BWorld 226, The EPIRA is working

* This is my article in BusinessWorld last June 25, 2018.

The Electric Power Industry Reform Act (EPIRA) of 2001 or RA 9136 was among the most important pro-market reforms in the Philippines. Before that law, the government-owned National Power Corporation (NPC) was the single-biggest debtor agency and the single-biggest deficit generator, fiscally bleeding the taxpayers while providing unreliable power supply.

EPIRA has significantly changed this, moving away from a state monopoly to a competitive sector with dozens of competing players in power generation alone. Competition can pressure price declines overall while improving electricity supply quality and reliability.

Yet many sectors still glamorize that dark era of state monopoly and endless fiscal deficits. They complain of “continuously rising” electricity prices and then blame EPIRA.

Electricity prices are rising, true.

And while they occasionally spike, the general trend is a price decline.

When prices look “unaffordable” for some, people should realize that the monthly electricity bill contains about a dozen items. These include generation, distribution, and transmission charges — the three costliest items — as well as supply, universal, system loss, and metering charges. The bill also covers VAT and feed in tariffs and so on.

After EPIRA was passed, focus was placed on the privatization of NPC power plants, not in the construction of new ones.

As a result, the country’s installed capacity has hardly improved, from 14.7 GW in 2002 to 15.1 GW in 2003, 15.6 GW in 2009.

Significant capacity additions occurred only in 2010 with 16.4 GW, then 2012 with 17.0 GW, then in 2014 with 17.9 GW, 2015 with 18.8 GW, big jump in 2016 with 21.4 GW then in 2017 with 22.7 GW.

These numbers show the following:

One, installed capacity from 1991 to 2001 — the decade before EPIRA — expanded twice but power generation expanded only by 1.8 times. This suggests low productivity and efficiency under the NPC.

Two, capacity from 2001 to 2011 (EPIRA’s first decade) has expanded only 1.2 times but power generation expansion was 1.8 times. This means the private owners of NPC-privatized power plants were more efficient in optimizing the capacity and efficiency of those plants.

Three, from 2011 to 2017 (last six years), power generation has expanded 1.4 times in lock step with installed capacity despite the fact that many capacity additions were from intermittent, unstable renewables with low capacity factors like wind and solar. This shows again higher efficiency and lower prices by private players.

Fast expansion in power generation means fast expansion in power consumption and electricity prices are more affordable so the people use more electricity. And this debunks the claim by anti-EPIRA groups that electricity prices are “continuously rising.”

AN INDEPENDENT MARKET OPERATOR, FINALLY

Meanwhile, this Monday, June 25 the Philippine Electricity Market Corporation (PEMC) will hold a press briefing after the PEMC annual membership meeting. The event will include the election of a new set of PEM Board of Directors and handover of market operations and governance functions from the DOE to the new PEM Board.

This will be a very significant event for two reasons.

One, the creation of the Independent Market Operator (IMO) as specified in EPIRA will become a reality after 15 years of foot-dragging by the DOE. Rules of the Wholesale Electricity Spot Market (WESM) were promulgated in 2002 and the PEMC was incorporated one year later. The PEMC was designated by the DOE as the Autonomous Group Market Operator (AGMO) in 2004.

Two, the PEMC will become a real independent market operator (IMO) and not a DOE-designated AGMO. Chairmanship of PEMC will be held by one of the WESM players and will not come from government. This will be a first time since PEMC was created in 2003 or after 15 years.

Under the previous administrations, it may be argued that the DOE partially violated the EPIRA because it made PEMC as government-dependent market operator. So now this anomaly will be corrected.

DoE will still have regulatory power over the IMO through the issuance of related Department Administrative Orders, Memo and Circulars, and via the Energy Regulatory Commission (ERC).

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

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See also:

BWorld 216, Positive and negative disruptions in the electricity market, May 31, 2018 

BWorld 221, Mindanao power development, reality vs illusion, June 16, 2018

BWorld 223, Ease of setting up and closing down business, July 9, 2018 

BWorld 224, China mercantilism and US free trade challenge, July 10, 2018

BWorld 225, Anti-reason of Duterte’s anti-tambay order, July 11, 2018

BWorld 210, Electricity competition, EPIRA, and WESM

* This is my article in BusinessWorld last week, May 09, 2018.

Last Monday, I discussed business competition in general and the role of the Philippine Competition Commission (PCC).

The theme will be continued in this piece and it will discuss electricity competition in particular, especially after I was able to interview PCC Chairman Arsenio Balisacan, the CEO of the Philippine Electricity Market Corp. (PEMC) and Chairman of Transition Committee Oscar Ala and PEMC Spokesperson Atty. Nino Juan.

The Electric Power Industry Reform Act (EPIRA) of 2001 or RA 9136 has drastically liberalized the Philippines electricity sector with at least three important provisions: (1) deregulation and demonopolization of the power generation sector, (2) creation of the Wholesale Electricity Spot Market (WESM), and (3) liberalization and demonopolization of electricity distribution via Retail Competition and Open Access (RCOA).

With these and other provisions of EPIRA, the questions to ask, among others would be:

(1) Were there many private generation companies (gencos) that entered the market competing with each other?

(2) Were there many retail electricity suppliers (RES) that entered the market competing with each other?

(3) Were there many players, gencos and distributors, that use the WESM spot market competition? And more importantly, (4) Have electricity prices for consumers gone down?

