Why private utilities have lower rates

By Butch Bacaoco

A comparison of power rates among electric cooperatives and private distribution utilities shows that private utilities have significantly lower power rates compared to electric cooperatives.

In Negros, Panay and Guimaras Islands, 13 electric utilities distribute power to consumers. Five are in Negros Island (two in Oriental and three in Occidental), seven in Panay and one in Guimaras.  

The three utilities in Negros Occidental are Negros Power in the central part of the province, Noneco in the north and Noceco in the south, while the two in the Oriental side are Noreco 1 & 2. The seven utilities in Panay Island are MORE Power for Iloilo City, Ileco 1, 2 & 3 for Iloilo Province, Anteco for Antique, Akelco for Aklan and Capelco for Capiz, while the one in Guimaras is Guimelco.

MORE Power, a private distribution utility which took over from Panay Electric Company (PECO) in 2020, has constantly reported the lowest power rate in the region since it started operation five years ago. This month of May, MORE Power’s rate is P11.13/kWh, which is much lower than the highest rate for May reported in Noneco at P13.28/kWh. That’s a huge difference of more than P2.00/kWh!

Negros Power, another private distribution utility which entered recently into a partnership with Ceneco, charges P11.69/kWh, the lowest rate among the five utilities in Negros Island and the third lowest rate among 13 utilities in the three islands.

Aside from Negros Power’s sister company MORE Power, only Ileco 3 with its rate of P11.27/kWh registered a lower power rate than Negros Power.

For a clearer picture, here are the rates for all 13 utilities in the three islands:

How come MORE Power and Negros Power, the only two distribution utilities with private investments in Negros, Panay and Guimaras Islands, have lower power rates than most electric cooperatives in the three islands?

“Electricity rates are driven by multiple factors — market conditions, the utility’s contracted supply portfolio, and its internal purchasing strategies. Utilities that manage their supply sourcing well and remain active in monitoring market trends are better positioned to offer consumers lower rates,” according to Independent Electricity Market Operator of the Philippines (IEMOP) President and CEO Atty. Richard Nethercott.

Roel Castro, President and CEO of MORE Power and Negros Power, explained that their companies’ consistently low rates are the result of strategic power contracting through a Competitive Selection Process (CSP), coupled with diligent and real-time monitoring of price movements in the Wholesale Electricity Spot Market (WESM).

“By actively participating in market opportunities and negotiating long-term power supply agreements at competitive rates, we’re able to keep costs down for our consumers without compromising service reliability,” Castro added.

Simply put, the generation charge, or the cost of power purchased by the distribution utility, comprises 60-65% of the consumer’s electric bill. The lower the cost of power purchased, the lower the generation charge and the lower the consumer’s electric bill.

The distribution utility’s power sourcing and procurement strategy translates to lower and more stable power rates for consumers. And this strategy depends mostly on the mindset of the people making the decisions and running the operations of the distribution utility.

In the case of electric cooperatives (EC), the people making and implementing the decisions are not personally invested in the EC. In other words, they won’t lose money if the ECs lose money due to their lousy decisions and operations. They have no personal stake in the ECs, other than the ECs being a source of their primary income or side hustle.

For private distribution utilities, the investors pay close attention to the policy decisions and operations of their company to ensure that it runs properly and it delivers satisfactorily the expected service under its franchise, so that the private distribution utility can generate the allowable return on their investments.

Such mindset is lacking, or even totally absent, in most electric cooperatives.