CCCI’s Advocacy of Lowered Cost of Power in Cebu

The Cebu Chamber of Commerce and Industry’s advocacy of a lowered cost of power in Cebu is slowly gaining significant traction after it has caught the attention of the Energy Regulatory Commission (ERC) and Senator Sherwin Gatchalian last week.

CCCI’s Advocacy of Lowered Cost of Power in Cebu

In a letter dated January 4, 2021, the ERC Chairperson Agnes Devanadera directed the Visayan Electric Company (VECO) to submit an explanation regarding its high electricity rates and its perceived violation of Section 45 (b) of Republic Act 9136 of the Electric Power Industry Reform Act (EPIRA). On January 16, Senator Sherwin “Win” Gatchalian took notice and reacted to the directive by telling the Commission to demand a refund from VECO if it can be proven their charges were unjustifiable.

These moves are welcoming development to the Chamber’s advocacy on ease and low cost of doing business, specifically on power.

“For the longest time, the Cebuanos have been complaining of Cebu’s high electricity rates. We hope that ERC’s probe on VECO’s rates will eventually result [in] cheap power that will propel Cebu to be more competitive. Especially in this time of pandemic where many are suffering. VECO’s decision to lower the cost will be its greatest legacy to Cebu, the very place where they came from,” said CCCI President Felix Taguiam in a statement.

During the December 28, 2020 press statement of ERC, the generation charge billed by distribution utilities in Luzon and Visayas in November 2020 ranges from ₱3.9513 per kWh to ₱5.0985 per kWh. VECO’s generation charge for November 2020 is ₱5.0985 per kWh, in turn making it the highest generation charge in the country for the particular period.

Why, when, how did it start?

The mandate of CCCI has always been to advocate and promote business competitiveness amidst a globally challenging and disruptive economic environment. As the voice of the business, the Chamber represents more than 1,000 member-companies and sectors including the voiceless MSME’s looking at their growth and vulnerabilities [and in this case, the millions of power consumers], most especially during this unprecedented time of COVID-19 pandemic.

Based on the survey that was commissioned and released last October 2019, identifying the enablers and obstacles directly impacting the competitiveness of Cebu, the second top obstacle in the ease and cost of doing business is the “high cost of utilities”, where electricity is identified as the major cost driver.

Hence, as part of the major action agenda, the CCCI was emboldened to sharpen its focus on factors affecting programs to ease and lower the cost of doing business in Cebu, particularly to address and to find solutions to the lingering complaint of the high cost of electricity.

The Cebu Chamber’s advocacy on power began in December 2019 with a committee study on the power rates of Cebu’s biggest electric distribution utility (DU) VECO that revealed several gray areas that could be major factors to the high cost of electricity we have in Cebu.

Results of the committee study

The study highlighted the issue of cross-ownership between VECO and its associated generation companies which allegedly resulted in the procurement of more than fifty percent (50%) of its total demand from associated firms engaged in a generation –in turn, violating the Republic Act 9136 Electric Power Industry Reform Act (EPIRA), Sec. 45. Cross-Ownership, Market Power Abuse, and Anti-Competitive Behavior.

The study claims that VECO’s contracts with its affiliated generation companies is anti-competitive and goes against the policy on promoting efficiency of market competition considering that VECO enjoys a dominant position controlling the power distribution sector within its franchise area.

Another assertion was on the inefficient procurement and selection of the power supply source. The study indicated that VECO, through its affiliate IPP, has been imposing unfair selling prices on its customers and consumers and may indicate ongoing collusion between VECO and its IPP affiliates.

Based on its November 2020 generation rates, VECO sourced out approximately 76.3% of its power supply from bilateral contracts with independent power producers (IPPs) which are more expensive rates compared to those from the Wholesale Electric Spot Market (WESM).

In November 2020, the price difference is noticeably substantial with the WESM rate being as cheap as ₱1.2588 per kWh; whereas, the rate of IPPs like TVI is almost five (5) times higher at ₱5.7521 per kWh. While it appears that WESM has indeed been “volatile” and “unpredictable,” in as much as its rates vary from as low as ₱1.2588 per kWh to as high as ₱4.7033 per kWh, this has rarely led to the WESM generation rates becoming more expensive than those from the IPPs.

In February 2020 when the WESM rate was at ₱4.7033 per kWh, the said price was still cheaper compared to the cheapest rate charged by VECO’s independent suppliers, which was TVI, at the rate of ₱4.7778 per kWh. It is further noted that based on the available reports from VECO on its generation rates for the year 2020, the WESM rates have constantly been cheaper than those charged by their IPPs.

These data, which are sourced from VECO’s website, show a significant difference between the generation costs of VECO-affiliated IPPs as compared with that of WESM and non-VECO affiliated IPPs.

MSK study result

On November 8, 2020, Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK) in its article titled, “Aboitiz Behaves Differently as Cross Owners In the Visayan Electric Corp. of Cebu,” alleges that the non-transfer of ownership of the Cebu Private Power Corporation’s (CPPC) plant to VECO despite the end of the Build-Operate-Transfer (BOT) agreement in 2013 is costing the Cebuanos ₱66 million per month or ₱800 million per year, instead of paying only for the fixed O&M costs cost amounting to about ₱10 to ₱12 million a month, an estimated difference of ₱54 million a month or ₱648 million per year or ₱6.48 billion for the 10 years.

The article further noted that the 61.72mw of reserve capacity seems too high however at 15% for a place like Cebu where there is plenty of reserve supply on the island including the WESM.

The prudent level of a reserve for Cebu might be 8% or 25 to 30mw. Not 61.72mw. Other DU’s in the Visayas with similar service contracts for peaking and reserve pay only the equivalent of about ₱0.12 per kWh based on its total energy purchases.

Also, the CPPC’s per kWh rate that ranged from ₱26 to ₱1,470.92 per kWh is boggling the mind of consumers.

Negotiations with VECO

The Cebu Chamber started its negotiation with VECO in December 2019. The courteous Board of Trustees of the CCCI opted to first reach out to official representatives of VECO in offline and formal conversations, instead of coming forward with the study results to authorities.

Early on, both parties agreed to have a mechanism of an open line of communication and conduct regular meetings to openly air and exchange inquiries and information that drives the cost of power and how to address them accordingly.

After the year-long good-natured inquiries and cordial approach employed by the CCCI in an attempt to bring down the cost of power in Cebu, nothing much has been done. Officials of VECO did not even budge and have been consistent with the way it has been running the power industry of Cebu, at their advantage.

It was only at the beginning of 2021 that the Cebu Chamber’s advocacy was now upheaved to the national level.

At the end of all of this, the CCCI’s ultimate goal is to have a reasonable and cheap electricity rate for the Cebuanos.

ALSO READ: Cebu’s strategic need for power sources: Possibilities, and Challenges to Energy Independence

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