Use of California as model for RP’s power reform strategy questioned

The Asian Development Bank (ADB) is asking the Philippine government to conduct a thorough review of its plan to use the experience of California as its model in reforming the country’s power sector.

"The failure in California has borne out a number of important lessons, which we plan to share with our developing member countries," ADB director of Infrastructure, Energy and Financial Sectors Department (East) Vladimir Bohun said.

According to Bohun, there is a need to study carefully the reforms to be used in the power industry since each country is faced with different problems and situations. "There are significant differences between developed and developing countries," Bohun said, as if referring to the Philippines using California’s power restructuring scheme as its model.

Bohun pointed out that while restructuring tends to reduce electricity prices in the former, it may result in price increases in some developing countries, because of the removal of previous subsidies. "The related social impact on the poor needs to be mitigated," he said.

The ADB official also noted that power systems in some developing countries are so small and immature that consolidation is needed before unbundling.

He also said the legal and regulatory framework needs to be put in place. "A well structured gradual process extending over five to 10 years is therefore required," he added.

Bohun took note of some factors that led to the failure of the massive blackouts and excessive electricity prices being experienced in California.

Among these factors are: an underestimation of demand growth (two percent expected while in reality almost six percent economic growth in the last five years fueled a 4-5 percent per annum increase in electricity consumption); a very stringent environmental and siting criteria coupled with a strong not-in-my backyard syndrome, which has prevented generating capacity additions like there is no new power plant in the San Francisco Bay area since 1972.

Another factor that brought the failure in the California’s power system is the lack of incentives for the provision of reserve capacity.

Another reason for the failure, Bohun said, is that there was a total deregulation of the wholesale market to the point of allowing any longer-term power sale contracts outside the pool.

He said there was also capping of retail prices, resulting in the lack of price signals that would induce energy conservation at the time of shortages.

With this, Bohun has reiterated ADB’s commitment to support the Philippine government’s plan to restructure and privatize the country’s electric power industry.

"Such action is in line with ADB’s energy sector policy, and is seen as a means of overcoming many of the critical issues presently facing the sector," he said.

Bohun said ADB’s support to the power sector in the Philippines is not limited to restructuring and privatization.

"Our forward program includes high-voltage transmission interconnection and reinforcement, rural electrification, sub-transmission upgrading, and the promotion of renewable energy options in rural areas," he said.