Epira is working

FIFTEEN YEARS ago, Congress enacted the Electric Power Industry Reform Act (Republic Act No. 9136, aka Epira), aimed to achieve reliable and competitively priced electricity—a goal that has continued to elude us. Critics have called for its review or even outright repeal due to its supposed ineffectiveness. But other countries that have yet to move away from subsidized power are already pursuing their own versions of Epira, on the recognition that their power pricing regimes cannot be sustainable.

Epira’s intent was straightforward: Remove monopolies in the power industry through privatization of the National Power Corp.’s assets, and foster competition in the industry to make it more cost-effective and efficient. With these, electricity prices should go down. As of end-2015, only the Malaya Thermal Power Plant in Luzon, and Power Barge 104 and the Agus and Pulangi hydroelectric plants in Mindanao remain government-owned. But our electricity prices have stayed high and consistently among the highest in the region. The law has been blamed for high prices and price volatility due to the removal of government power subsidies, the layering on of profits due to the unbundling of the different industry subsectors, and the introduction of the Wholesale Electricity Spot Market (WESM). While intended as a venue for market competition to set power prices, many see the WESM as a venue for alleged collusion among generation companies (gencos) instead. The generation charge that is the WESM’s object is the main cost driver and largest portion of the monthly power bills we all pay.

The WESM’s weaknesses came to the fore late in 2013 when, in the wake of Supertyphoon “Yolanda,” Filipinos got hit with whopping average electricity prices of P15.171 and P18.194 per kilowatt-hour in November and December of that year, respectively. The Energy Regulatory Commission (ERC) eventually reversed these charges, but consumers already got a taste of what could possibly go wrong. The way the WESM works, all participating gencos must submit, for every trading session, generation offers that include the minimum and maximum megawatts they can generate, and at what price. The cheapest power sources are prioritized for dispatch to consumers. The most expensive dispatched electricity becomes the basis price for that trading session, and all dispatched electricity is bought from the gencos at that price.

The flaw in the system was that gencos that did not want to dispatch power could artificially jack up their prices to the WESM-allowable maximum, so their electricity would be the last priority for dispatch. But in dire straits, such as in the post-Yolanda period, even the most expensive last-priority offer ended up being dispatched, leading to the incredible price hike.

In the investigation, a number of gencos were found to have violated the WESM’s “must-offer” and/or “must-run” rules. Melinda Ocampo, president of the Philippine Electricity Market Corp. (PEMC) that operates the WESM, noted that companies that withheld capacity or did not make an offer likely led to the higher power rates at the WESM. The PEMC fined the violating companies, who took the matter to the courts. This incident has impelled the Department of Energy, ERC and PEMC to seek ways to further protect power consumers.

The WESM has in fact proven its worth, showing that it can bring prices down when there are ample supplies to fill demand. Its prices reached their lowest for the year in September 2015, with the recovery in supply after plants came back from shutdowns, coupled with the drop in oil and coal prices. Consequently, the generation charge in our Meralco bills that month went down to a P3.995/kWh. With over 90 percent of the generation costs coming from generation contracts, the difference from the previous month’s P4.132/kWh may not appear proportionally substantial. But even as contracted prices do not readily adjust to short-term market fluctuations, the WESM made it possible for consumers to still benefit immediately from this reprieve. That September dip was in fact the lowest since October 2009, when record rainfall levels close to high power-consuming Metro Manila brought about cooler weather, and also led to higher dispatch of cheap hydroelectric power.

Those two instances demonstrating how generation charges have responded to market supply and demand dynamics both raise a matter more pressing than the WESM’s operating rules: the apparent lack of reserve generating capacity. A PEMC study (“Study of Mitigating Measures for the Philippine Electricity Market”) determined the price hike of 2013 to be influenced by “the prevailing tight demand and supply conditions in the Luzon region… as well as high occurrence of insufficient supply/under-generation… coinciding with the maintenance shutdown of Malampaya and a series of outages of major coal plants. In addition, supply was further limited in Luzon due to the unavailability of the Leyte-Luzon High Voltage Direct Current link caused by the devastation of typhoon Yolanda…” While we’ve come a long way from the power crisis of the early 1990s, we are not exactly in the clear either.

With improvements to the WESM rules and their enforcement, and the impending full implementation of retail competition and open access for consumers above 750 kWh of power usage per month, Epira can yet bring electricity prices further down. Epira is in fact working. But it can only be as effective as how well we enforce it to ensure sufficient competition in the industry, and how well we ensure that we have adequate power supplies, regular and reserve alike.

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