The short answer is YES to all four questions.

For gencos for instance, before EPIRA, the National Power Corp. (Napocor) was the state-owned power generation monopoly, which also incurred huge losses and public debts for many years.

As of April 2018, there were 113 gencos in the Luzon-Visayas grid alone and all of them are WESM participants. Excluded are gencos in the Mindanao grid which is not part of WESM yet. Of these 113 gencos, five players have become more efficient and more moneyed than others, except perhaps the government-owned Power Sector Assets and Liabilities Management Corporation (PSALM), which still owns previous Napocor-owned power plants, mostly hydro facilities in Mindanao and the Malaya plant in Rizal.

For retail competition, the number of contestable customers (CCs) or those with monthly peak demand of 750 KW or higher and have the freedom to pick their own service providers — such as electric cooperatives (ECs) and private distribution utilities (DUs) — have increased. RCOA implementation however, has been issued an indefinite TRO by the Supreme Court in February 2017 and this resulted in a decline in number of CCs.

Here are the numbers for comparative electricity prices that include two types of customers, the captive market (small consumers who must stay with their DUs or ECs) and contestable market (they can leave their DUs or ECs and choose their own RES).

Contestable customers are able to enjoy lower average prices, P6.91/kWh, than captive customers that pay an average price of P7.78/kWh.

So there you see it.

Despite the noise created by certain sectors that EPIRA and WESM are not working, which leads them to call for a return to the old scheme of nationalization, these data show that indeed electricity competition is working.

It is true that Philippine electricity prices in general remain higher than most of our neighbors in the region but that is because of other factors like (a) many taxes especially the high VAT of 12% applied in all parts of the electricity supply chain, from generation to transmission, distribution and supply, even the system loss; (b) many charges in our monthly electricity bill including universal charge, system loss charge, feed-in-tariff (FiT) for favored renewables.

The transition of PEMC, the market operator of WESM, into a real Independent Market Operator (IMO) as explicitly specified in EPIRA may soon become a reality.

As a result, there will be no more government energy agencies and bureaucracies at the PEMC Board. Good work, PEMC Transition Team.

----------------

See also:

BWorld 205, Energy mix and wishful thinking, April 30, 2018

BWorld 207, Fare control and surge cap are wrong, May 10, 2018 

BWorld 208, Consumer choice in electricity supply and prices, May 11, 2018 

BWorld 209, Is the PCC a facilitator or a hindrance to business competition? May 15, 2018

BWorld 208, Consumer choice in electricity supply and prices

* This is my column in BusinessWorld on April 30, 2018.

In several statistics comparing electricity prices in Asia, the Philippines often ranks as the third most expensive in Asia next to Japan, Singapore, or Hong Kong.

Here are numbers from three different sources: (1) The Lantau Group (TLG), “Global Benchmark Study of Residential Electricity Tariffs,” May 2013. The study prepared for the Energy Market Authority (EMA), Singapore; (2) Enerdata, cited by Chris Herrera, “Optimization of Supply” presented at EPDP lecture, UPSE, October 26, 2017; and (3) International Energy Consultants (IEC), “Regional/Global Comparison of Retail Electricity Tariffs: Executive Summary,” May, 2016.

In the IEC study, subsidized markets are Indonesia, Malaysia, Thailand, South Korea, Sri Lanka, Taiwan. Unsubsidized and deregulated markets are Japan, Philippines, and Singapore. Hong Kong is unsubsidized but it is unsure if it’s deregulated.

The Electric Power Industry Reform Act (EPIRA) of 2001 has several provisions to help reduce Philippines’ electricity prices. The deregulation of power generation encouraged many private power producers to compete with each other. The Wholesale Electricity Spot Market (WESM) average prices for instance have been declining, in Pesos/kWh: 6.43 in 2010, 3.80 in 2011, 4.87 in 2012, 3.85 in 2013, 4.40 in 2014, 3.47 in 2015, and 2.84 in 2016.

The retail competition and open access (RCOA) under EPIRA is also an excellent provision. RCOA allows the “contestable consumers” or those with average electricity consumption of 1,000 KW (or 1 MW), a level which will later be reduced to 750 KW a day, to choose their own Retail Electricity Suppliers (RES) and leave their existing private distribution utility (DU) or electric cooperative (EC).

With RCOA, electricity consumers can set their own conditions from their RES.

Some can demand that they be supplied 100% only from renewables even if the price is higher, others can demand that they be supplied only from cheap and stable sources. Small customers can also aggregate their demand or allow an aggregator to pool their combined demand to become contestable customers.

There are two recent reports in BusinessWorld related to this.

(1) SC asked to lift TRO on retail power suppliers (April 24)

(2). DoE may step in as licensing body for retail power suppliers (April 12).

Report #1 is about Bayan Muna (BM) petition at the Supreme Court (SC) that it should lift its indefinite temporary restraining order (TRO) it issued in February 2017 barring the Department of Energy (DoE) and the Energy Regulatory Commission (ERC) from further implementing RCOA and allow the contestable customers to choose their own RES.

I was surprised that the pro-state intervention and pro-big government Bayan Muna suddenly turned around and campaigned for pro-market, pro-consumer choice — that consumers be given more freedom to choose an RES from the 23 short-listed by the ERC. Turns out that Bayan Muna is only doing this to further fight Meralco as a monopoly in electricity distribution in Metro Manila and some surrounding provinces. However, the group is silent about the Constitutional provision granting monopoly power to all other DUs and ECs in the country.

