reforming the philippine electric power industry reform act (epira)

7/23/2019 Reforming the Philippine Electric Power Industry Reform Act (EPIRA)

1/16

1

MEMORANDUM

TO: Senator Gregorio B. Honasan IIChair, Joint Congressional Power Commission

FROM: Elvin Ivan Uy

DATE: 29 April 2010

RE: Genuine and Sustainable Reforms in the Electric Power Industry

Introduction: The 2010 Power Crisis

Nearly two decades after the power crisis in the latter years of the Aquino administration, the

country is again experiencing recurrent electric power outages (Rubrico, 2010). Installedcapacities have not been able to cope with demand with the onset of the hot summer weather1,a marked reduction in hydropower generation due to lower water levels in dams as a result of

El Nio, and operational problems in several power generators2. Mindanao was placed under

a state of calamity last month, and P10 billion in emergency funds were made available to

address the power shortage in the region (Paares, 2010).

Adding to the nations woes, Meralco the countrys largest power distributor hiked its

rates this month by an average3

of P1.27 per kilowatt-hour (KWh) given higher generation

and distribution costs (Santos, 2010). Households consuming 100 KWh a month will pay anadditional P120, while those using 300 KWh a month will be charged P360 more (Ho, 2010).

Our power rates are now the third most expensive in Asia (Cabreza, 2010).

This memorandum aims to refocus the discussion on the central issue: the overall efficacy ofRepublic Act No. 9136 (RA 9136), the Electric Power Industry Reform Act of 2001 (EPIRA).

We review the progress of its implementation, assess whether EPIRA has achieved its stated

goals, and prescribe necessary action by the Joint Congressional Power Commission4

(JCPC)

to rectify the current power crisis and avert future ones.

Nine Years After: A Review Of EPIRA

RA 9136 is designed to bring down electricity rates and to improve the delivery of power

supply to end-users by encouraging greater competition and efficiency in the electricity

industry. The essence of these reforms is giving stakeholders a CHOICE5. (DOE, n.d.)

EPIRA mandated a restructuring of the power sector (see Figure 1), and the privatization of

the National Power Corporation (NPC) as one of the prerequisites6 to the implementation of

open access and retail competition. Previously vertically integrated, the power industry was

unbundled into four sectors: generation, transmission, distribution, and supply.

Generation and supply sectors were deregulated, with the Power Sector Assets and Liabilities

Management Corporation (PSALM) taking the lead in the privatization of NPCs generation

assets, including its contracts with Independent Power Producers7 (IPP). The Wholesale

Electricity Spot Market (WESM), operated by the Philippine Electricity Market Corporation8

(PEMC), was launched in 2006 to spur competition in these sectors (WESM Overview, n.d.).


2/16

2

Transmission and distribution sectors continued to be natural monopolies9

and are regulatedby the Energy Regulatory Commission (ERC). The government-owned National

Transmission Corporation (TRANSCO) was created in March 2003 to assume NPCstransmission operations (Mira and Singson, 2007) and was subsequently sold to the privately

held National Grid Corporation of the Philippines (NGCP) in 2008 (Bordamonte and

Miraflor, 2008).

Anatomy of High Electricity PricesElectricity cost in the country is inherently high due to several factors. First, the country

lacks sufficient domestic fuel reserves. Generation companies, as a result, have to import

their fuel requirements. Second, the countrys archipelagic topography necessitatessubstantially higher investments in transmission infrastructure compared to other countries.

These facilities must link generation and distribution utilities across thousands of

geographically dispersed islands, and they must also be able to withstand tropical storms and

earthquakes. Third, the countrys electricity demand curve is relatively peaky in

comparison to other countries. The lack of a strong industrial base in the country means that

there is very little baseload demand on a 24-hour basis that might help defray the cost ofinstalling facilities to cover peak demand. Lastly, majority of inputs are sourced overseas

due to a lack of domestic sources of critical equipment. Since both fuel and equipment are

purchased at international prices, the industry, and ultimately the consumers, are

continuously subjected to significant foreign exchange risk. (Woodhouse, 2005)

Privatization, Rent Seeking, and the Power OligarchyCentral to EPIRAs aim of a free and competitive electricity market was the dismantling of

monopolies in the power sector. Privatization was viewed as the means to improve efficiency

and transfer, from the government to the private sector, the burden and rewards of sustained

investments particularly in generation and transmission facilities.

