Upshot: From JFC to IPP to Open Access

I've read today an interesting article from Bernardo V. Lopez's Upshot column in the Business World. It's about his open letter to the Joint Foreign Chambers (JFC).

I agree with him that, even though they are contributing immensely to our economy, it doesn't mean that these foreign investors have the right to do whatever they want. I think it is but right for us to resist on legal and moral grounds their illegal and oppressive means of doing business in our country.

Along the way, he mentioned about the lowering of the threshold of the privatization of the National Power Corporation (NPC), which is currently pegged at 70% level. In this regard, I am also for the lowering of the NPC privatization level to 50% to fast-track open access regime. Although, this amendment to the Electric Power Industry Reform Act (EPIRA) would only maintain NPC's position in the power industry as a dominant seller of electricity; nonetheless, we still have a dominant buyer in Meralco who controls about 70% of the market. This would even out the equation.

Likewise, an EPIRA amendment regarding cross-ownership must be included. This time Congress should make a provision that will disallow distribution utilities to own generation firms or supply companies, or vice-versa. This is to prevent conflict of interest and exorbitant transfer pricing.

With regard to PIPPA (Philippine Independent Power Producers Assocition), whom Lopez pertains to its members as lesser monopolists, they too are lobbying for an early open access even on an interim basis. However, I guess competing with Meralco is not in their agenda; but rather, they are vying for NPC's customers. Perhaps, Lopez might be referring to PEPOA (Philippine Electric Plant Owners Association), whose members are the ones he mentioned in his article such as Angeles Electric, San Fernando Electric, Davao Light, VECO, et al. However, their being monopolists is but a stature granted by law via their legislative franchise to operate in certain areas. By the way, PEPOA members are not IPPs or generators, but they are distribution utilities like Meralco.

On the other hand, I guess it would be bad timing to implement interim open access this year. I'm afraid that electricity prices would only shoot up, instead of going down, as supplier's rate will reflect the true cost of fuel, foreign exchange and inflation in the power bill.

As early as now, there are already few suppliers who are approaching distribution utilities and contestable markets to offer their services to them. However, the benchmark that they are using are not reflective of WESM, but rather international indices like US consumer price index (CPI), peso-dollar exchange rates, imported coal prices, among others. Therefore, the beta coefficient is way off the mark. Thus, there's a need to put up a forward price benchmark or a mixed generation index so that buyers must have a good reference point and comparative figure.

However, if more hydro and geothermal power suppliers will join the interim open access, then for all intents and purposes, we must push for its early implementation this year. So far, the petitioners for interim open access are mostly coal and natural gas power generators and suppliers.

Nonetheless, I'm still looking forward to the liberalization of the power industry in the near future.

By the way, in case you want to read the full article, here's the link to Bernardo V. Lopez's column: http://www.bworldonline.com/BW061908/content.php?id=144