Can’t fool around with power deregulation - DEMAND AND SUPPLY

Towards the end of last week, California was on the verge of declaring a stage 3 power alert calling for rolling blackouts all over the state. A storm dumped heavy rain and snow up and down the state, hampering a key nuclear power plant and compounding the already difficult California’s power supply situation.

California is suffering from a peculiar situation in their power sector. The price of electricity is soaring, yet the big electric utilities are in danger of turning belly up. Who’s to blame?

The finger points to deregulation. California’s politicians are like politicians everywhere, including here. They want to follow the trendy move towards a deregulated business environment. But afraid of what this might do to power rates, they deregulated halfway. They deregulated the wholesale part of the business and lifted the caps on the rates power producers can charge distributors. But they retained control on retail prices. That’s stupid, but that fact isn’t apparent to politicians.

They thought they were protecting consumers this way. And to add more feathers in their populist hat, they placed constraints on the big bad power utility company from buying long-term contracts. These are normally designed to hedge against sudden price movement. They had the mistaken notion that wholesale prices will have no way to go but down in a free market arena.

Perhaps, they may have been right about the downward trend of wholesale prices in a free market, except for one thing. They also discouraged the building of new power plants through stringent environmental regulations. California’s red hot dot com economy is extremely power hungry. It didn’t take long for demand to quickly outstrip supply.

Without long term supply contracts, power distributors had no choice but to buy power in the spot market, which had already gone through the roof. To add to the misery, they could not pass on the added purchased power cost to the consumer, something that threatened their financial viability. In other words, California’s halfway deregulation came up against the unrepealable law of supply and demand.

In a sense that is what some senators seem to be doing in the much debated and much delayed power deregulation bill of our own. One senator, who should know better, even wants to stop local groups already in the power business, from putting new plant capacities or expanding their facilities. They are probably mistakenly thinking that there are enough local and foreign groups who will always be interested in getting into the business.

What happens if the foreign investors don’t come? What if the other locals can’t muster the kind of money needed to make a difference in the business? Assuming our economy will grow after Erap, who will provide for the requirements of the country? A shortage of power supply will lead not only to blackouts but increased rates as well, something California experienced.

Our politicians should remember that tinkering with the law of supply and demand always gives rise to headaches of crisis proportions. The other law to remember is that there is no such thing as a free lunch. There is a heavy price to pay for keeping the final rates to consumers unreasonably below what is necessary to bring that power into the outlets on our walls.

Come to think of it, maybe our politicians do it on purpose. They profit from crisis situations. Because of the emergency we give them special powers such as the one granted FVR that has resulted in onerous power supply contracts that we are still paying for now. Excuse me for being suspicious, but such generous audit-free contracts must be presumed to have provisions that will make the bureaucrats with approval authority extremely happy.

Wake up, Mr. Ombudsman

Now that we have a public confession, plastered in newspaper headlines, from Mr. Dante Tan that he actually bribed a government official for favors related to the BW scandal, how come we have not heard a pip from our useless Ombudsman that he is prosecuting both of them for corruption?

Wake up, Mr. Ombudsman. No more investigation in the light of the public confession. I guess our anti-graft chief is one other official who should be impeached for incompetence or for seemingly abandoning his official duties through this blatant inaction. His appointment is another unfortunate legacy of FVR. Don’t blame Erap for him.

Ugly Manila

Reader Rene Banzon, who works for a foreign based airline company, sent me an e-mail with the observation that Metro Manila has become progressively ugly through the years. Actually this is something I have been saying for a while.

"Working for an airline allows me to see so many parts of the world," Rene wrote. "I have been to all the major cities in Asia and as others have seen, our country, specially the main cities lag so far behind in terms of beauty in landscaping, city-planning and urban development." He is worried that with the election season just around the corner, all those posters and political grafitti are bound to make things worse.

Rene is right. After returning from abroad, we Filipinos often feel a severe sense of shame or embarrassment at the state of our airport and general surroundings. We feel helpless over our government’s seeming lack of desire to present our best foot forward, so to speak.

Take that airport route in Baclaran that goes along the banks of the dirtiest estero imaginable and squatter shanties in plain view. Most of our visitors pass through this route daily. And because the traffic there is slow and heavy, you can be sure everyone gets a pretty good view and smell of our country.

Instead of that ill-advised multi-million peso Luneta boardwalk, the Philippine Tourism Authority should have spent its money to augment available local and national government funds to clean up the drive to the airport. I realize that it is unfortunate our airport is located in one of our dirtiest cities in Metro Manila. But if only to prevent our guests from thinking that Filipinos generally have no sense of hygiene and live like pigs, cleaning up the road from the airport to the business districts of Manila and Makati should have been a priority long ago.

As for the election posters, I was in Thailand just as the campaign season for their recently concluded national election was reaching its climactic end. I noticed they did not paste campaign materials on walls. They placed their campaign materials on independent structures along the highways and roads. There seems to be an organized effort to keep the countryside clean despite the electoral exercise.

On the other hand, if we can only keep our elections clean, that should be good enough for now. One step at a time.

Coordination

Ever wonder why some guys are so good at video games? Dr. Ernie Espiritu revealed their secret in his latest e-mail to this column.

"It’s the eye-hand coordination developed after all those years of reading Playboy."

(Boo Chanco’s e-mail address is [email protected])