As of December 2009, 81 percent of the generation capacity of NPC in Luzon and Visayas

has been privatized (see Table 1), fulfilling one of the five preconditions for open access and

retail competition. A Lopez- or Aboitiz-controlled company won the bid in ten out of thetwenty plants sold. The rest went to other private corporations and one electric cooperative.

Both the Lopez and Aboitiz families have taken advantage of RA 9136, amassing and

consolidating their stakes in the generation and distribution sectors. While Sec. 45 of the Act

disallows generation companies and distribution utilities from owning interests in the

transmission monopoly and vice-versa, it does not impose similar restrictions for generation,

distribution, and supply ownership.

The Lopez-owned First Generation Power Corporation (First Gen) and its affiliates

collectively comprise the countrys leading private generation firm, with a 19.8 percent share

of the Luzon grid, 53 percent of Visayas, and 5.6 percent of Mindanao, totaling 15 percent ofthe national grid. The Lopez clan likewise controls10 Meralco, the countrys largest

distribution utility that serves 4.6 million customers in 29 cities and 82 municipalities

including Metro Manila (Meralco, 2009). The Aboitiz Power Corporation (APC) and its

affiliates own 12.3 percent, 6.53 percent, and 35 percent of the Luzon, Visayas, and Mindano

grids, respectively, equivalent to 14 percent of the national installed capacity. Aboitiz also

has controlling interests in Visayan Electric Company (VECO) and Davao Light and Power

Company, the second and third largest distribution utilities in the country, apart from other

smaller entities. (Briola, 2009)


3/16

3

Sec. 45 of EPIRA on cross-ownership and market power abuse specifies that no company orrelated group can control more than 30 percent of the installed generating capacity of a grid

and/or 25 percent of the national installed generating capacity. Both First Gen and APChave essentially breached the 30 percent limit, for the Visayas and Mindanao grids,

respectively. However, the ERCs updated rules11 on generation capacity and market share

limits coupled with the ownership structure of some of these companies prevent anycorrective action, allowing both firms to acquire more horizontal market power.

Gaming in the WESM, Delays in Implementation of Open Access and Retail CompetitionSec. 30 of RA 9136 mandates that the WESM must be established within one year from the

effectivity of the Act. The WESM was however only launched in June 2006 and only for theLuzon grid, owing to delays in the privatization of NPC assets and the lack of technical and

market requirements from Visayas and Mindanao (Diokno-Pascual and Fortaleza, 2009).Trial operations for Visayas began in March 2009, and no specific date has been pegged for

its commercial launch due to a lack of available supply (14th

Status Report, 2009).

The WESM aims to: (1) provide incentives for the cost-efficient dispatch of power throughan economic merit order, (2) create reliable price signals to assist participants in weighing

investment options, and (3) provide and maintain a fair and level playing field for suppliers

and buyers of electricity (About WESM, n.d.). In sum, the spot market serves as a trading

place between electricity buyers and sellers through auctions that match bids for demand andsupply (WESM Overview, 2007).

Figure 2 describes the WESM along with its mechanism for the determination of dispatch

schedules and market clearing price (MCP). The latter is set based on the last power plant

that is scheduled to meet the demand, which has a price higher than the earlier plants that

matched preceding bids. All suppliers are paid uniformly based on the MCP. This

mechanism is prone to gaming, both in theory12 and in practice13. Lopez-owned IPPs, for

example, routinely bid zero to ensure dispatch knowing from experience that other plants will

eventually be scheduled for dispatch with a satisfactory and non-zero MCP (Diokno-Pascual

and Fortaleza, 2009).

