“The CSP …is far from perfect in its present form and lacks transparency.”
Time and again, Filipino consumers receive a shock from higher electricity rates. The huge electricity bill this month again is an added burden to households. They can only pray for better times and hope electricity rates go down in the coming months.
Manila Electric Co. (Meralco), the nation’s biggest power, retailer is raising power rates by over P2 per kilowatt-hour this month due to higher generation charges. The rate hike will bring the overall rate for a typical household to P11.6012 per kilowatt-hour from P9.4516 per kWh in June.
Residential customers consuming an average of 200 kWh, according to Meralco, will have an equivalent increase of around P430 in their total electricity bill for the month.
Rising electricity bills are a bane to residential and industrial customers. The Philippines still has one of the highest rates in Asia and it’s no wonder foreign investors shun the country and place their bet on territories with cheaper electricity rates.
But regulators have the power to check on higher power bills to soften their impact on consumers. Senator Pia Cayetano, the new chairperson of the Senate Committee on Energy, perhaps, can look into the details of power pricing and find ways to lower the rates.
For starters, Ms. Cayetano’s committee could order a review of the competitive selection process (CSP) being supervised by the Department of Energy (DOE).
The CSP seeks to protect consumers by considering the reliability of energy services in a least cost manner. Distribution utilities like Meralco, in conducting auctions for the lowest price of electricity supply, must see to it that they receive the cheapest rate possible to benefit their customers.
The CSP, however, is far from perfect in its present form—and lacks transparency. The last auction conducted by Meralco for 3,000 megawatts of power supply from generators, or power plants, for one, deserves a careful examination.
Power generators won the contract to supply least 2,400 MW out of 3,000 MW to Meralco. The winning power plants are fed by imported liquefied natural gas (LNG), and not on indigenous gas from the Malampaya reserve.
Malampaya proponents claim that the the terms of reference for the Meralco CSP from the outset excluded the local gas resource—when it defined a qualified plant as one that is less than 10 years old. The condition effectively eliminated still-efficient power plants that are over 10 years old, including those that run on indigenous gas and built in the 2000s. Newer plants fueled by imported LNG, in sum, are the ones qualified to bid for the power supply agreement that will be signed with Meralco.
The bias for imported fuel is hurting consumers because it costs more as will be reflected in their monthly bill.
One bid won by a power plant that runs on imported LNG declared a P7 per kilowatt-hour cost only to disclose later that its generation cost was at least P8 per kWh. The discrepancy between declared and actual prices is explained by hidden costs.
Importing LNG incurs additional expenses, such as shipping and conversion costs, which significantly inflate the actual price of electricity production. Such added cost will eventually be passed on to electricity consumers
The bias towards imported LNG distorts the perception of indigenous gas as expensive, contrary to the factual cost differentials between local gas and imported LNG.
In March 2024, the effective rate of local gas was barely P5 per kWh while the effective rate of imported LNG was over P6 per kWh.
Records show that the average cost of power generation using local gas is a little over P5 per kWh in January 2024 compared with LNG at more than P7 per kWh.
The price of imported LNG cited in bids merely reflects the cost at port of origin, or simply the price for the raw material. Undeclared, as the Malampaya proponents claim, are the actual costs of importing LNG.
By the time it reaches the Philippine shores, LNG from foreign countries would have accumulated additional costs from freight, shipping and the process of making it usable for power generation.
LNG from abroad is shipped in liquid form and would have to undergo a process to restore it in gas form for power generation. The expense involved in the process is nearly as much or more than the basic cost of the fuel.
Thus, by the time imported LNG runs through the veins of power plants, its cost has more than doubled, or at least tripled.
The preference for imported fuel not only imposes financial burdens on consumers but also challenges the integrity of the bidding process within the CSP framework.
Through transparency and the disclosure of LNG’s hidden costs, the Philippines can hold stakeholders accountable and promote a more equitable energy landscape. It is high time to review and fine-tune the CSP to make it fair, transparent and beneficial to electricity customers.
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