Powerless

I’m bemused by the recent uproar created by the latest round of rate hikes from Meralco. Coming as it does in the midst of continuing brownouts, some people are complaining that the situation is just unfair.

These complainers are probably fans of the late great Speaker Amang Rodriguez, who—when told that prices couldn’t go down because of the law of supply and demand—roared right back, “Then let’s repeal the law of supply and demand!”

Supply shortages and higher prices naturally go hand in hand. That’s textbook economics. If we buy, say, mangoes in December, we expect them to be more expensive than in summer. And yet variable prices—something we take for granted in the supermarket—we complain about in our utility bills, as if electric power should behave differently from any other commodity.

It’s clear from news reports that the brownouts in Metro Manila are being caused by breakdowns in this or that power plant across the grid that supplies Luzon’s power needs. This in itself is disappointing, since the plants are now under private owners, from whom we expected better than their former government owners. We can only hope that government was able to extract appropriate performance warranties when those plants were turned over.

Obviously, those breakdowns were not expected when they happened, and so the spending required to fix those problems was not included in original budgets This means the funds required for unplanned maintenance spending or replacement capital expenditure will have to come from revenues that are over and above budget too—such as increasing the generation charges from power plants to distributors like Meralco, who in turn pass these on to consumers.

In the end, power rates to consumers are the final product of freely operating markets in an unbundled power sector. It is a market, moreover—since the introduction of the wholesale spot market or WESM—that is a lot more transparent as well.

Short supply with higher prices may not seem fair, but then fairness is not something life offers us anyway. We tell this to our own children whenever they whine, after being punished for something, “That’s not fair!” Freedom and transparency ought to be more than enough for us adults.

Admittedly, there are certain behaviors that interfere with market freedom, like artificial supply shortages (e.g. rice hoarding) or price collusion. These lead to unfair outcomes that can and should be regulated away. But in the case of the Meralco rate hikes, the approval issued by ERC means there was no finding by the regulator of such prohibited behavior.

The more interesting implication of the Meralco rate hikes is the indicated need to build substantially more power generation capacity. This will require much forethought and preparation. Even mango harvests require years for additional trees to be planted, nurtured, flower and fruit.

Building more capacity against secular increases in power demand will be a complicated exercise. No less than former president Estrada has accused the Department of Energy of incompetence in the matter—although when asked for his solution, all he could suggest was to convene a group of wise men to come up with solutions. It seems his beef was really with his old nemesis, the former secretary of energy.

The 64-peso question is whether we should continue to rely for new baseload capacity mainly on carbon based fuels—oil, coal, natural gas. Right now these traditional resources are still plentiful, but their pricing is volatile, global supply unpredictable, and the link from our carbon footprint to global warming is now accepted science.

Renewable energy is fashionable and environmentally correct, but not yet a true long-term alternative. Geothermal sources—where the Philippines is second only to the US worldwide—are still not nearly as abundant as they need to be for baseload capacity. The other sexy alternatives—biomass, wind, sea and sun—are still technological infants. They still need to suckle the baby’s milk of expensive government subsidies provided by our recently enacted laws on alternative fuel sources.

This leaves us with just the nuclear energy option. To my mind, this is the only energy source that’s truly limitless, environmentally clean, commercially efficient, the beneficiary of thirty years of largely unheralded advances in safety technology ever since the well publicized near-meltdowns in Harrisburg and Chernobyl decades ago. We can only wish more power to the likes of Rep. Mark Cojuangco in their uphill pro-nuke campaign.

Truth be told, we missed the boat on nuclear a long time ago—specifically, during the term of the democracy president herself, when she mothballed not just the Bataan plant but anything else to do with nuclear technology.

I’ve been told that the economic growth we lost because of the resulting power brownouts in the early nineties could have funded ten nuclear plants, erasing any worries about power supply for generations of Filipinos to come.

This is what can happen when a candidate on a crusade refuses to move to the center in governance once he or she is elected: The country ends up suffering the consequences of excessively good intentions, the stuff with which the proverbial road to Hell is paved.

Another timely reminder indeed for the democracy president’s only son today, if it is to him that the problem of another power crisis is bequeathed, which he can then choose to make or unmake. –Gary Olivar, Manila Standard Today

gbolivar1952@gmail.com