Competitive biddings through the WESM have not generated their intended benefits.

Power rates of electricity sourced through the spot market were consistently higher compared

to other sources (see Table 2). Only less than a fifth of the power supplied in Luzon has also

been sourced via the spot market, with most distribution utilities getting electricity directly

from generators through bilateral contracts (see Table 3).

These results are not surprising. Sec. 45c of EPIRA barred distribution utilities from

sourcing more than 90 percent of their demand through bilateral contracts, effectively setting

10 percent as the minimum share of the spot market. Meanwhile, Sec. 45b permitsdistribution utilities to source up to 50 percent of their requirements from their affiliates.

Both provisions have enabled firms with vertical market power the Lopez and Aboitiz to

favor their respective IPPs. In its Annual Market Assessment Report (2007), PEMC

acknowledged that Meralcos large share on the buy side of the market both the spot and

bilateral contracts raises the specter of a potential monopsony power.

Open access and retail competition, as defined in Sec. 3114 of RA 9136, was scheduled for

implementation last month, following the fulfillment of the precondition to privatize 70percent of NPC generation assets in Luzon and Visayas. The program is available to


4/16

4

consumers in Luzon with a 1MW monthly average peak demand for the past 12 monthspreceding its implementation (Gatdula, 2010).

An Ineffectual Energy Regulatory CommissionUnder Sec. 41 and 43 of RA 9136, the ERC is tasked to ensure the adequate promotion of

consumer interests and promote competition, encourage market development, ensurecustomer choice and penalize abuse of market power in the restructured electricity industry

as an independent quasi-judicial body. Its most crucial functions include the authority to

approve rate hikes across the industry, and act on complaints regarding anti-competitive

behavior.

Two market power abuse cases highlight the weakness of the Commission in carrying out its

industry watchdog role. In 2007, the Enforcement and Compliance Office (ECO) of PEMC

complained that PSALMs trading teams engaged in price manipulation by simultaneously

raising the MCP for three plants. The ERC dismissed the complaint citing no evidence of

anti-competitive behavior. Diokno-Pascual of Freedom from Debt Coalition (FDC), who

studied the case, concluded that ERCs investigation centered on collusion between PSALMand NPC, instead of the evidences provided by ECO. (Pabico, 2007) Another ECO case

accused Meralco and its IPPs of gaming the spot market. Meralco bought more from WESM

during off-peak compared to peak hours from January 2007 to March 2008, when its IPPs

were price setters next to two other NPC generation plants (see Table 4). The Commissionagain found no evidence of abuse. (Diokno-Pascual and Fortaleza, 2009)

Reforming EPIRA And The Power Industry: Policy Prescriptions

Drawing from the lessons of the first nine years of EPIRA, we propose three vital

amendments to RA 9136 and one for open access in economic zones (or ecozones):

1. Strengthen safeguards against significant cross-ownership and market power abuseRA 9511, the Act that granted the transmission franchise to the NGCP further watered down

the already weak provisions on cross-ownership of EPIRA. From a total ban on cross-

ownership between transmission and other sectors, RA 9511 allows cross-ownership up to 1percent of the outstanding shares of the other company. Beyond this limit, cross-ownership

is not allowed among relatives and spouses within the fourth degree of consanguinity.

Simply, there could be cross-ownership between transmission, generation and distribution.

