A Risky Policy That We Don’t Need

Wilford Wong, Secretary General of Citizen Watch Philippines, ADRi’s CSO Partner

When the Competitive Selection Process (CSP) took effect last June 2015, it didn’t get much attention and scrutiny from the media—much less the public at large.

Perhaps put off by how technical it sounds, people would not really care what this is. The truth is, however, it carries an enormous impact on us as citizen-consumers paying for electricity bills, which we always prioritize in portioning our always-meager monthly take home pay.

To be fair, the CSP has in it good objectives: to make transparent the way the Distribution Utilities (DU) and Generation Companies (Genco) contract Power Supply Agreements (PSA).

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Stripped down to its essentials, however, the circular will ultimately be disadvantageous to the citizen-consumer–us. This is like the government controlling how businesses should do business. Imagine your parents telling you how to chew your food down the last bite. Too nosy, right?

One of the unique things I also noticed in this circular is that the whole bidding process should pass through an independent arbiter that the Energy Regulatory Commission (ERC) shall approve. It looks like anyone and anybody can apply for the job as an arbitrator. There is this danger that incompetent people would be placed in a position of “judge.” As a basic utility, electricity is too important to pass upon the duty of regulating to someone who may not be competent enough to determine what is best for consumers. It might be dangerous and subject to abuse.

Besides, all price agreements are already approved by the ERC through a series of public hearings. To me this already satisfies any requirement of transparency. What is the use of this additional layer of appointing someone else to do the bidding?

This brings me to my next point. Simple economics teaches us that a person who demands more can bargain more. I need more, so I can bargain for the better price and other terms that can be arranged from it. From there, I can ask better concessions compared to a situation where I am limited with buying options. Why take this advantageous position away from me and choose from those who only want to deal with me, when I know I can look for other suppliers who can give me a better deal and eventually have better prices. Business prudence dictates this kind of selective buying from sellers who are known to have a not so good track record in the industry.

I have attended forums about the CSP, different resource persons have said that the CSP model will not work in the kind of market that we have right now. CSPs will work if there is an overflow of supply. We do not have an overflow of supply. What we have are supplies that are just right.

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Some energy policy experts said that the CSP will never guarantee the lowering of electricity prices. When you only have selected buyers to choose from, and you are not a reputable energy company, it will not promote the kind of bidding it envisions.

In 2014 our group participated in a DOE Task Force that conducted a study that would lower down electricity costs. The final draft was out, but still no action had been taken by the conveners of the Task Force, not even submitting it to Congress or sharing it with other regulators.

The report had genuine ideas and proposals to lower the cost of electricity. If implemented, that would have been a nice start. But instead the energy sector was taken by surprise with this circular; others said that this is a trio circular, all affecting the conduct to do business in the energy sector.

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To end, I think it would be more prudent for our energy regulators to suspend the implementation of this circular we do not want us citizens to suffer because of flawed regulation. Imagine the political backlash if energy prices will have to be raised because of the CSP. With an election year fast approaching, I don’t think this administration will want to risk another scandal that will alienate all electricity consumers of the country.

The issue of lowering the price of electricity does not need another regulatory layer; it needs real, long term solutions starting with removing bureaucratic barriers to encourage more investments in modern and efficient power plants and rationalizing the taxation of energy sector.