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Who will benefit from a national franchise for solar power? (PART 1)

Various players big and small in the country’s electric power industry are now engaged in a heated debate over how to view a proposal in the House of Representatives granting a national franchise to a solar company owned by Leandro Leviste, son of Senator Loren Legarda, chairperson of the Senate House Committee on Finance.

House Bill (HB) 8179, if and when enacted into law, will grant a nationwide franchise to Leviste’s “Solar Para Sa Bayan” (SPSB), a sister company of Solar Philippines, also founded and led by Leviste. Solar Phil. has   been making itself known as a champion of clean and affordable solar power in the Philippines.

Leviste himself has been saying that the goal of Solar Phil/SPSB is to bring cheap, clean, reliable electricity to improve the lives of Filipinos. In media interviews, he has said that the company is bringing electricity 24/7 to areas in Mindoro, Palawan, Masbate, Cagayan and Aurora, and that by the end of 2018, it hopes to have served 500,000 Filipinos in towns that have been underserved or unserved.

The necessity to improve power services is very urgent in the Philippines, where electricity rates at P8.96 per kWh are the highest in Asia (second to Japan where electricity costs P12.31 per kWh). As of December 2017, the “unserved” households or those with no electricity stood at over 2.399 million. This is supposedly why HB 8179 proponents led by Bohol 3rd District Rep. Arthur Yap are pushing for the bill’s immediate approval.

NOT CONVINCED

While SPSB is being hailed by various quarters as a trailblazing company that seeks to democratize the power industry, not everyone is convinced.

Groups such as the Philippine Solar and Storage Energy Alliance Inc. (PSSEA), the Renewable Energy Association of the Philippines (REAP), the Confederation of Solar Developers of the Philippines (CSDP), and the Organization of Socialized and Economic Housing Developers (OSEHD) criticized the move to give SPSB a nationwide franchise.

These groups cited as reasons: the alleged questionable process of deliberations over the proposal, SPSB’s “worthiness” to receive such a franchise, including the more severe implications on the power industry should the company secure the authority and incentives the franchise will give it.

Critics of the bill asserted that HB 8197 gave special treatment to SPSB. The proposed franchise allows SPSB to construct, install, operate and maintain distributable power technologies (DPTs) and minigrid systems (MGs). While not unusual, critics said they are against the provision in the bill that allows SPSB to also engage in ancillary businesses and any related businesses, and to operate in areas where there are already distribution utilities (DUs) and electric cooperatives (ECs) operating within their own respective franchises.

UNFAIR ADVANTAGE?

There is also the issue of unfair advantage, and the large potential for abuse as SPSG.

Critics argue that, if given the franchise as detailed in the bill, SPSG will no longer have to jump through the legally-imposed hoops and rings to get approval for any aspect of its operations—including its pricing mechanism.

As for any failures it will commit, there will be no repercussions: the franchise does not impose any hard obligation on SPSB to actually serve and energize any areas. Only non-submission of reports is penalized and with a P500/day fine for non-compliance.

Most people think that franchises are only licenses that businesses need to get so they can legally operate. In the case of companies that sell or provide services that are urgently needed by the public and critical to the economy, franchises are imbued with public good.

PRIVILEGES VS. OBLIGATIONS

In Jaworski v. Philippine Amusement and Gaming Corp., G.R. No. 144463, (January 14, 2004), a legislative franchise is defined as a privilege of public concern that cannot be exercised at will and pleasure, but should be reserved for public control and administration, either by the government directly, or by public agents, under such conditions and regulations as the government may impose on them in the interest of the public.

The manner of granting the franchise, to whom it may be granted, the mode of conducting the business, the charter and the quality of the service to be rendered and the duty of the grantee to the public in exercising the franchise are almost always defined in clear and unequivocal language (emphasis added).

In Lim v. Pacquing, G.R. Nos. 115044 & 117263, January 27, 1995, 310 PHIL 722-832, it’s stated that in a franchise, certain obligations are assumed by the grantee which make up the valuable consideration for the contract.

In franchise proposal for SPSB, no obligations or responsibilities are being assigned to it.

“The explanatory notes of the original bills that were consolidated into HB 8179 declare the company’s aim to provide power to unserved or underserved areas. That was clearly established. The bill itself, however, doesn’t have a single provision that obligates SPSB to ensure full electrification for all or a substantial portion of these same localities—it’s the SPSB’s prerogative to act or not on its declared mission. SPSB is getting privileges without having to meet any obligations when it comes to quality of service, conduct of business, and responsibility to achieve missionary electrification targets, and other important considerations,”   said the PSSEA.

UNECESSARY

The PSSEA has also observed that the proposal largely appears to let SPSB to engage in all parts of the electric power industry value chain, from generation, transmission, distribution to supply, with no limitation as to the size of the system it can install or the service area it can cover. The proposed franchise does not even limit SPSB from putting up generation facilities using technologies other than solar such as diesel or coal.

The PSEA said that the bill is unnecessary, and argued that it encourages monopoly behavior that goes against the workings of an active market and competitive power sector environment in the power sector.

