‘At Seventeen’: On the anniversary of Epira, have we learned the truth about the power sector?

By Lenie Lectura – June 23, 2018
from Business Mirror

SEVENTEEN years since the Electric Power Industry Reform Act (Epira) of 2001, or Republic Act 9136, was enacted into law, have major reforms indeed fostered competition among power players? Industry stakeholders think so, and are trotting out the reasons for saying so.

“Epira is working. Just look at all the investments in power and the competitive rates in retail and WESM [Wholesale Electricity Spot Market],” said AC Energy President Eric Francia in a recent text message to the BusinessMirror.

Epira, most energy sector experts agree, has liberalized the Philippines’s electricity sector with at least three important provisions: deregulation and demonopolization of the power-generation sector; creation of the WESM, and liberalization and demonopolization of electricity distribution via the Retail Competition and Open Access.

More important, investments in the power sector started pouring in. More power-generating firms mean more power projects, thereby boosting the country’s power supply, ultimately benefiting consumers.

“Many of us still remember the days that our country suffered severe power shortages that not only hampered our lifestyles, but created havoc on our economy. Today, we have certainly come a long way from that situation and the need for the government to step in to ensure adequate power supply,” Francia pointed out.

New, efficient and state-of-the-art plants, like Pagbilao 3, are being built by the private sector without government funding, without government guarantees and without government take-or-pay obligations. We believe this project is a testament that Epira is working,” observed Aboitiz Power Corp. President Antonio Moraza.

Aboitiz and TeaM Energy Corp. have partnered to invest close to $1 billion for a 420-megawatt (MW) Pagbilao 3 base-load in Pagbilao, Quezon Province.

The Philippine power industry has been transformed from a monopolized, politicized and heavily subsidized structure, to one that is competitive and bears the true cost of power, allowing the government to channel resources to other social services.

“This competitive structure was envisioned to attract investment, drive down power costs and empower the end user.

“I dare say that it is only the power sector that is building capacity in our country’s infrastructure requirements ahead of actual
demand, without any need of government’s funds or financial support,” added Moraza.

Most privatization projects ‘successful’

In the view of Semirara Chief Executive Officer Isidro Consunji, the privatization of most state-owned power-generation assets has been successful.

“Offhand, I think privatization of the power-generation sector is successful,” he said in a text message.

Prior to Epira, the National Power Corp. owned the country’s generating capacity before privatization. At that time, these assets left a heavy dent on state coffers because of the high costs of maintaining them.

Emmanuel de Dios, GE Philippines CEO and formerly Department of Energy (DOE) undersecretary, also noted a lot of power projects that came on stream for the past few years. “A lot of capacity still coming on stream. Indeed, we have come a long way. Not bad at all, because it takes years to put to bed a power project.”

Strong investor appetite

The Manila Electric Co. (Meralco), meanwhile, hopes that the strong investor appetite would continue in the many years to come.

Joe Zaldarriaga, the utility firm’s spokesman, said Epira has encouraged competition, especially in the power-generation business. The law, he said, also increased efficiencies in distribution, as evidenced by all-time low system-loss levels. “If we look at it, further current retail rates approximate that of around eight years back, which, perhaps, shows that the market is working as it is,” he said.

Amid the success of Epira, AC Energy noted some delays in implementing the law. “What’s needed is the full implementation of Epira, especially open access at the household level, so that all consumers can benefit from open competition,” added Francia.

Challenge: Faster implementation

ENERGY Secretary Alfonso G. Cusi gave assurances that the agency is working really hard on how to speed up the implementation.

“Indeed, supply has improved. Price has gone down. There are more players so the price of electricity is becoming more competitive. In general, the goal is being achieved, but there are some delays,” Cusi noted.

One of the delays they were referring to is the implementation of the Retail Competition and Open Access (RCOA), a landmark policy meant to give consumers the choice to choose their own supplier of electricity to encourage competition in the generation and supply sector.

“Epira is incomplete without RCOA,” DOE Undersecretary Felix William Fuentebella said. He could not stress enough how vital this policy is in order for consumers to fully appreciate the benefits of the law.

It may be recalled that the Supreme Court (SC) issued a temporary restraining order (TRO) against a DOE circular and Energy Regulatory Commission (ERC) resolutions days before some of the RCOA rules were supposed to take effect.

In particular, power users consuming an average of at 1 MW per month are required to source power from a licensed retail electricity supplier. At present, the majority of power consumers are being supplied by Meralco, the country’s largest distribution utility firm.

Pricing debate continues– Gatchalian

Senate Committee on Energy Chairman Sherwin T. Gatchalian, meanwhile, noted that there are debates going on whether electricity prices in the country have indeed gone down to a level that most Filipinos can afford.

“Epira is supposed to make the market efficient, among others. When it comes to spot market prices, the lowering of cost has been achieved. But that is only a small component. What Epira didn’t cover is CSP [competitive selection process]. Still, 80 percent of the power contracts are sourced bilaterally and only 20 percent from the spot market. The CSP should have been included in Epira,” he said.

Consumer group Laban Konsyumer Inc. (LKI) said that consumers continue to pay a number of subsidies, such as lifeline rates, system loss and universal charges, among others. “Interlocking ownerships in power generation and distribution companies continue to limit the effectiveness of the spot market, the bright spot of the Epira” making up for all its limitations.

“We still have one of the highest electricity rates. Attention and care for consumer welfare and protection was not developed for the past years,” asserted LKI President Victor Dimagiba.

Indeed, for such a landmark legislation promising sweeping reforms in such an important sector, Epira has spurred progress, since its enactment on June 4, 2001, in chipping away at monopolies in the power-generation sector,  providing for a more transparent pricing system and liberalizing electricity distribution.  Still, much more remains to be done and the challenges are daunting.