Report #2 is about the DoE studying the legality of being the issuer of licenses for RES. There are no updates about this yet.

The indefinite TRO has a very adverse result, reducing consumer choice, especially the contestable customers.

Those who consume 750-999 KW a day and are willing to move voluntarily to RES cannot do so because they will be disallowed by the ERC and PEMC. And even those who consume 1MW or more per day that are already qualified for RCOA are hesitant to have power contracts with RES because of the continuing uncertainty.

The ERC also does not and cannot issue new RES licenses or renew expiring ones, resulting in reduced RES competition.

Even some DUs also face uncertainties whether to get additional generation contracts or not for contestable customers because these customers can leave them anytime once the TRO is lifted.

Government prohibitions should be kept to the minimum. The EPIRA law has already succeeded in reducing electricity prices and expanded the country’s power supply capacity so why suspend more customer choice and empowerment?

The SC indeed should lift its indefinite TRO because it is anti-consumers and anti-business. Existing DUs have the freedom to put up their own RES so that contestable customers who have left the DU franchise system can still be their customers. Or the SC can strike down certain ERC resolutions so that it can issue new resolutions and regulations to implement RCOA and further expand consumer choice.

---------------

See also:

BWorld 205, Energy mix and wishful thinking, April 30, 2018 

BWorld 206, Intellectual property rights in East Asia, May 09, 2018 

BWorld 207, Fare control and surge cap are wrong, May 10, 2018

BWorld 205, Energy mix and wishful thinking

* This is my column in BusinessWorld last April 16, 2018.

“You must be ready to give up even the most attractive ideas when experiment shows them to be wrong.” — Alessandro Volta (1745-1827, Italian scientist who invented one of the first electric batteries known as a voltaic pile)

This quote should be remembered by people who keep on insisting the urban legend that we can banish coal power in our lives soon, that wind, solar, and other intermittent renewables can provide 100% of our electricity needs. That is far out.

Despite the Renewable Energy (RE) law of 2008, despite the generous subsidy to RE companies via feed-in-tariff (FiT) — which provides subsidies for REs for 20 years — wind and solar can provide only 2% of the country’s energy needs as of 2017. Coal, for its part, provided one-half of our total national electricity needs (see table).

These numbers show that as of 2017, (a) coal installed capacity was only 36% of total but its actual power generation was almost 50% of total; (b) oil-based plants constituted 17% of installed capacity but generated only 4% of total because these oil plants are used mainly as peaking plants or they run only during peak demand hours to prevent blackouts.

Among renewables, geothermal and hydro provide the bulk of power generation. Solar-wind have nearly 6% of installed capacity but contributed only 2% of power generation.

And this brings us to four recent energy reports in BusinessWorld last week.

1. PHL announces large-scale renewable projects (April 12).

2. DoE studying shift in energy mix to 50% baseload (April 11).

3. DoE may step in as licensing body for retail power suppliers (April 12).

4. Boracay closure to raise Aklan power rates, legislators say (April 12).

Report #1 is about the Board of Investments (BoI)-approved eight solar projects worth P86B ($1.7B) to be rolled out from October. The largest is the Iba-Palauig 2 Solar Project, 140 MW worth P19B. Second largest are two projects in Cavite, 392 MW valued at P17.3B. That is a lot of money that asserts that solar can be a reliable source for the Philippines.

Report #2 is about the DoE studying a change in its previous energy mix policy of 70-20-10 for baseload (power plants running 24/7), mid-merit, and peaking plants respectively, to a new policy of 50-40-10 for baseload, flexible, and peaking plants respectively.

DoE projects that from 2018-2025, a total of 8,618 MW new capacity will be added to the country’s power grid, 6,325 MW of which will come from coal plants.

Report #3 is about the DoE studying the legality of being the issuer of licenses for retail electricity suppliers (RES), a function by the Energy Regulatory Commission (ERC) governing the implementation of retail competition and open access (RCOA).

RCOA is among the beautiful provisions of the EPIRA law of 2001 because it allows electricity consumers the option to choose their own power suppliers. But RCOA was issued an indefinite temporary restraining order (TRO) by the Supreme Court on Feb. 21, 2017.

Consumers can set their own conditions from their RES. Thus, some consumers can demand that they be supplied 100% only from renewables even if the price is higher. The Green Energy Option (GEO) of RE law of 2008 encourages this. Meanwhile, some consumers can demand that they be supplied 100% only from cheap and stable sources.

Report #4 is about Aklan Electric Cooperative (AKELCO) seeking to recoup losses of about P17-M a month associated with the closure of Boracay for six months. It has a power purchase agreement (PPA) with four power generators for 42 MW and they are required to pay for them whether the power is used or not. So AKELCO will increase its rates by P1.62/kWh to the rest of Aklan electricity consumers.

Report #1 does not heed the advice of Alessandro Volta and actual data on Philippines power generation and hence, run the risk of bad investments in the future.

Report #2 and new policy will convert some of those new coal plants to become mid-merit instead of baseload. This policy reversal might sour future investments in reliable coal power.

Report #3 is positive, affirming consumers’ rights to choose their own energy mix. The DoE should ultimately shy away from announcing its preferred energy mix.

Report #4 shows that the arbitrary closure of Boracay is bad not only for businesses in the island but also for businesses and households in the entire Aklan province.

