I make a proposition below that the key (no, not everything; but the key) to lower power costs in the Philippines, under the EPIRA framework, rests squarely on the backs of the Distribution Utilities (Disco’s) and that, mostly, they are failing us in this endeavor. This failure will, perversely in their eyes, result in yet even more regulation of the Disco’s.
In an article for the Washington University Law Review, Jonathan Macey makes some fascinating observations relative to Enron and “the relative efficacy of mandatory versus enabling rules”:
The Enron collapse demonstrates, however, that the “sunlight” that disclosure brings about is useful only if market mechanisms are in place that are capable of observing and interpreting the information that the “sunlight” brings into view. And this is true regardless of whether disclosures are made voluntarily or subject to a mandatory disclosure regime.
For capital markets to function efficiently, more than the mere transmission/supply of information is required. The “demand-side” of the market must also function in order for securities prices to be priced properly.
There must also be in place an adequate infrastructure to receive, analyze, and interpret the information that is disclosed so that such information
The take-away here is: It takes two to tango.
Under the Marcos regime and the state-owned utility structure, lower power costs could be “pushed” onto the Disco’s. This is no pas de deux – it’s a Flamenco and there’s only one person on stage. That’s OK; that’s the way state controlled utilities are supposed work. Under Estsrada, as we were transitioning to a new market structure but not quite there, the worst of all worlds happened – he “pushed” lower costs onto the Disco’s but drove financial status of Napocor – an entity that was expected to be privatized – into a turmoil from which we have not yet extracted ourselves (not all the blame goes to Estrada).
EPIRA, however, enables a “pull” paradigm. It enables an unregulated power production sector. But the unregulated power production sector, although necessary, is not sufficient; it will not in and of itself drive prices down. It is incumbent upon the buyers – the Discos’ – to drive competition for power supply through their procurement practices. They need to set up situations where the suppliers will indeed compete to serve – and therefore drive down prices.
There is practically no public evidence that that is happening. The ERC rules for competitive procurement are a sham – it’s an open secret in the industry. And if the utilities themselves don’t step up the bar and fix that themselves then either it won’t get fixed or it’ll eventually be forced upon them in some manner.
Where we are …
… and where we want to be.
Most of the investor-owned utilities (IOUs) are perfectly capable of fixing this. The electric cooperatives are too, though they are battling different internal demons than the IOUs are. In both cases, it’s a matter of stepping up to the plate, saying “let’s do it” and working to eliminate the barriers. Public whining about “power costs are 70% of my costs and they’re pass-through adjustments regulated by ERC” doesn’t cut it.
The palace is pushing for more EPIRA reforms. But Malcom Gladwell, a journalist and author, in his elaboration on the Macey article’s concept that the demand side (for information) has to work in order for the supply side (disclosure) to have any real effect, notes:
The Enron scandal is an example of “receiver failure” as well as “transmitter failure”: that is, that it wasn’t just the case that the company sent misleading signals. It was also the case that those who were supposed to be listening to and interpreting those signals didn’t do their job.
The Disco’s are the “receiver.” Providing more impetus to the “transmitter side” of deregulated markets doesn’t fix the “demand side” lack of competitive procurement practices. The Disco’s have to do their job.