Lotilla laments ‘low regulatory ranking’ of PH power sector

ERC targets 75% passing rate

BY MYRNA M. VELASCO – Jul 21, 2023 03:18 PM
from Manila Bulletin

Energy Secretary Raphael P.M. Lotilla is not pleased with the ‘low regulatory ranking’ of the Philippine power industry, pulled down by enforcement of rules and regulations and  administrative hurdles that handicapped improvements in the overall performance of the Energy Regulatory Commission (ERC).

Citing a 2022 Energy Sector Management Assistance Program (ESMAP) ranking of the World Bank,  the energy chief conveyed that “the bad news is that in terms of regulatory performance, we are in the lower half of the scoring system.”

He specified that the ESMAP scoring system had been two-tiered: one is on regulatory governance and the other is on the substance of regulation itself.

Lotilla narrated it even came as a surprise that regulatory agencies in African countries, like Uganda, fared better when it comes to regulatory performance if compared to the ranking bestowed on the Philippines.

“Uganda is out there performing very well, and that also reflects the high level of investments in their sector. Uganda has done a lot and we wish them well, but we also aspire in fact to do better,” the DOE secretary stressed.

In the scoring system, he indicated that there had been de jure score versus de facto score – and such sets “the difference between the myth system and the operational code.” By far, ERC’s ranking on de facto basis was higher at 72 percent.

But, once the de jure score is applied, Lotilla noted the country’s overall regulatory index score is  below 50 percent. “We are 49 percent and therefore there is room for improvement. But some of this is because the legal framework may not exactly reflect what is actually being practiced,” he said.

When asked on the reported “low ranking” of the industry regulator versus global peers, ERC Chairperson Monalisa C. Dimalanta averred “we welcome the challenge,” emphasizing that the forward goal of the Commission is to achieve at least 75 percent score by next year.

“We want to include the metrics cited by the Secretary in the metrics that we will employ in measuring our performance. The score may not be immediately high, but the score that he said was below 50-percent, hopefully, we can have 75-percent, so it would be a passing rate at least,” she stated.

Lotilla highlighted that one long-standing predicament which hobbled ERC’s advancement on the enforcement of regulatory processes had been the very low salaries of its employees. Hence, this is one sphere that the government is now addressing through collaboration with the Department of Budget and Management (DBM) and a priority concern given ERC’s critical role of regulating a P600 billion industry.

“One of the things that we need to consider would be the extent to which the ERC can be given fiscal independence … what has happened was that: for the last five years they have not received any salary adjustments – so they are behind the curve, their salary levels are below than what’s being received by other government agencies,” he stressed.

On its regulatory mandate, the core area that the ERC would need to improve on, according to the DOE secretary, is on its rate-setting function because this does not only delve on the power supply agreements (PSAs) underpinning capital flow in the sector, but this likewise bears impact on the rates being passed on to consumers.

“The review of the processes and the rules and regulations of rate-setting is an important one – it would simplify the requirement that ERC has to go through. So for instance, not only the publication requirements but the hearings to be conducted in one area or another, so the simplification is that important,” he said.

While Lotilla fully acknowledged ERC’s independent stature as a regulatory body, he noted “that does not mean that we can’t coordinate in so far as policies that affect the electricity sector.”

On rate-setting concerns and even in the capital expenditures (capex) approval for regulated utilities, Dimalanta asserted “we really have to make the reset design work; otherwise, we will never get out of this loop of individual filings and evaluation for projects.”

When it comes to recurring complaints of delayed approvals of PSAs, she added “We are addressing that with the new CSP (competitive selection process) guidelines that we will issue pursuant to DOE’s new CSP policy.”