Cebu biz community continues its advocacy for lower power cost in Cebu

MINERVA BC NEWMAN

CEBU CITY – The business sector in Cebu through the Cebu Chamber of Commerce and Industry (CCCI) sustained its advocacy for lower power cost/rates in Cebu as it found several gray areas in the cross ownership of the power players and stakeholders here that could be the major factors to the high cost of electricity in Cebu.

CCCI’s advocacy for lower power rates has gained national attention when the Energy Regulatory Commission (ERC) and Senator Sherwin Gatchalian joined the CCCI to scrutinize and probe the validity of the present power rates that Visayan Electric is charging the Cebuanos.

ERC chairperson Agnes Devanadera, in a letter to VECO on January 4, 2021 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).

Senator Gatchalian on January 16 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.

CCCI welcomed these developments. “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 to cheap power that will propel Cebu to be more competitive,” CCCI president Felix Taguiam said in press statement sent to media.

VECO’s decision to lower the cost will be its greatest legacy to Cebu, the very place where they came from, Taguiam added.

Looking at a period on the generation charge billed by distribution utilities in Luzon and Visayas in November 2020 ranges from P3.9513 per kwh to P5.0985 per kwh. VECO’s generation charge for November 2020 is P5.0985 per kwh, in turn making it the highest generation charge in the country for that period, according to an ERC press statement on December 28 last year.

CCCI prompted to conduct a survey with its more than 1,000 member-companies and the MSMEs in October 2019 which identified the high cost of utilities, electricity and power as the major cost driver in doing business in Cebu.

As part of the organization’s action agenda CCCI focused on a committee study in December last year and benchmarked the power rates of Cebu’s biggest electric distribution utility (DU) Visayan Electric Company, Inc. (VECO) and found several gray areas that could be the major factors to the high cost of electricity in Cebu.

 Results of the committee study explains CCCI’s position

The committee’s examination of the corporate ownership of the foregoing GenCos, CCCI gathered (1) that CPPC and TVI are associated firms of VECO in that Cebu Private Power Corporation (CPPC) and VECO are associated firms and VECO is a controlling stockholder of CCPC since it directly holds 71.43 percent of CPPC’s total shares.

(2) Therma Visayas, Inc. (TVI) and VECO are associated firms and both TVI and VECO are controlled by Aboitiz Power Corporation (APC) that owns 68.14 percent shares of TVI while it owns 55.25 percent of VECO.

(3) Cebu Energy Development Corporation (CEDC) is not an associated firm of VECO, but the latter indirectly owns and sits in the board. The major shareholders of CEDC are Global Formosa Power Holdings, Inc, which holds 56 percent of its total shares, and Abovant Holdings, Inc. owning 44 percent of CEDC’s shares.  Abovant, is 60 percent owned by APC and 40 percent owned by Vivant Energy Corporation.

 While APC has a controlling stake in VECO, it only has a 26.40 percent indirect ownership of CEDC and, Vivant only has 17.60 percent shares in CEDC.

According to the committee study that while VECO can argue that CEDC is legally not their associated firm, CCCI remained firm in its stand that an indirect ownership and the fact that it sits in the board of the CEDC would signify that VECO has a financial and management stake with CEDC.

The quantity of the power requirement purchased from CEDC, instead of sourcing it from Wholesale Electricity Spot Market (WESM) largely contributed to the imposition of unfair selling price to consumers, the committee study revealed.

The Chamber highlighted the issue on cross-ownership between VECO and its associated generation companies which allegedly resulted to the procurement of more than 50 percent of its total demand from associated firms engaged in 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 read.

The study also claimed that in totality, 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.

 On procurement and selection of power supply source

Another sector that the committee study result highlighted is on the inefficient procurement and selection of the power supply source.  According to CCCI that the study indicated that VECO, through its affiliate IPP, has been imposing unfair selling price on its customers and consumers and may indicate an ongoing collusion between VECO and its IPP affiliates.

Based on the published generation cost for power purchased from the different IPPs and Wholesale Electricity Spot Market (WESM), it would seem that on September of 2019, VECO purchased 19.49 percent of its supply requirement from its affiliate TVI at a generation cost of Php7.7196 per kWh; while purchasing almost the same percentage of 19.56 percent from WESM at a cheaper rate of Php5.9823 per kWh, the study revealed.

In a more in-depth investigation, CCCI bared that similar incidence can be observed in January to April and November 2020 generation rates where the lion’s share of total kWh purchased went to TVI at 37.15 percent with rate Php 5.7521 per kWh while the cheapest source, WESM with Php1.2588 per kWh only at 23.79 percent purchased.

Based on its November 2020 generation rates, VECO sourced out approximately 76.3 percent 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 P1.2588 per kWh; whereas the rate of IPPs like TVI is almost five times higher at P5.7521 per kWh.

 VECO’s great concern for volatility and unpredictability, however according to CCCI seems to be unwarranted considering that this has not affected the WESM’s consistency in almost always being cheaper than the IPP rates.

CCCI argued that while it appears that WESM has indeed been “volatile” and “unpredictable,” inasmuch 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 a CCCI briefer, it noted that in February 2020 when the WESM rate was at P4.7033 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 P4.7778 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.

VECO’s justification in not allocating or procuring more of its power from the WESM due to alleged “unpredictability and volatility of prices” is extremely not logical and practicable considering that the WESM generation rates for the year 2020 has consistently been cheaper than those charged by IPPs, CCCI briefer read.

 CCCI meets, discuss and negotiates with VECO on the issue

After all the hassles and buzzles of the power rates issue here the CCCI board of trustees reached out to official representatives of VECO in offline and formal conversations, instead of coming forward with the study results to authorities.

According to the CCCI since its first meeting with VECO in December 2019, very little to nothing has been done to address the issues and ultimately bring down the cost of power in Cebu.

Despite the agreed mechanism of an open line of communication and conduct of regular meetings so both parties can openly air and exchange inquiries and information that drives the cost of power and how to address them accordingly, the gray areas uncovered by the study continue to exist to this very day, CCCI statement said.

“We remain firm in our belief that to lower the cost of power will mean not only an atmosphere conducive to competition, but also a transparent, and a responsive power industry, distribution utility.   We will continue to seek ways to be more relevant to our members and be the catalyst of growth for Cebu’s business community,” the statement concluded.