Amendments to RA 9136 must include stronger safeguard provisions, specifically:

a) Total ban on cross-ownership in transmission, generation, distribution and supplyb)

Restriction on firms, including their affiliates, with vertical market power from furtheracquisition of NPC generation assets

c) Clearer guidelines on the regional generation capacity share limits to curb horizontalmarket power

d) A lower limit on the amount of supply that may be sourced through bilateral contractsby a distribution utility from its affiliate generation firm

2.Revisit the WESM and evaluate its practicabilityMost criticisms of the WESM center around the MCP and how this mechanism ensures

prices go up rather than down. Bidding rules may be revised from uniform to pay-as-bid

pricing, as was done in the United Kingdom, but such a change have been proven to be

ineffective15

(Apt et al., 2004). Some state regulators in the U.S. responded to this inherentflaw by developing administered markets16, where prices are mandated by the regulators


5/16

5

rather than determined through real competition. Such regulatory regimes and pricereductions are bound to be unsustainable17. (Apt et al., 2006)

A truly free and competitive market requires that enough companies, which do not have

horizontal market power, invest more in their generation infrastructure. More players with

less generation capacity per firm are needed to curb the pivotal supplier problem associatedwith entrenched oligarchs. (Apt et al., 2006) However, the required investments are

prohibitive, and the smaller generation firms are likely unable to assume them.

If the WESM cannot be made competitive, one possible solution is to limit the amount of

electricity sourced from the spot market, and instead enforce better regulation of bilateralcontracts between generation and distribution firms. The ERC must ensure that contracts

between firms place generation as close to average cost as possible by allowing the length of

the agreement to span the life of a generation plant18

. (Apt et al., 2004) Considering the high

concentration of market power in the distribution sector, the Commission must guard against

market power abuse particular by vertically integrated conglomerates.

3. Overhaul the ERCThe ERC has thus far failed to carry out its two main functions. Reforming the Commission

entails instituting stringent anti-regulatory capture policies. These include removing from the

ERC the power to grant provisional authority to firms for cost recovery applications. TheERC should always decide price hikes directly. Appointments of the commissioners must

also be strictly based on competence and integrity. (A Dozen Ways, 2008)

4. Support the PEZA Open Access Policy in All EcozonesMandates of the Philippine Economic Zone Authority (PEZA) include regulating electric

power utilities to fix just, reasonable and competitive rates, charges and fees (RA 7916,1995). PEZA implements an Open Access policy in all four of its public ecozones. As a

result, average power cost in these ecozones is nearly half of the private ecozones (see

Figure 3). The only barrier to extending this program to the latter is the legal case19 by the

Philippine Independent Power Producers Association (PIPPA) and the ERC (Velasco, 2010).

By issuing a clear policy preference towards open access in ecozones, the JCPC can pave the

way towards a business environment that is more conducive to inflow of foreign investments.

Beyond EPIRA: Securing A Sustainable Energy Future

Reforming the electric power industry is as much a technical as it is an adaptive challenge.

The former requires relevant and well-formulated policies while the latter necessitates boldand strong leadership from the JCPC, the DOE, the ERC, and other stakeholders.

Republic Act No. 9513, the Renewable Energy Act of 2008, is designed to address gapsfound in EPIRA from a technology standpoint. RA 9513 set the regulatory framework to

encourage broad market participation20 in the continued development of the renewable or

clean energy sector, which currently contributes the least to our electricity production (see

Figure 4). The JCPC must lead in accelerating the implementation of RA 9513, which should

ultimately provide a countervailing force against the existing power oligarchs.

Nine years after its enactment, the EPIRA has clearly failed the Filipino people. The country

cannot afford more of the same for another decade. The JCPC must initiate the necessaryactions toward genuine reforms today.


6/16

6

________________________________________1 Meralco estimates that electricity demand increases by an average of 100 megawatts (MW)

for every degree (Celsius) increase in temperature (Santos, 2010).2 The 647-MW Sual 2 unit of the Sual coal-fired power plant had been down since April 5,

while the 350 MW Pagbilao I unit of the 735-MW Pagbilao coal-fired power facility in

Quezon would remain on maintenance shutdown until April 20 Modules 40 and 20 of the1,000-MW Sta. Rita natural gas-fired power plant had scheduled major outages until April 19

and 25, respectively The 300-MW Malaya 1 unit of [Kepcos] 650-MW Malaya thermal

power plant was not running Thursday as it had no fuel. (Dauigoy et. al, 2010)3 Households consuming up to 200 KWh a month pay only 85.47 centavos/KWh up to

