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.