Government, both Malacañang and DoE, should learn more to respect consumer freedom.

--------------

See also:
BWorld 201, Expanded environmental rights and anti-coal drama, April 05, 2018
BWorld 202, Tourism, casinos, and Boracay, April 08, 2018 
BWorld 203, TRAIN, inflation and PPP, April 10, 2018 
BWorld 204, Mining attractiveness index and the Philippines, April 30, 2018

BWorld 181, Effects of Supreme Court TRO on RCOA

* This is my column in BusinessWorld last January 18.

“The real bosses, in the capitalist system of market economy, are the consumers… The entrepreneur profits to the extent he has succeeded in serving the consumers better than other people have done.”

— Ludwig von Mises, Bureaucracy

Geographical monopolies in electricity distribution are among the last remaining state-created monopolies in the country via congressional franchises because electricity distribution is considered a “public utility.”

As a result, factories, hotels, malls, or hospitals have no choice but to source their energy requirements from electric cooperatives (EC) or privately run distribution utilities (DU) which were given the franchise to serve these particular locations.

However, Rule 12 of the Electric Power Industry Reform Act (EPIRA) of 2001 (RA 9136) has changed this constitutional and legal guarantee of monopoly through the Retail Competition and Open Access (RCOA) provision.

RCOA breaks the geographical monopoly and allows retail competition in electricity to a contestable market composed of medium to big-ticket electricity consumers. Open access allows any qualified person or entity to use the transmission and/or distribution system and related facilities subject to payment of retail wheeling rates.

With rising power capacity addition yearly and RCOA implementation, average prices in the Wholesale Electricity Spot Market (WESM) have been declining.

In 2010, the cost of electricity in pesos per kWh was at 6.43. In 2011, it was 3.80; in 2012, 4.87; in 2013, 3.85; in 2014, 4.40; in 2015, 3.47; and in 2016, 2.84.

However, in early 2017, the implementation of the RCOA was suspended by a Supreme Court temporary restraining order (TRO). In effect, five resolutions issued by the Energy Regulatory Commission (ERC) from June 2015 to November 2016 were likewise suspended. Besides affecting the voluntary participation of contestable customers (CCs) for 750-999 kW, the suspension also reduced potential competition because many retail electricity suppliers (RES) — especially those whose licenses were expiring — were unable to renew them.

This decline in competition resulted in lower capacity demand by the contestable customers, from 3,456 MW in end-2016 to only 862 MW in November 2017 for the 1MW and higher customers, and from 351 MW end-2016 to only 78 MW in November 2017 for the 750-999 kW customers (see table).

A BusinessWorld report last Jan. 8 entitled “DoE to seek SC guidance on retail competition” said that the department issued a new circular allowing the switching from captive to contestable consumers to allow greater participation from new players. It also allowed the ERC to continue issuing licenses to RES and renew the licenses of RES with expiring licenses.

Here is a summary of the benefits of RCOA to consumers and the Philippine economy in general. Many of these were discussed at the EPDP presentation last September.

1. Contestable customers will have more choices in pricing and power supply contracting — privileges that are not available to small and captive customers.

2. Small customers can aggregate their demand or allow an aggregator to pool their combined demand to become contestable customers.

3. Contestable customers can choose the type or source of power they want. Some simply want cheaper prices, others want stable 24/7 electricity even if costs are higher than those offered by their previous ECs or DUs, whose services may be unreliable. For their part, other consumers who wish to source all of their energy needs from renewables can also do so — as long as they are willing to fork out more money for the privilege.

4. Contestable customers can have full control of their generation costs and are not required to subsidize small and/or off-grid consumers, unlike traditional end-users. They can choose to have flatter load factors by using more baseload, an arrangement that is ideal for companies, especially those that use power 24/7 like manufacturing plants, big hotels, hospitals, and BPO centers.

5. Customers can shift demand to off-peak hours and can “peak shave” to reduce their electricity price. Consumers have big leeway and choices based on their needs and corporate philosophy and branding.

6. There are more than 50 RES to choose from, shown in the table above. Contestable customers can also engage in financial hedging or enter into contracts with any financial provider to hedge its existing contact structure and they need not necessarily be an RES.

7. More investments in power generation can be expected as power companies can contract directly with customers and bypass ECs, a number of which have issues with paying generation companies on time.

The SC TRO has therefore resulted in the following unintended consequences:

1) It disallowed many contestable customers in the 750-999 kW demand category to enjoy RCOA, forcing them to stay with their ECs or DUs and depriving them of the benefits discussed above.

2) Other eligible customers have been discouraged from availing the RCOA due to lingering uncertainties.

3) DUs also face uncertainties whether to get additional generation contracts or not for contestable customers because the latter can leave them anytime once the TRO is lifted.

4) New RES players and existing RES with expiring licenses cannot get new ERC licenses. This means lesser competition among RES, DUs, and ECs. Less competition means lesser choice for customers.

The SC therefore, should resolve this uncertainty soon — either lift the TRO and allow the various ERC resolutions to be implemented again, or strike down those resolutions so that the ERC can issue new resolutions and regulations to implement RCOA. RCOA has to be implemented because it is pro-choice, pro-consumers, and abandons monopolization and unreasonable subsidies.
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See also:

BWorld 178, Top 8 energy news of 2017, January 14, 2018 

BWorld 179, Federalism dream vs centralized government, January 15, 2018 

BWorld 180, Has East Asia liberalized its trade enough? January 19, 2018

BWorld 178, Top 8 energy news of 2017

* This is my article in BusinessWorld last January 2.

