On the retail competition and open access (RCOA) and EPIRA

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

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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).

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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.

2017041893842Such 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.

 

FIT-All, renewables and election 2016

* This is my article in BusinessWorld yesterday.

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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).

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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).

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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

Comparative electricity exchange market in Asia-Pacific

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

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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)

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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

WESM, PEMC and electricity market in Asia

* This is my column in BusinessWorld yesterday.

1The 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)

2Outside 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)

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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).

Electricity prices in Asia and the DOE circular on CSP

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

1IN 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.

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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.

Electricity rates in the ASEAN, with and without subsidy

* This is my article in BusinessWorld Weekender last August 28, 2015.

1THIS is a continuation of an earlier discussion, “The Philippine electricity market: Monopoly and competition” (Weekender, August 14).

As noted in that article, Carlos Jericho L. Petilla had issued, before he resigned as energy secretary last June, DoE Circular No. DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).” That order aims to address, among other things, the suspicion of “sweetheart deals” between some big electric cooperatives (ECs) and distribution utilities (DUs), on the one hand, and the generating companies (gencos), on the other, resulting in expensive electricity prices in the Philippines.

Here is another data, a bit old, from a 2013 commissioned study by the US Agency for International Development (USAID). The first set shows the actual prices including taxes (in Philippines and Singapore) and subsidies (Thailand, Malaysia, and Indonesia), and the second set, adjusted prices if taxes and subsidies were minimized, next to zero.

The USAID report explained why the adjustment was done: “Several factors may explain these wide differences. One is tax: effectively 9% in the Philippines, as opposed to 6% in Malaysia and 7% in Singapore and Thailand, albeit 10% in Indonesia. But the bigger contributor to the price differences is the implicit subsidies to state-owned utilities. The International Energy Agency (IEA) estimated that the electricity subsidies in 2011 in Indonesia, Malaysia, and Thailand were at least 5.56, 0.94, and 5.67 billion US dollars, respectively….”

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Thus, most if not all comparative electricity prices are based on artificial pricing. People blame gencos or the big DUs but not governments which intervene a lot in electricity pricing, resulting in either very high or very low prices.

The DOE Circular was the subject of discussion in a forum organized by the Energy Policy Development Program (EPDP) early this month. There were six speakers, led by OIC-Secretary Zenaida Y. Monsada of the Department of Energy (DoE), Director Mylene Capongcol also of the DoE, UP School of Economics professors Raul Fabella and Ruperto Alonzo, UP College of Engineering professor Rowaldo del Mundo, and Romeo Bernardo of LBT Consulting.

3Mr. del Mundo is the lead technical adviser to the Central Luzon Electric Cooperatives Association-First Luzon Aggregation Group (CLECAFLAG) under the USAID COMPETE project. Twelve ECs in Central Luzon aggregated their total power demand of 300 MW, auctioned it off, and contracted for 20 years the winning supplier, won by GN Power (with expanded capacity of 1,200 MW in Bataan). In his presentation, Mr. del Mundo showed this table of comparative electricity prices in the ASEAN.

By pounding on the need for demand aggregation by DUs as shown in the CLECAFLAG experience, Mr. del Mundo concluded, “The mandatory CSP is the only antidote to [the] EPIRA’s [Electric Power Industry Reform Act] cross-ownership that will avoid temptation to parties with conflict of objectives.”

There is a problem in this conclusion of supporting mandatory or obligatory, instead of voluntary, CSP, based on specific circumstances among DUs and gencos. For the following reasons:

One, as shown in Table 1, we have high electricity prices because the government imposes many taxes on energy while other ASEAN countries subsidize their energy consumption.

Two, Mr. Bernardo noted in his presentation that “Growing pains from regulatory uncertainty, and contracting, approval, and construction bottlenecks have delayed new plants. The average time it takes to build a baseload power plant in the Philippines is probably double elsewhere. Just getting approvals, coupled with overcoming NIMBY opponents, is an ordeal.” And he showed this list of some 200 signatures and permits needed to put up one baseload plant.

