such, we could say that the power distributors are not the main cause why power rates are high.

Although, it is true that distributors have the capability of lowering power rates via maintaining good supply mix, coupled with bilateral utilization vis-a-vis taking advantage of the low price offers in the wholesale electricity spot market (WESM) during off-peak and low temperature periods.

There is a bidding mechanism in the WESM wherein power buyers declare their bilateral contract quantities (those quantities contracted with other power suppliers / generators) to those periods where market prices are high so that in effect they are charging energy quantities declared to their bilateral contract instead to the market. However, as per WESM Rules, WESM buyers should declare these bilateral contract quantities (BCQ) through their generators / suppliers, giving the latter full control of the situation.

Another thing is that demand bidding is not yet in place in the WESM, which could give WESM buyers equal opportunities to set prices in the market, since it's the struggle between demand and supply that really makes the price dynamic and volatile. As such, we could say that the WESM of today is more of a sellers’ market, and the buyers are merely price-takers.

In this period of inflation and rising commodity prices, power distributors too suffer. Distributors are not profiting from any price hikes nor spikes in generation, much more getting benefits from it. The generation charge reflecting in our power bills is merely a pass through charge, and the distributor, upon collecting from its customers, will remit the amount back to the power generator / supplier. In effect, aside from delivering electricity to the end-users, it seems that the power distributors also pose as collectors for generators, and also, transmission firms.

As far as the present market-based structure is concerned, the four sub-sectors in the power industry have their own objective and intention.

First, generators are always aiming to maximize returns. They generate and offer power with profits in mind. They could resort to withholding capacity or feigning operational problems to decrease supply, which could result in higher market prices.

Second, the transmission sector’s goal is to always ensure availability of power in the system, thus it buys energy and reserves without much concern of the price.

Third, the supply sector have the same agenda with the generation sector. Most generators, are suppliers themselves. But in the local power industry context, a supplier is not necessarily a plant owner. They are brokers, marketeers, retailers, or middle-men between the generators and end-users including distributors.

Lastly, the distributors are more concerned on bringing down the cost of generation so that they may be able to pass through to their customers lower power bills. The lower the power bill, the more likelihood of increasing power consumption. That is were the distributors deriving their income — more on quantities or kWh of electricity consumed, not on high generation rates because distributors have no mark-ups whatsoever to the generation charge as these are just pass through charges. It just so happens that the biggest component of our power bill is the generation charge which is being reflected in the distribution utiliiy's power bill statement.