This should have been a “Top 10” list but due to space constraints, I limited it to only eight, divided into four news stories each for global and national.

GLOBAL

 1 “Non-news” to many media outlets but good and big news to me: NO major energy catastrophes in 2017. No major oil spill, no gas blowouts, no reactor meltdowns, no major infrastructure destroyed by natural disasters, and energy prices did not rebound to their 2014-2015 levels.

2 In June 2017, the British Petroleum (BP) Statistical Review of World Energy 2017 was released and among the highlights of that report are: (a) China and US remain the planet’s biggest energy consumers, (b) increases in oil, natural gas, nuclear and renewable energies (REs) but decline in coal use, (c) for big Asian economies, coal use remain very high especially in China, India, Japan, South Korea and Indonesia (see chart).

3 In September 2017, the US Energy Information Administration (EIA) released its “International Energy Outlook 2017” and among its projections are (a) In 2040, fossil fuels (oil, natural gas and coal) and nuclear will supply about 83% of global total energy consumption; 8% from hydro and 9% combined from wind, solar, geothermal, other REs, and (b) coal use is projected to be stable until 2040 and declines in China to be offset by increased use in India.

4 In November 2017, the “America First Energy Conference” was organized by the Heartland Institute in Houston Texas to analyze US President Trump’s pronouncement of US global “energy dominance”. “Energy dominance” is defined on two key goals: (a) meet all US domestic demand and (b) export to markets around the world at a level where they can “influence the market.” The important lessons from the papers presented are that (i) the US can have energy dominance in oil, natural gas and coal, but (ii) US cannot and should not aspire to have dominance in nuclear and REs. It was a very educational conference and I was the only Asian in the conference hall.

NATIONAL

5 Hike in excise tax for oil products and coal under TRAIN but zero excise tax for natural gas even if it is also a fossil fuel. Diesel tax will increase from zero in 2017 to P2.50/liter in 2018, P4.50 in 2019, and P6.00 in 2020. Gasoline tax will increase from P4.35/liter in 2017 to P7 in 2018, P9 in 2019, and P10 in 2020. Coal tax will increase from P10/ton in 2017 to P50 in 2018, P100 in 2019, P150 in 2020. There was successful maneuver by some senators, a known economist and some leftist organizations to spare natural gas from higher taxation, benefitting a big energy gas firm.

6 The feed-in-tariff (FiT) or guaranteed high price for 20 years for wind-solar and other renewables keeps rising, from only 4 centavos/kWh in 2015, became 12.40 centavos in 2016, 18 centavos in mid-2017 and petition for 22 centavos by late 2017 not granted. A pending 29 to 32 centavos/kWh by early 2018 is awaiting approval by the Energy Regulatory Commission (ERC).

7 Continued exemptions from VAT of the energy output of intermittent wind-solar and other renewables but stable fossil fuel sources were still slapped with 12% VAT under TRAIN. Government continues its multiple treatment of energy pricing: High favoritism for wind-solar, medium-favoritism for natgas, and zero favor for oil and coal.

8 Supreme Court issuance of TRO in the implementation of Retail Competition and Open Access (RCOA) provision of the Electric Power Industry Reform Act (EPIRA) of 2001. In particular, the SC TRO covered five ERC Resolutions from June 2015 to November 2016, affecting the voluntary participation of contestable customers (CCs) for 750-999 kW and many Retail Electricity Suppliers (RES) with expiring licenses cannot get new ones yet, reducing potential competition. Data from the Philippine Electricity Market Corporation (PEMC) show that as of Nov. 26, 2017, there were 28 RES, 12 local RES, 862 CCs for 1 MW and higher, and only 78 CCs for 750-999 KW. There should be thousands of CCs in the lower threshold, there should be several dozens of RES nationwide to spur tight competition in electricity supply and distribution.

Overall, EPIRA of 2001 was a good law that introduced competition, broke government monopoly in power generation, broke private geographical monopolies in power distribution. The RE law of 2008, SC TRO 2017 and TRAIN 2017 are partly reversing the gains of EPIRA.

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See also:

BWorld 170, The Habito carbon tax distortion, December 28, 2017 

BWorld 173, Energy favoritism under TRAIN, December 30, 2017 

BWorld 175, Trends in global and Philippine trade, January 05, 2018 

BWorld 176, Road trips and PPP projects, January 06, 2018 
BWorld 177, On MMDA car towing and impounding, January 07, 2018

BWorld 125, On the retail competition and open access (RCOA) and EPIRA

* This is my article in BusinessWorld on April 19, 2017.

Electricity distribution, unlike generation, is defined as a “public utility” and hence, is granted as a monopoly right via congressional franchise. There are more than 120 distribution utilities (DUs) such as Meralco and electric cooperatives.

To dilute this monopoly, the Electric Power Industry Reform Act (EPIRA) which was passed in 2001 came with Section 31, Retail Competition and Open Access (RCOA) that “shall be implemented not later than three (3) years upon the effectivity of this Act,” and Section 29, Supply Sector, “The supply of electricity to the contestable market ...” These are useful, anti-monopoly provisions, thanks to EPIRA.

The RCOA was finally implemented 12 years after, on June 26, 2013. The Department of Energy (DoE) and the Energy Regulatory Commission (ERC) issued orders to implement this beautiful provision.

