Home Editors' Picks The ERC, NGCP, inflation and public debt

The ERC, NGCP, inflation and public debt


My Cup Of Liberty

Four important events that occurred last week: the Energy Regulatory Commission (ERC) dismissed the rate hike petition of the power companies of San Miguel Corp. (SMC); the continuing threat of blackouts was highlighted; the jump in the inflation rate; and, the government’s cash operations and debt payment information were released.

Last Monday, the ERC published its decision denying the petition of SMC for a rate hike for its two power plants. See these reports in BusinessWorld: “Meralco vows to prevent termination of SMC deals” Oct. 5), “SMC studies legal options after rate hike denial” (Oct. 6), and, “SMC plans to sell power to WESM after rate-hike denial” (Oct. 7).

For me the main issue that the ERC has to grapple with is not the projected higher electricity rate hike if the SMC petition was not granted. The main issue is rule of law and sanctity of contract. If the ERC granted the SMC petition, then it would be a signal for many other generation companies to also go to the ERC and demand a rate hike. Since the rule of law mandates that the law applies equally to unequal people and companies, that no one should grant exception and favoritism, then the ERC would be obliged to also grant those new petitions. A cascade of new generation rate hikes for the consumers would be much larger than the price hike threats of SMC.

The ERC made the correct decision. Thank you, ERC, for doing your job and protecting the consumers.

Last week, Sen. Sherwin Gatchalian urged the National Grid Corp. of the Philippines (NGCP) to increase the level of standby power available to it, that it “should not neglect its duty of contracting ancillary services so that we can ensure continuous energy supply and avoid the harm caused by constant brownouts to our citizens.” See this report in BusinessWorld: “NGCP urged to raise level of power available via standby contracts” (Oct. 4).

Senator Gatchalian is correct in his position that the NGCP should have a firm contract of reserve power exclusive to it, and that the frequent threats of blackouts are ugly. See also five reports and opinions in this column last week, “Economic freedom, power reserves, and declining births” (Oct. 3).

I saw the “Transition Report: Energy Sector Accomplishments for 2016-2022” section in the report “Areas of Major Concern for the Next Administration.” On the NGCP — the only remaining private monopoly nationwide via Congressional franchise — the report pointed out the following, among others:

One, the NGCP never heeded, never complied with certain Department of Energy (DoE) directives like DC2017- 12-0016, DC2019-120018, on a.) conduct of performance assessment and audit of power transmission operations, business and assets, b.) conversion of ancillary contracts from non-firm to firm, c.) conduct of competitive selection process (CSP) for the procurement of ancillary services, and, d.) requirements in the preparation and review of the Transmission Development Plan.

Two, NGCP argues that only the ERC has regulatory jurisdiction over them. But RA 7638 of 1992 creating the DoE mandates it as “the central coordinating machinery of the government for the implementation of energy policies and programs.” So, the DoE insists that its “policy-making mandate does not conflict with ERC’s mandate… ERC’s exercise of its authority necessarily must only operate within the bounds of policies and framework set by the DoE.”

Three, the NGCP as systems operator has a national security aspect. The original National Transmission Corp. (TransCo) Supervisory Control and Data Acquisition (SCADA) of equipment in transmission substations has been replaced by a Chinese SCADA system and it can “remotely control (turn on and shut down) all power plants and substations that are connected to the grid.” That is why the DoE and TransCo, as the owner of the physical assets, insist on having a performance audit of the NGCP’s new SCADA. The State Grid Corp. of China (SGCC) is NGCP’s technical partner and four of 10 NGCP Board members are from China, and six from the Philippines.

In 2021, the Philippines had a total power generation of 106 terawatt-hours (TWH). That year, Vietnam had 245 TWH, Malaysia had 177 TWH and Thailand had 176 TWH. These three neighbors of ours have smaller populations than us but have power generation much larger than ours.

Among the reasons I believe, are: a.) the NGCP delayed the construction of new transmission lines that results in frequent congestion of existing power plants, and can the discourage building of more new plants; b.) the NGCP not getting firm and exclusive contracts of ancillary services and is relying more on getting any excess reserves in the spot market which can be thin already.

The Transition Report proposes “unbundling the transmission sector by separating the system operator (SO) in charge of grid security, and transmission network provider (TNP) in charge of development, operation and maintenance of the transmission network and assets.”

I support that. Monopolies are almost always ugly. Under the government national monopolies like PhilHealth and SSS, people in the formal sector have no choice to opt out. Under the private national monopoly NGCP, power generators and distributors also have no choice to opt out from its inefficiencies.

Last week, the Philippine Statistics Authority reported the September inflation rate at 6.9%, up from August’s 6.3%. This is indeed high but is still only a four-years high compared to Germany’s 70-years high, the Netherlands’ 51-years high, the US, Canada, and the UK’s 40-years high, and France, Italy, and Spain’s 37-years high (Table 1).

The 6.9% inflation rate was used by some bashers of the Marcos Jr. administration and its economic team’s performance. This is misplaced criticism. One, our four-years high in inflation is among the more benign levels in Asia and the world’s large economies as shown in the table. Two, no price control was imposed, especially on oil products.

Last week, the Bureau of the Treasury released the National Government’s cash operations report (COR) and outstanding public debt. In the past two years, the budget deficits were P1.4 trillion and P1.7 trillion, while net financing or borrowings were P2.5 trillion and P2.2 trillion. From January-August 2022, financing has tamed to P1.3 trillion — hopefully it will not reach P2 trillion this year.

With high borrowings come high interest payments, P429 billion in 2021 and it might reach P500 billion this year.

The public debt stock has increased from P8.22 trillion in December 2019 to P13.41 in August 2022 (Table 2). It might reach P14.0 trillion by the end of this year.

The big challenge for the administration and the economic team is how to control the spending that leads to high borrowings and high interest payments. This can be done at least three ways.

One, reduce the size of many national agencies and let the local governments, which now have more funding under the Mandanas ruling, do more work. The Department of Budget and Management’s Bureaucracy Rightsizing program should materialize.

Two, reduce if not abolish old subsidies whenever new subsidies are created. The creation of a new welfare program is implicit admission that the old welfare programs are not working.

Three, reform and reduce certain entitlements like the huge military and uniformed personnel (MUP) pension. The pension of all retired civilian personnel in 2022 is P7.14 billion but the pension of MUP is P153.13 billion or 21.4 times larger than the former.


Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.