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Commentary

Stars not aligned for amending Epira

/ 12:09 AM November 22, 2014

Certain quarters—legislative leaders, consumer groups, party-list groups—are calling for the amendment of the Epira, or the Electric Power Industry Reform Act of 2001. There is no question that the 13-year-old Republic Act No. 9136 has been a disaster for the government and power consumers, and needs amendment. Its gaping holes concerning true competition and anticompetitive behavior, market manipulation, cross-ownership, and sustainable power development have caused power costs to spiral, especially in areas covered by Manila Electric Co.

For a nation badly in need of a solution and direction in its power supply and costs, amending the Epira presents a compelling panacea. But the question is not whether we need to amend the law but whether we want to risk amending it. It may get worse. The stars are not aligned for amending the law in ways that will work for the country and consumers.

We in the Philippine Independent Power Producers Association are against amending the Epira. But our reasons are different.

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It’s claimed that there is more “competition” in the generation sector because there are more players. It’s claimed further that the WESM (Wholesale Electricity Spot Market) is working, and that the Epira should be allowed to continue and will eventually bring down power costs.

For the record, let us count the ways that the Epira has been a horror for consumers and for power competitiveness:

• Instead of creating competition, the power generation sector has become consolidated and controlled by the groups that also control the distribution market: Metro Pacific and Lopez Group in the Meralco area, and the Aboitiz group in Cebu and Davao. The Summit Group is entering power generation by virtue of its purchase of San Miguel Corp. shares in Meralco. New projects for Meralco are mostly majority-owned by Metro Pacific through Meralco PowerGen. All these are going to have negotiated power supply contracts.

There are more generation players now compared to only one under the old National Power Corp. monopoly. But it does not mean there is true competition. We went from monopoly to “oligopoly meets monopsony.”

For all intents and purposes, the generation market is closed to truly independent power generation investors, unless they partner with the blessed ones who bring to the table the key to any major power generation project—the long-term power supply contract—and their attractive power rates and friendly terms. They decide on their own what should be charged to the people. This is worse than taxation, where at least the people’s representatives vote on it and the collection is more transparent.

This anomaly was made possible by the deadly one-two punch of Section 45 of Epira and the accompanying Rule 11 of its Implementing Rules and Regulations.

• The futility of Section 71 to assure security of supply has to be corrected through amendment or supersession.

We need to recognize the reality that in the end, it is still the government’s responsibility to assure power supply at the lowest cost, which it can do only if it has the ready capability to supplement supply and intervene in markets if the private sector is not adequately serving the public interest. This is not about the government competing with the private sector, but about providing electricity consumers some safeguards for assurance of supply and protection against exploitative market pricing. It would be a deterrent to market abuse and manipulation and, hence, an essential element of a sustainable market-based power structure.

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• Transmission systems operation and planning must be restored back to National Transmission Corp. (Transco).

RA 9511 or the Transmission Concessionaire Law should be superseded and systems operation reverted to the original intent of Sections 9 and 21 of the Epira designating Transco as the systems operator, and not the concessionaire National Grid Corp. of the Philippines.

• There are many areas in the Epira that need to be clarified or strengthened, like the rate-setting mandate of the Energy Regulatory Commission, the energy planning and enforcement capability of the Department of Energy, cross-ownership, value-added tax, and a clearer objective of the WESM.

We are, however, looking to the legislative landscape and the players for reform, and we are not seeing the elements that can ensure a propeople and proconsumer amendment. Consumers don’t stand a chance against the vested interests. Instead of opening the market and controlling cross-ownership, it can become more monopolized. Foreign ownership of distribution utilities and Genco ownership in NGCP can be allowed with tricky subtle language and insertions.

The Epira has had disastrous results, except for those who manipulated it, because of last-minute revisions. Permission for distribution utilities to buy up to 50 percent of their power demand from an affiliated company was inserted in the last two days of finalizing the bill. Until then, only 30-35 percent was being considered. There is no guarantee that this will not happen again in amending the Epira.

We should not risk opening the Epira to amendments now. Instead, let us do what is doable under the current law in terms of better proconsumer implementation. There’s plenty, such as:

• The generation market should be opened and monopoly and sweetheart deals reduced.

This can be achieved if the ERC can pass a resolution requiring competitive bidding for all power supply contracts to supply the captive markets. Both the DOE and ERC have the latitude under the Epira to mandate competitive bidding.

• The ERC can eliminate the inequities of rate setting methodologies like PBR and systems losses. Systems-loss rules can be tightened. It is within the ERC’s power to do so.

• The DOE can improve the trading rules of the WESM to provide for more safeguards and protect against manipulation. The highest dispatched price (called market settling price) is so against consumers and must be changed to paid-as-bid, where suppliers will be paid only for the price they bid. This will establish the true market price for electricity, which is not a commodity.

• The ERC can similarly require more competitive bidding for asset procurements of the distribution utilities to prevent overpricing and consequent overpricing of returns on these rate base.

Let us not risk amending the Epira now. We don’t know what will result. Let us wait until the stars are better aligned for an honest-to-goodness amendment.

David Celestra Tan (david.mskorg@yahoo.com.ph) is a founding director and former president of the Philippine Independent Power Producers Association. He is coconvener of the Matuwid na Singil sa Kuryente Consumer Alliance Inc. and an advocate of power cost reduction.

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TAGS: Energy, Epira, independent power producers
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