IMAY write about Maharlika next week as frankly I want to read the approved bill more carefully rather than write a rushed article on it.

Boo Chanco wrote a column “Power rates” on May 26 in the Philippine Star basically bewailing moves to allow the government back into power generation and how that would be a disaster and telling us what would happen if we allowed a resurrected National Power Corp. or some mutant version to get back into generation. In fairness he also wrote about how leaving it to the private sector has not been a great success either from the point of view of cost or reliability. He also mentions how he views the secondary price gap as a dampener of returns hindering additional investment. He ends with when will we learn from the mistakes of the past. I am not going to repeat what he wrote like a clipping service so please look it up should you wish to.

I agree with some of his prognosis and I find it a change from the normal leave-itto-the-private-sector or government-is-thesolution platitudes of most commentators. They trot it out on rote as dogma rather than think about it and whether it is the solution. Ideology rather than ideas. Both are so unimaginative, dated and wrong as past experience has shown. Like guess what experience? Power, where the government provided all the power generation with Napocor under the first President Marcos and left it to the private sector as we have now with our mania for privatizing everything, whether appropriate or not. Both were not unqualified successes and we are still dealing with the legacy of the former and the limitations of the latter.

Causes and solutions

Alas, what I would like to start the discussion on what should be done? Hopefully by looking at causes and seeking solutions, rather than symptoms. We first need to have some understanding of the power industry and how we and our power industry got here. Also, beyond what I will attempt to cover, please do some studying and reading rather than expect to be coddled into understanding.

So, what can we do as while it is bad that we have the most expensive power in Southeast Asia, it is horrible that it is also considered short of reserves and not fully reliable? Again, let us look at the causes (why we have expensive and unreliable power and networks) versus symptoms which are the expensive power with less than stellar reliability. While I do not claim to be a power industry expert, as an investment banker, I was the head of one of the lead underwriters of the IPO of Meralco and was part of the team that led the privatization or worked with power companies in the Philippines, Thailand and Hong Kong. Firms I was a senior banker with or was CEO for Asia of had broad pan-Asian experience. I can claim at least some experience primarily from the financial side and from that limited perspective, observed some issues.

Generation

First, one must understand the power industry has three major parts — generation, transmission and distribution. Generation is the production of power and that can be divided into base loads plants (they are the most expensive to build but the cheapest to run so generally are supposed to run nonstop except for maintenance and hopefully not too often repair periods); peaking plants (run when demand is high or there is a spike) — these plants are the cheapest and fastest to build but the most expensive to run, hence their designation as peaking plants; and ancillary power which is defined by Wikipedia as, “Ancillary services are the services necessary to support the transmission of electric power from generators to consumers given the obligations of control areas and transmission utilities within those control areas to maintain reliable operations of the interconnected transmission system.” This includes voltage control, system restart power and similar items. Please look it up if you want to understand this smallest but very critical aspect. Since the passage of the Electric Power Industry Reform Act of 2001 (Epira), generation in the Philippines has been with the private sector.

Transmission

After generation, there is transmission, here provided by National Grid Corp. of the Philippines (NGCP) which takes the power from the power generators and sends it to the distributors like Meralco and the VECO for Cebu and Davao Power and Light, plus the many distribution companies and coops. This is complex work as you take high levels of power at very high voltage. It is often about 14,000 volts and so that it is efficiently transmitted it can be stepped up to 44,000 -750,000 volts. In the Philippines, power being supplied from the generators is usually stepped up to about 230,000 volts. Higher voltage when transmitting power usually means lower transmission losses. In areas where the power travels long distances like in China, power is often stepped up to 750,000. Given the shorter distances here, 230,000 volts is seen as appropriate. The transmission company then hands it off to the distribution company who connects to your home, office or establishment. As the power moves from the generator to transmission then from them to the distributor, it is stepped down to what goes to the transformer. If a residence in the Philippines is the last stage, the transformer outside your home or building brings it down to the final 220-240 volts one uses.

Distribution

The distributor like Meralco connects your home or establishment with power. There are some larger users of power who can and do have direct connections to generators and pay what is called a “wheeling charge” which is the fee to directly send power from the generator to a large end-user that is paid to the transmission company for the use of the lines transmitting the power.

Think of generation as the creation of power, transmission as the very critical and complex wholesaler and distribution as the retailer who has to connect and maintain to all in its service area and you or your employer as the user and customer.

A lot of problems with high-cost power come from generation, with the focal point and biggest factor being the legacy of the Bataan Nuclear Power Plant and its sordid history and aftermath which is frankly nearly as shocking for its ineptness as the alleged corruption that accompanied its construction and pricing. Transmission is very important and has become even more critical now that everyone is moving to renewable energy which requires major changes to the model of power generation and transmission unimaginable even a decade ago. It is challenging even more progressive neighbors like Vietnam which has to manage very high growth in power demand with a very different parameter on where and how this additional power will be generated. More on this later. Distribution is also not exactly simple given the need to increase coverage and reliability to the customer.

Do you have a headache already? If yes, then at least you appreciate that power is a complex and multifaceted issue that cannot be reduced to sloganeering and populism. This is not an easy issue to deal with but without affordable and reliable power we are doomed to continue being what we are. A manufacturing wasteland who will consistently underperform its neighbors who have cheaper and more reliable power. Why? In heavy manufacturing power is often 50 percent of operating cost. If your power is 20-40 percent above neighbors, how can one compete for manufacturing? It is like you are starting a basketball game with the other side up 20 or more.

I will continue developing this in further articles but it may be interrupted by other topics and frankly availability within my schedule to write about it with the proper information to my readers. I want to avoid dumbing it down or just cutting and pasting so if this topic is of interest to you, I ask for your patience and indulgence.