GMA ecstatic over wrong things, says former Clinton aide

Joseph Romm, assistant secretary for energy efficiency and renewable energy during the Clinton administration, was unhappy with the remarks of GMA during her recent appearance in a forum of Clinton's Global Initiative. In his post "Why sustainable development is so damn hard, Philippine edition". he quotes the president:

Yesterday, I also announced, for the second time, an initiative where we are encouraging economic zones to be set up around the geothermal sites, because not only can geothermal fields give us power, they also give us jobs because the local governments earn royalties from the geothermal power. And they, by law, they can only use most of it for electricity. So they subsidize the electric bills of the constituents. So now we are creating economic zones there, so that businesses, like electronics, for instance, power incentive electronics firms, will locate there. So aside from the subsidized power bills from the local governments, they will also have the usual investment incentives. So these areas, which are usually far from central Manila, will now have industries, as well as power."

At first I thought she did not have the law right, as I was thinking about provisions in the energy department's regulation (1-94) which does not really impose power rate subsidies in the use of the funds generated, see the power sector reform tracker.

The Generation Company and/or energy resource developer sets aside one centavo per kilowatt-hour (P 0.01/kWh) of the total electricity sales as financial benefit of the host communities of such generation facility, where applicable. The financial benefits are given directly to the host LGU or region, especially to the community and people affected while equitable preferential benefits are being provided to the host region. The accruals of the financial benefits are allocated for the following:

1. Electrification Fund (EF);
   
2. Development and Livelihood Fund (DLF); and
   
3. Reforestation, Watershed Management, Health and/or Environment Enhancement Fund (RWMHEEF).

This is actually the pertinent provision GMA was referring to, in section 294 of the Philippine Local Government Code (RA 7160), which reads:

Development and Livelihood Projects. - The proceeds from the share of local government units pursuant to this chapter shall be appropriated by their respective sanggunian to finance local government and livelihood projects: Provided, however, That at least eighty percent (80%) of the proceeds derived from the development and utilization of hydrothermal. geothermal, and other sources of energy shall be applied solely to lower the cost of electricity in the local government unit where such a source of energy is located.

On a more positive note, the system of subsidies and cross-subsidies in the Philippine power sector has been reformed a great deal since the passage of the EPIRA. For one, most of the inter-grid (among the three major island groups Luzon, Visayas, and Mindanao) and inter-class (between industrial/commercial and residential) subsidies have been virtually eliminated. What remain are the intra-class subsidies in the residential sector with the ‘institutionalization’ of ‘lifeline’ rates supposed to be for the poorest among the poor in all the franchise areas.

The new system of lifeline rates is much better than the old one, where each franchise area had almost complete leeway over them, but still is not good enough. For instance, in the Meralco area, households consuming up to 100 kilowatt-hours a month are subsidized even though this threshold is way above what poor households consume on average (as determined by the official povety count). Historically there are two possible motivations for such lifeline rates.

The more compelling is the notion that the poorest households underconsume electricity because they don’t consider the positive effects on the children’s education and their own access to media and social connectivity have on the rest of society, coupled with unwarranted coupling because of limited possibilities for pleasure at night.

The other is with society’s desire to work toward equality of opportunities and incomes/outcomes. Most economists agree that this objective could be pursued much better through outright cash handouts rather than subsidies for specific goods.

What alarms me in the Philippine context is the ‘populist’ attempt by the current administration to work for the granting of special electricity rates to many special zones, defeating the purpose of the power sector reform act. It is in this light that GMA’s announcement must be viewed. She had no hand in the enactment of the local government code but instead of working to revise the pertinent provisions, it panders to some special interests. Note that the subsidized rates are based on a fixed total to use for subsidization and would have the effect of raising residential rates in the affected communities. In my own estimation, greater industrial activity would lead to more pollution. While the increase might not be that much in the overall inventory, it is the intent and the pandering to special interests which is worrying.