Sensible
FIRST PERSON - Alex Magno (The Philippine Star) - December 17, 2016 - 12:00am

Energy Secretary Al Cusi did the most sensible thing to ensure energy sufficiency at the lowest cost to the consumer. He altered the energy-mix formula drastically guided by the need to meet the country’s long-term energy needs.

In the past administration, a completely nonsensical energy-mix policy was adopted. This policy set a “30-30-30 rule” which prescribed a cap on each energy source. Thirty percent of the power generated should come from coal, 30 percent from gas and 30 percent from renewable energy. The remaining 10 percent will be sourced from other technologies, whatever these may be.

By putting a cap on energy production according to source, the policy limits our ability to benefit from cheaper energy sources. This market-bending policy actually guarantees more expensive energy producers their share of the market. Coupled with feed-in-tariffs to subsidize renewable energy producers, the net result of this brain-dead policy is to make power more expensive for consumers – and torpedo our industrialization in the process.

The new policy will source energy according to market needs, not production source. Called the “70-20-10 rule,” it allocates energy sourcing according to demand. Seventy percent will be for baseload capacity, 20 percent will be for mid-merit capacity and 10 percent for peaking generation facilities.

If, for instance, gas indeed becomes a cheaper source than coal, then it will be the main source for baseload capacity. The rule is simply that energy will be sourced from the cheapest provider. The consumer benefits from the lower power cost regime that ensues. The economy benefits from having a steady supply of power.

Having corrected the energy-mix conundrum, the Energy Department must now address the other policy that preserves the high-cost regime that prevails. This policy, set to come into effect soon, is strangely called “mandatory contestability” even if it curbs market forces and rewards only producers of more expensive power.

This other hare-brained policy forces customers (mainly the distribution utilities or DUs) to distribute among other power producers their supply requirements. It puts a cap on what a power retailer can order from one supplier. The intent of this policy is obviously to forcibly create market share for power generators whose supply is more expensive.

What this policy does is to restrict the choice of retailers, preventing them from buying all their needs from the least expensive source. It forces retailers to buy part of their requirement from the second-best choices (those more expensive than the others).

What is the effect of this policy on DUs currently sourcing their power from the cheapest generators? They will be constrained to allocate some of their supply from more expensive sources. The net result will be more expensive power for the consumers.

This interference in the workings of the market, which will otherwise produce the fairest deal for the consumers, is again intended to protect the inefficient. The policy is patently anti-consumer. It, once again, undermines our goal of industrialization to assure a few uncompetitive but influential corporate entities profitability.

The first reaction of consumers is, understandably, alarm. The reaction of the Energy Department is to reverse this harmful policy that insulates the power sector from market forces.

Odd

Last month, in a tragic turn of events, Energy Regulatory Commission (ERC) director for management information Francisco “Jun” Villa apparently took his own life. That tragedy was quickly seized by scandalmongers to taint the ERC as a graft-ridden agency.

President Duterte, swayed by the reflexive public outcry and way ahead of any decent investigation into the matter, first asked for the resignation of the commissioners. When he realized they enjoyed tenure as a quasi-judicial entity, he threatened to abolish the agency. He could not do that either, the ERC being the creation of law.

Now that the dust thrown up by excitable parties has settled, the matter may be reviewed a little more soberly. The allegations by the excited scandalmongers do not seem to add up.

To begin with, Jun Villa headed the agency’s management information system. He was not involved in the formulation of policy. His function was entirely internal to the ERC.

Villa was assigned to head the bids and awards committee tasked with bidding out an audio-visual presentation for the agency. The initial budget for that project was a mere P300,000. That seems too small to merit a high-level conspiracy to commit graft – certainly not at the scale of that other scandal at the Immigrations Bureau where P50 million in bribe money was delivered in cold cash.

The budget was so small, no one bothered to bid for the project in the first round. After that, the budget was raised to P490,000. The second round of bidding attracted a few bidders, all of them subsequently determined to be unqualified. The second round of bidding was declared a failure. The budget for the doomed project remains with the agency.

How could graft attend a project that was not bid out?

Jun Villa wrote three suicide letters over three days, all of them addressed to Jesus Christ.  Before he apparently took his own life, he did not report for work for seven days. According to his own letters, he spent the time staring at a blank wall. He dreaded failure and feared he would be unemployed.

Only in one of those letters, and almost in passing, does he speak of being pressured to award the contract he was charged with bidding out. But all the three letters must be read carefully. Together, these letters do suggest more a person in deep distress rather than a failure in governance at the agency.

 

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