P1.2298/KWh for more than 200 KWh, P1.5836/KWh for more than 300 KWh, andP2.1998/KWh for more than 400 KWh. (Santos, 2010)4 Given that the 14th Congress is currently in recess and the national elections on May 10, it is

more realistic to expect action once the JCPC is reconvened in the 15th

Congress.5CHOICEis an acronym representing the objectives of EPIRA:

Consumer empowerment achieved by giving consumers the power to choose their source of

electricity from among a host of generators and suppliers of electricityHigher efficiency adequate and reliable power supply at lower rates

Open access open access to transmission and distribution network/facilities so that thebenefits of competition in the generation/supply sector could trickle down to the consumers

Industry accountability higher levels of environmental, health and safety standardsCompetition in generation and supply prices will be market-driven and competitive. There

will be long-term contracts and a spot market where the trading of electricity between buyers

and sellers will be undertaken.

Electricity tariff unbundling customers will be able to know how much they would bepaying for generation, transmission, distribution and other charges.6 Sec. 31 of EPIRA requires the following before open access and retail competition can be

implemented: (a) establishment of the wholesale electricity spot market; (b) approval of

unbundled transmission and distribution wheeling charges; (c) initial implementation of the

cross subsidy removal scheme; (d) privatization of at least seventy (70%) percent of the total

capacity of generating assets of NPC in Luzon and Visayas; and (e) transfer of themanagement and control of at least seventy percent (70%) of the total energy output of power

plants under contract with NPC to the IPP Administrators. (RA 9136, 2001)7

[NPC] entered into 48 IPP contracts since 1991... More than half of these were made

during the Ramos presidency. IPPs are paid a fixed fee per month, whether there was actual

use of their generation capacity or not. (Rimban and Samonte-Pesayco, 2002)8 PEMC, a non-stock and non-profit corporation established by the DOE and representatives

of the various power sectors, serves as both the governance arm and the market operator(MO) of the WESM (WESM Overview, 2007).9 Natural monopolies are industries where the costs are lower with only a single player due to

economy of scale. Transmission through a nationwide grid is carried out most economicallythrough a single firm (Bordamonte and Miraflor, 2008), while distribution utilities (i.e.

private companies, electric cooperatives, or LGU-controlled utility) are granted monopoly of

their respective coverage areas for the same reason (Fortaleza, 2009).10 Lopez only owns 6.6% of Meralco but is allied with the group of Manuel V. Pangilinan

that has a 41.1% stake; the alliance was forged to avert a takeover of the San Miguel group,

which holds a 27% stake, in 2008 (Pangilinan, 2010).11 Installed generating capacities have increased from: (a) 10,664MW in 2009 to 11,189MW

in Luzon; (b) 1,645MW to 1,715MW in Visayas; (c) 1,730MW to 1,809MW in Mindanao;and (d) 14,039MW to 14,713MW for the national grid (ERC, 2010).


7/16

7

12Sarosh Talukdar and his students created a simulation with 10 firms, each having 10% of

total system capacity. These firms are not as smart as human traders and learn slowly. Yet,

even when capacity is twice the amount of electricity needed, the suppliers manage to raisethe price to monopoly levels. (Apt et. al, 2004)13 The hourly spot market auctions implemented in the U.S. fostered tacit collusion among

participating generators. The potential for implicit collusion through repeated interaction inhourly electricity auctions is widely recognized If a generator had enough capacity so that

withholding its generation would cause a blackout, it could dictate the price. This pivotal

supplierproblem can take the form of a single firm who could exercise pivotal power, or agroup of firms colluding explicitly or implicitly. (Apt et. al, 2006)14

All electricity end-users with a monthly average peak demand of at least 1MW for thepreceding 12 months will be deemed part of the contestable market. The threshold level for

the contestable market shall be reduced to 750KW after 2 years. Every year thereafter, the