But somewhere along the way, what should be a competitive scheme has become a “mandatory” order.

Some electricity consumers are unhappy because their choice to stay with their DUs -- especially if these provide them good service and prices -- has been done away with. This is why they went to the Supreme Court (SC) and asked for a Temporary Restraining Order (TRO) against the RCOA.

Below is a summary of these orders (one from DoE, four from ERC, and one from the SC).

The SC TRO has mixed signals. It is good because (a) it stopped the “mandatory migration” to RES by contestable customers (CCs) and thus, they have the option to stay with their DUs or not, and (b) local RES will be allowed again. But it can also be bad because (a) it stopped the voluntary participation of CCs for 750kW (lowered threshold), and (b) some ERC Resolutions suspending earlier prohibitions to Retail Electricity Suppliers (RES) are also removed.

Government prohibitions should be kept to the minimum as much as possible.

These prohibitions would give people -- especially those with very low technical and financial capacities -- the right to become RES which might invite abuse of CCs.

Such prohibitions should not include more RES players, the right of CCs to stay with their DUs or not, and voluntary participation of customers at 750kW.

EPIRA has provided for more customer choices, strengthened consumer empowerment, and demonopolization of electricity generation and distribution. Let this spirit stay in the succeeding orders of the DoE and the ERC.

----------------

See also: 

BWorld 122, Six more myths in the mining debate, April 13, 2017 

BWorld 123, Drug-related murders and criminal justice in Asia, April 23, 2017 

BWorld 124, On Grab, Uber, traffic and LTFRB, May 05, 2017

BWorld 55, FIT-All, renewables and elections 2016

* This is my article in BusinessWorld yesterday.

The increase in feed in tariff-allowance (FIT-All) has been approved by the Energy Regulatory Commission (ERC) recently. As a result, Meralco and all other distribution utilities nationwide will be collecting 12.40 centavos per kWh of electricity consumption starting this month. The amount is higher than higher than 4.06 centavos/kWh that was collected in 2015.

Even consumers from Mindanao -- an island not connected to the Visayas and Luzon grids -- will pay this FIT. If Mindanao consumers are spared of this additional charge, the FIT-All will be much larger in Luzon and the Visayas, which host an increasing number of wind and solar farms. Another FIT hike will be expected next year.

Unlike the previous electricity price hikes that met a big public backlash, such as the price hikes of P4+/kWh in November-December 2013 which should go back to old rates after two or three months, FIT additional collections are not short term but long term and can last 20 to 30 years or more.

The Philippines has the highest electricity prices in the ASEAN and has the second-highest in Asia, next to Japan. This is not good especially if we are serious in attracting more investments that can give more jobs to more Filipinos (see graph).

There are many factors why this is so, among which are the various taxes, fees, and royalties imposed by the Philippine government on energy sources (like the natural gas royalty from Malampaya gas field in Palawan) and on companies themselves.

In the coming general elections next month, all presidential candidates support more renewables. Sen. Grace Poe even proposed that power distributors should be “compelled” to use renewable energy. Davao Mayor Rodrigo Duterte is explicit in supporting more coal power plants, and administration candidate Mar Roxas supports the use cleaner fossil fuel like natural gas, along with renewables.

Among Senatoriables, it is weird that former DoE Secretary Jericho Petilla would even blame some provisions of the EPIRA law of 2001 for the high cost of electricity in the country, saying that the law prevents the government from putting up new power plants that can help rival private generation companies.

Government-owned National Power Corporation (NPC) used to be the sole power plant owner and operator nationwide. Instead of bringing down the cost of electricity while raising power capacity, NPC has largely succeeded in piling up huge amount of debts, mountains of debts hundreds of billions of pesos, that it could not pay and hence, were ultimately passed on to taxpayers.

Renewable sources such as solar, wind, geothermal, and hydroelectric have the following characteristics that are dissimilar to conventional sources like coal and natural gas. Among these are: (1) zero or near-zero variable operations and maintenance (O&M) cost, but (2) low capacity factor or actual electricity production relative to its rated capacity, except geothermal, (3) high levelized cost of electricity (LCOE) and, (4) generally higher electricity prices if subsidies are not given.

LCOE is a good summary measure of the overall competitiveness of different power generation technologies representing the per kWh cost of building and operating a power plant over an assumed financial life and duty cycle.

Here is the LCOE in the US four years from today. The capacity factor is generally higher compared to those in developing countries like the Philippines (see table).

When the Renewable Energy (RE) Act of 2008 (RA 9513) was created, a lot of subsidies were put in the law that effectively pampered developers of renewables like solar, wind, and biomass. Among these are the: (1) feed in tariff-allowance (FIT-All), (2) priority and mandatory dispatch into the grid, (3) renewable portfolio standards (RPS) or the minimum share of renewables in power generation, and (4) various fiscal incentives.

The list of those various subsidies and incentives, FIT rates in Germany and the Philippines, are also discussed in my earlier article, “Feed in tariff means more expensive electricity” published by the Albert del Rosario Institute (ADRi) blog, Spark.

A FIT that increases every year -- which has already taken place in Germany, UK and other European economies, and now in the Philippines -- means rising electricity prices even if generation, transmission, distribution, supply, and various other fees and tax rates remain the same.

So far, it seems that not a single candidate for a national position has openly criticized this setup of ever-rising electricity prices in the country. On the contrary, some candidates even justify expensive electricity so that we can help “save the planet.”