“This – among many other reasons — is what makes the proposed franchise for SPSB unacceptable and illegal. The proponents want to establish a monopoly in the power industry, which will violate the law, the welfare of consumers, and the rights of all other players,” PSEA claimed.

CRITICISMS DISMISSED

The nitty gritty legal arguments aside, it’s true that ordinary consumers are more likely to focus on what SPSB has to offer and if it can make good on its claims to sell cheaper electricity.

Leviste himself has dismissed criticisms that a national franchise for SPSB is a move to help it on its agenda to monopolize the industry. He argued and continues to insist in media interviews that the franchise and its parameters as stated in the bill are all for the good of the country and consumers.

As quoted in a national daily, Leviste said, “The text of the bill speaks for itself: the franchise is non-exclusive, encourages others to apply for the same, and aims to end the existing monopolies on electricity, because we believe consumers deserve new choices for better service at lower cost. It also incurs zero cost to government, and eliminates the need for billions in subsidies to existing utilities.”

Through Solar Philippines, SPSB’s sister company, Leviste has made claims that they can provide their customers in far-flung and unserved communities affordable and reliable solar-generated electricity.

During a hearing in Congress, he cited examples of Solar’s successful electrification projects, specifically its two projects in Paluan and Cabra Island in Lubang, Mindoro Occidental.

In March 2017, Solar inaugurated its solar power plant in Paluan, Occidental Mindoro. Widely covered by the media, the inauguration announced the plant will ensure “no more brownouts” and “cheaper electricity” for the island.

The management claimed these promises were realizable because its solar farm was utilizing two megawatts (MW) of solar panels, two MW hour of batteries, and two MW of diesel backup. The system, Solar Phil said, is capable of supplying reliable power 24 hours a day, 365 days a year, at 50 percent less than the full cost of the local electric cooperative OMECO or the Occidental Mindoro Electric Cooperative.

ONE YEAR LATER

Over a year after the inauguration, the situation on the ground is very, very different. This, at least, is the assertion of the Philippine Rural Electric Cooperatives Association (Philreca) who said they sent a team to Sitio Tikian, Sitio Igsuzu, and Sitio Absukot of Brgy. Tubili in Paluan in October after hearing of complaints from residents regarding the service Solar was providing them.

Paul Medina of Philreca said that the residents complained about continuous brownouts throughout the week, adding that residents also claimed the daily power outages lasted two to three hours, and when there was power, it often went on and off.

The outages usually took place at midnight or during the afternoons, and residents have already gotten used to them, Medina said.

Various residents interviewed by Philreca said that their appliances were damaged because of the frequent outages, and they had to buy new ones. Others were forced to install circuit breakers, and lived in constant fear of appliances exploding because of power surges.

Several residents reported that when they made their concerns known to Solar Phil representatives, the latter said that there were problems with the battery and that there was not enough electricity supply to power all kinds of appliances.

The costs of electricity have not gone down, either. When Solar Phil first began operating in Paluan, it convinced residents to sign up by offering a rate of P2.34 kWh. Eventually and soon after the solar farm became operational, the rates were amended and increased to half of what the other electric cooperatives offered.

In its interviews with residents and Solar Phil customers in Paluan, however, Philreca discovered that the rates were actually higher.

“During our benchmarking activities, we found that the rates SPSB charged were not half of what cooperatives charge at P10.52/kWh. Based on reports from the households we visited, we determined that SPSB charges an average of P10.97/ kWh rate. This was nowhere near what the company has promised to charge,” Medina said. He also pointed out that the company charges anywhere between P10.40 per kWh, P11.73 kWh, and P15.31 per kWh.

POSITION PAPER

In the position paper on HB 8179 it distributed to members of congress on November 12, Philreca alleged that Solar Phil is using the existing distribution system of the OMECO, and that there are even households in Paluan that don’t have electricity despite the existing distribution facilities of OMECO to distribute the electricity.

The reason, Philreca alleged, is that Solar Phil hasn’t built additional secondary lines to reach all the consumers in the area. This, Philreca asserted, reflects Solar Phil and also SPSB’s lack of preparation to implement a complete electrification process.

In the meantime, residents of Paluan say that the area where Solar Phil’s solar farm is installed is prone to flooding. The presence of water beneath the solar panel is dangerous especially for electrical operations.

As for the situation in Cabra Island, Philreca claimed that Solar Phil’s project there also faced problems.

At the end of 2017, Solar Phil. installed a 10kW Solar Electrification in Cabra within the franchise area of Lubang Electric Power Cooperative Inc. (LUBELCO). The installed facilities were meant to support initially seven households.

Feedback on the project, which Philreca said it gathered from a cooperative alliance, indicated that residents complained about how Solar Phil’s system prevented them from using their electric irons and refrigerators.

This, it turned out, was because the solar installation was not fit to handle the power requirements of the appliances, Philreca said.

Philreca has also presented photos showing how Solar Phil. used chemically untreated bamboo poles as electric poles. This was in violation of safety provisions stipulated in the Philippine Electrical Code (PEC). The copper wires that hung on the poles were much heavier, and did not hang at the prescribed height: 18ft for road crossing and 15ft for pedestrian crossings.

Since May 2018, Solar Phil’s solar installation in Cabra Island has ceased operations.

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