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Three, Mr. Fabella suggested market testing of PSA contracts instead of mandatory CSP. Market testing is easier to enforce because the Energy Regulatory Commission (ERC) only verifies and approves the market test (say, auction) employed, and is easier to defend in public. There are many modalities for market testing like the cases in Chile, Brazil, New England.

Four, there’s the big question of who are the “third parties” that will be recognized by the DoE, the ERC, and the National Electrification Administration (NEA) which will approve or disapprove the PSA between the DUs and gencos. Will they work for free? Very unlikely. Rather, the DOE and ERC will be forced to make extra budgetary requests to pay for these “third parties” including allowances for their meetings and public consultations.

It is also possible that NGOs, the media, and other sectors actively or silently supporting the “Repeal/Abrogate EPIRA” movement may position themselves as “third party” referees. The DoE circular is not about repealing or tinkering with the EPIRA.

In short, the DoE circular is barking at the wrong tree: By making the competitive bidding mandatory rather than voluntary, it will invite or create more problems than what it intends to solve. The circular should therefore be withdrawn. Or amended to make CSP voluntary, not mandatory. The DoE and other government agencies should instead address other problems and contributors to expensive electricity in the country. Like multiple taxes, numerous permits by the Philippine government, from the barangay to city/municipal, provincial, and national government offices and agencies. Requiring a firm to present up to 200 different permits would expose it to 200 different opportunities of corruption and extortion.

Government should simply learn to step back from too much intervention, regulation, and taxation.

Bienvenido S. Oplas, Jr. is president of the free-market think tank Minimal Government Thinkers, Inc., and a fellow of the South East Asia Network for Development (SEANET).

DOE Circular No. DC2015-06-0008

* Originally posted on August 03, 2015.

The Department of Energy (DOE) issued Circular No. DC2015-06-0008, Mandating All Distribution Utilities to undergo CSP) in securing PSA, dated June 11, 2015 and signed by resigned DOE Sec. Carlos Jericho “Icot” Petilla.

1So all Distribution Utilities (DUs) in the country would now have to go through competitive bidding in securing their power supply contracts, abandon the old and existing bilateral supply contracts. A third person/party shall also be appointed by the DOE/ERC, and NEA to facilitate the bidding process.

I think it  is a reaction to (a) complaints of “sweetheart deals” between some DUs and electric coops like Meralco, and some power generation companies. and (b) DUs which have their own power generating plants too, making the other gencos that are not affiliated or controlled by the DUs at a disadvantage. Say Meralco  or Batangas Electric Coop or Cagayan Electric Coop also own a big power plant/s. That DU will naturally prioritize getting power from its own genco even if the price is higher than the other independent power producers (IPPs).. And that means higher electricity prices for the pubic but greater revenues/profit for the DU + genco partner.

Here is an example, I took from the DOE website. I am not sure if Isabela Power Corp. is also owned or affiliated with Isabela Electric Cooperative.

2Thus, the DOE attempts to protect the public from further high electricity prices. But the DUs can also reason out that RA 9513 or the RE Act of 2008 also forces them to buy from more expensive renewables with guaranteed prices via feed in tariff (FIT). So why would the DOE now prevent them from prioritizing buying from their partner or DU-owned power plant/s?

That is why I do not support the RE act and the mandatory, forcible dispatch by the NGCP of power from new renewables like wind and solar because it sets a precedent, forcing DUs to buy from expensive power sources.

Although these suspicions have some valid grounds, the main problem of course is the geographical monopoly power of DUs and electric coops. Electricity distribution is among the “public utilities” that the PH Constitution says should be in  the hands of majority or fully Filipino hands and capital. By virtue of their being geographical monopolies via the Constitution  and Congressional franchise law, abuse of power can happen anytime. Hence, another reason why the PH constitution  should be amended to break this type of monopolies. Government should get  out creating monopolies regardless of bleeding heart arguments.