Expensive electricity means more dark streets at night as LGUs, villages, and households save on their monthly electricity bills. When many streets and roads are dark at night, there are more road accidents, more destruction of public and private properties, more crimes, more rapes, injuries, and deaths.

Worse, when some households’ electricity connection is temporarily cut off due to non-payment, people have to use candles for a few hours or days, and candles are among the major causes of fires. These social costs are often avoided or not recognized by the campaigners of expensive, unstable renewables.

Expensive electricity also means less businesses and jobs that can potentially be created here. Energy-intensive companies and manufacturing plants will try to avoid investing in the Philippines -- where electricity prices are expensive -- since they will put up their factories and big offices in ASEAN countries with lower energy costs, then export to the Philippines at zero tariff. They only rent smaller offices here to facilitate business transactions.

As a developing and emerging economy, we should have cheaper electricity, bigger power capacity and reserves to ensure 24/7 availability of power, even in periods of huge spikes in electricity demand or damaged power facilities due to strong storms or earthquakes.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of SEANET and Albert del Rosario Institute. minimalgovernment@gmail.com

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See also: 

BWorld 43, More on WESM, PEMC and DOE, February 14, 2016
BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016
BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016 

BWorld 53, Population and growth projections, April 09, 2016 

BWorld 54, Rice farming, trading, smuggling and electioneering, April 15, 2016

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. Osmeña 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). minimalgovernment@gmail.com

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See also:

BWorld 22, WESM, PEMC and search for competitive electricity prices, November 05, 2015 

BWorld 25, Feed in tariff means expensive electricity, November 14, 2015

BWorld 28, Economic freedom in Asia, November 28, 2015 

BWorld 29, Paris COP's emission cut targets vs. energy needs, December 06, 2015 

BWorld 30, Tourism and airport transfer at NAIA, December 09, 2015

BWorld 22, WESM, PEMC and search for competitive electricity prices

* This is my column in BusinessWorld yesterday.

The search for affordable and competitive electricity prices in the Philippines and elsewhere remains a continuing adventure for consumers and many industry players.

In a previous column entitled “DoE’s new circular will raise, not lower, electricity prices” (Oct. 21), it was argued that the Department of Energy (DoE) order mandating competitive selection process (CSP) by distribution utilities (DUs) would have the potential of increasing, not lowering, electricity prices.

There is an existing platform for CSP by electricity producers and distributors in the country via the Wholesale Electricity Spot Market (WESM), created under Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA). Managed by the Philippine Electricity Market Corp. (PEMC), the spot market became operational in June 2006 and it allowed the Philippines to join three other Asian developed economies -- Japan, South Korea, and Singapore -- to have a power exchange market. (See table 1)

 Outside Asia, perhaps all the developed economies in Europe and North America have their own power exchange markets: New York, Los Angeles; Munich, Frankfurt; Amsterdam, Rotterdam; London, Rome, Madrid, Stockholm, Brussels, Zurich, etc. Australia also has its own power market.

RECENT WESM PRICES

During the WESM Market Participants Update sponsored by the PEMC last Thursday, Oct. 28 at Intercon Hotel in Makati, the corporation reported uptick in WESM prices from April to June 2015, then significant decline from July to September 2015. The main reason is the increase in power demand in May-June due to warm weather, then decrease in power demand in the wet and cool weather of July to September. There is also bigger capacity by the hydro power plants. (See table 2)

The September price is really good news for the consumers, be they residential, commercial, or industrial. Also during the period April to September 2015, total market transactions at WESM was 33,101 gigawatt hours (GWh), of which 91.4% are done via bilateral, medium- and long-term contracts and 8.6% via spot market contracts.

GOVERNANCE ISSUES IN PEMC

From the WESM Web site, the PEMC Board is composed of 15 representatives/directors from various sectors of the electric power industry, plus independent members:

One from the Market Operator, one from the National Transmission Corp. (now known as the National Grid Corp. of the Philippines), four from DUs; one from WESM customers including but not limited to suppliers; four from generation companies (gencos); and four independent of the Philippine electric power industry and are nominated by WESM members.

With that said, there should be NONE from the government. In reality though, there are at least three from the government: DoE Secretary as Chairperson, the head of Power Sector Assets and Liabilities Management Corp., and the head of National Power Corp.

The presence of the DoE Secretary as Chairman of the PEMC Board should be temporary and not extended with no clear timetable. Under Section 30 of RA 9136 it says that:

“...Not later than one (1) year after the implementation of the wholesale electricity spot market, an independent entity shall be formed and the functions, assets and liabilities of the market operator shall be transferred to such entity with the joint endorsement of the DoE and the electric power industry participants.”

WESM was created in June 2006. This means that an independent market operator should have been in place by June 2007, but more than eight years after, this did not take place. What happened?

There are many government agencies regulating the power sector already: DoE (overall), Energy Regulatory Commission (tariff rates), Securities and Exchange Commission (corporate matters), Department of Environment and Natural Resources (environmental permits), Bureau of Internal Revenue (national taxes), local government units (local taxes and permits) and so on. Having government as key player within PEMC is unnecessary and a violation of EPIRA.

The key to having affordable and competitive electricity prices is via competition among market players, especially among generation companies -- harsh and fierce competition as much as possible. More government regulations, permits, and taxes do the opposite and result in market distortion, expensive electricity and unstable supply in certain periods of the year.

