Sunday, December 13, 2015

BWorld 31, Comparative electricity exchange market in Asia-Pacific

* This is my article in BusinessWorld last December 09, 2015.

Voluntary market exchange, the people’s freedom to sell and supply and freedom to buy and purchase, is among the cornerstones of a free and dynamic society. When they are not forced to sell to only one or two buyers or not forced to buy from only one or two sellers, then there is more competition. As a result, prices are reasonable and affordable and the consumers benefit from this kind of economic freedom.

In the electricity market, the presence of many power generation companies, many power plants from various energy sources, many distribution utilities and organized consumers, is one precondition for having a competitive and affordable electricity prices. Especially if governments do not impose lots of taxes, fees, charges and royalties that push electricity prices upwards.

Many modern economies have their own electricity exchange markets, similar to their respective stock markets. These are generally independent organizations or corporations, independent from government.

Here are Asia and Pacific economies which have their own platform for electricity spot markets. (See table)

The Philippines’ Wholesale Electricity Spot Market (WESM), created under Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA), became operational in June 2006.

The US and Europe have their own respective electricity market platform too. Examples are the Electric Reliability Council of Texas, USA, and the European Power Exchange SE owned by the APX Group, covering Germany, France, Austria, Switzerland and Luxembourg.

In the above table, it is notable that the Philippines seems to be the odd-man-out because PEMC, supposed to be an independent organization and corporations, remains to be under the leadership and control of the Department of Energy (DoE).

Take the case of the Energy Market Co. Pte. Ltd. (EMC) of Singapore. The Board is composed of seven prominent individuals, none of whom is from the government, and seems none is from any energy players (covering generation, transmission, distribution). The Chairman, Wong Meng Meng, is a topnotch lawyer known more for litigation and arbitration, not in energy economics or engineering. So it is a clear example of independence from government and from stakeholders.

During the Senate public hearing last Oct. 8, chaired by Senator Sergio R. OsmeƱa III, Chairman of the Committee on Finance (Subcommittee B), the issue of PEMC governance and WESM administration was tackled. The eloquent Senator pointed out the following points, among others:

(1) Under EPIRA, PEMC is supposed to last for only one year and would transition to an independent market operator (IMO).

(2) PEMC has existed for so long (12 years now), they are now saying, “Now we have experience in operating the grid because we already practiced for 10 years.”

(3) The Energy Regulatory Commission (ERC) regulates and has oversight function over PEMC. PEMC does not consider itself a government-owned and controlled corporation, supposedly independent, but the Chairperson is the DoE Secretary.

(4) PEMC was created in 2003, and the DoE Secretary is an over-staying Chairman for 12 years already.

(5) PEMC being a private corporation is not subject to audits by the Commission on Audit.

(6) PEMC says it is private, independent of government, then must go to the Chairperson (DoE Secretary) to change rules.

There are several important issues that PEMC and the DOE seem to violate EPIRA, supposedly the mother of all electricity reforms including the creation of ERC, Power Sector Assets and Liabilities Management (PSALM), WESM and IMO.

One, PEMC should have been nonexistent several years ago, only one year after the creation of WESM (June 2006); meaning PEMC should have become IMO by June 2007.

Two, the DoE Secretary should be out of PEMC or IMO as its Chairman. It cannot be really independent of government if the Chair is the DoE Secretary, which issues a Department Circular, which becomes part of the rules of PEMC and WESM.

Three, the PSALM, a government corporation with big presence in power generation in Luzon-Visayas, may have justified presence in the PEMC and soon IMO board; but the National Power Corp. with minimal presence in power generation, its presence in the Board looks questionable. There are huge players in the generation sector that are affected by PEMC and WESM rules that are not in the board.

Four, if PEMC is dissolved and IMO is created, there are two issues to settle. (1) IMO is independent of both government and stakeholders, like Singapore’s EMC, or (2) IMO is independent only of government but will be composed of stakeholders, like the Philippine Stock Exchange model.

This writer is not a stakeholder, not a consultant of any of the stakeholders or the government but writes only from a consumer’s perspective.

Hence, he wishes to repeat and help continue the advocacy in the sector: (1) reduce or abolish certain energy taxes, fees, permits, royalties that contribute to expensive electricity, (2) establish fiercer competition among players and stakeholders, and (3) have the government lay down and enforce fair rules that apply to all without exception, not add more layers of costly bureaucracies and regulations.
• • •
Minor erratum in a previous column entitled: “WESM, PEMC and the search for competitive electricity prices” last Nov. 4. On the PEMC Board, it said:

“One from the Market Operator, one from the National Transmission Corp. (now known as the National Grid Corporation of the Philippines), four from DUs; one from WESM customers including but not limited to suppliers...”

The National Grid Corporation of the Philippines (NGCP) wrote saying that: “NGCP is an entity separate from the National Transmission Corporation (TransCo)... NGCP as System Operator, holds a seat at the PEMC... holds the concession and franchise to manage and operate the country’s power transmission assets.”

Thanks for the correction.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers Inc., and a Fellow of South East Asia Network for Development (SEANET).

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