PEMC should be allowed to operate as truly independent of government. Let the various players, gencos and distribution utilities, and consumers, and independent directors, debate and settle among themselves various issues with the end-view of having low and competitive electricity prices for the consumers.

Bienvenido S. Oplas, Jr. is the head of Manila-based Minimal Government Thinkers, Inc., and a Fellow of Kuala Lumpur-based South East Asia Network for Development (SEANET).

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See also:
BWorld 18, Non-tariff barriers in the ASEAN, September 12, 2015 
BWorld 19, Taxation and regulations in PH mining industry, September 24, 2015 
BWorld 20, DOE Circular to raise electricity prices, October 25, 2015 
BWorld 21, More internet use means lesser corruption?, October 31, 2015

BWorld 20, DOE Circular to raise electricity prices

* This is my article in BusinessWorld last October 21, 2015.

IN MANY STATISTICS comparing electricity prices in Asia, Manila/Philippines often rank no. 2, next to Tokyo/Japan. Here is one such data. Of the 11 major cities in North and Southeast Asia, Manila has the 2nd most expensive electricity prices for residential tariff, 3rd in generation cost, 1st in grid charges, and 2nd in tax rates. (See table)

With such a cost structure, it would be a mystery why some groups and government officials would think of new ways and schemes that would further raise electricity prices in the Philippines.

Like the feed-in tariff in the Republic Act (RA) No. 9513 or the Renewable Energy Act of 2008 and more recently, the Department of Energy (DoE) Circular No. DC2015-06-008, “Mandating all Distribution Utilities (DUs) to undergo Competitive Selection Process (CSP) in securing Power Supply Agreements (PSA)” through a Third Party.

There are two normal and two abnormal concepts in this Circular. The normal ones are CSP and PSA, they have been there since many decades ago, DUs and electric cooperatives doing CSP on their own with power generating companies (gencos) in getting their PSAs.

The abnormal ones are the (a) mandatory, obligatory CSP, and (b) introduction of a Third Party. The latter is a private entity or organization that suddenly has the power to say “Yes” or “No” to a PSA entered between a DU and a genco. Let us call them “Abnormality A” and “Abnormality B,” respectively.

Abnormality A is suspicious because it imposes a new degree of coercion and arm-twisting for the DUs.

In areas or cases where power supply (by gencos) is lower than the demand (by DUs), there is little or no leeway to do CSP. The key to have cheaper electricity is to have lots of gencos competing with each other in supplying electricity to DUs and other institutional consumers via lower prices.

Abnormality B is even more suspicious because of three reasons. One, this Third Party is not free, it will impose new cost to the monthly electricity bill of the consumers with a monthly fee to be paid to those “foreign and national experts.”

Two, the Energy Regulatory Commission (ERC), a government agency created by Congress under the RA 9136 or the Electric Power Industry Reform Act (EPIRA) as the real and institutional Third Party between gencos and DUs, is now relegated as a mere Fourth Party because there is a new Third Party -- with zero congressional legal basis or justification -- that was inserted in the process. The draft implementing rules and regulations made by the DoE gives lots of powers and leeway for this Third Party.

During the DoE public consultation about the Circular last Oct. 6 at Intercon Hotel in Makati, it was obvious that some NGOs and “consumer groups” were lobbying hard and positioning themselves to be the accredited Third Party. Not only for the potential big money involved from the fees to be collected, but also for that new bureaucratic power to approve or disapprove a PSA between legitimate DUs and gencos.

And three, Abnormality B imposes mandatory aggregation of DUs for their PSAs. Each DU has its own cost structure, own requirements, own set of consumers (residential, commercial and industrial) that often are different from those of other DUs. Imposing a one-size-fits-all order removes the flexibility of DUs to get their own PSAs.

This circular is very successful in creating more questions than it could answer. It introduces new cost that will raise electricity prices, thus cancelling or negating its stated goal of lowering electricity prices.

The DoE seems to be in a hurry to have this circular become operational within the next few weeks. In the event that it is ultimately to be implemented, there are at least two remedial measures for the DUs, gencos and the public.

One, there should be independent audits of that Third Party to evaluate compliance with rules and regulations set by the ERC and EPIRA.

And two, the IRR should have a sunset provision or clause, ordering the DoE and ERC to conduct a study or commission a study on the Cost-Benefit analysis after one year of implementation, to see if the circular has indeed brought down the cost of electricity in the country or even contributed to higher electricity prices. If the benefits are smaller than the costs, the circular should become void and withdrawn, or be significantly amended to remove Abnormalities A and B.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers, Inc., a free market think tank in Manila, and a Fellow of the South East Asia Network for Development (SEANET), a regional center based in Kuala Lumpur advocating free trade and free mobility of people in the region.

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See also: 

BWorld 15, The PH electricity market, August 15, 2015 

BWorld 17, More on the Philippine electricity market, August 30, 2015 

BWorld 18, Non-tariff barriers in the ASEAN, September 12, 2015 

BWorld 19, Taxation and regulations in PH mining industry, September 24, 2015

Energy 43, My paper on climate change and cheaper electricity at EPDP Conf. 2016, October 07, 2015 

Energy 44, Position paper on DOE circular re mandatory CSP by DUs of their PSAs, October 13, 2015 

Energy 45, Thailand's bright nights and nat gas power, October 19, 2015