ERC shall evaluate the performance of the market and shall gradually reduce threshold level

until it reaches the household demand level. (EPIRA, 2001)15

In practice, everyone knows the capacity of each plant, its heat rate, and the approximate

price of fuel. Thus, all generators can estimate the MC [marginal cost] of every availablegeneration plant. If they assume that everyone will bid their plants at MC, it is

straightforward to estimate the market clearing price for any level of demand. In a pay-as-bid

auction, a generator would estimate that the MC of the plant required to produce the required

level of electricity and bid their low priced generators just under this price Thus, there islittle difference between setting up the market as paying the market clearing price to

everyone versus paying each generator what they bid. (Apt et al., 2004)16

One example is PJM Interconnection. They operate the WESM for several Eastern and

mid-Atlantic states, and require cost-based bidding on any generator dispatched out of merit

order while its market enforcement units have the authority to hand down fines to

generators at any hint of impropriety (Apt et al., 2006).17 Such setup is akin to cost-plus regulation and where nearly all sectors of the industry will

be regulated, which was what EPIRA set out to restructure.18 Apt et al. (2004) posits that for contracts that encompass the entire life of the plant, a

competitive market would force the winning bids down to expected average cost.19 More information on the history of the PEZA Open Access policy and the legal challenge

against it can be found inRoxas (2008).20

Specifically, market participation is enabled through the feed-in tariff (FIT) system

mandated by Sec. 7 of RA 9513. FIT mechanisms have been implemented in 42 countries,

states and regions globally, and are largely responsible for encouraging uptake in renewable

electricity capacity and generation, while driving down costs through technology

advancement and economies of scale, and developing domestic industries (Energy[R]Evolution, 2008).


8/16

8

Appendices

The Joint Congressional Power Commission (Congressional Committees, 2009)

Senate Panel

Chair: Honasan II, Gregorio B.Members: Lacson, Panfilo M.Zubiri, Juan Miguel F.

Gordon, Richard J.

Roxas II, Manuel A.

Arroyo, Joker P.

Pimentel Jr., Aquilino Q.

House Panel

Co-Chair: Macapagal-Arroyo, Juan MiguelMembers: Fuentebella, Arnulfo P.Valdez, Edgar L.

Locsin Jr., Teodoro L.

Albano III, Rodolfo T.

Dumarpa, Faysah RPM

Guingona III, Teofisto L.

Figure 1: The Restructured Power Industry (Tan, 2010)


9/16

9

Table 1: List and Status of NPC Generation Assets for Privatization (PSALM, 2010)

Fuel Type Plant Name LocationCapacity

(MW)Winning Bidder Bid Date

Coal

Calaca Batangas, Luzon 600 DMCI Holding Inc. 8 July 2009

Masinloc Zambales, Luzon 600Masinloc Power Partners

Co. Ltd.26 July 2007

Diesel /

Bunker

Navotas I & IIMetro Manila,

Luzon

210 &

100

Panay IIloilo, Visayas

36.5

SPC Power Corporation12 November

2008Panay III 110

Bohol Bohol, Visayas 22

Iligan I & IIIligan City,

Mindanao114

Geothermal

Mak-BanLaguna &

Batangas, Luzon458.53

AP Renewables Inc.** 30 July 2008

Tiwi Albay, Luzon 289

Bac-Man Sorsogon, Luzon 150

PalinpinonNegros Oriental,

Visayas192.5 Green Core Geothermal

Inc.*

2 September

2009Tongonan Leyte, Visayas 112.5

Hydro

Magat Isabela, Luzon 360 SN Aboitiz Power**14 December

2006

Angat Bulacan, Luzon 246

Masiway Nueva Ecija,

Luzon

12 First Generation Hydro

Corp.*

6 September

2006Pantabangan 100

AmbuklaoBenguet, Luzon

75SN Aboitiz Power**

28 November

2007Binga 100

BaritCamarines Sur,

Luzon1.8

Peoples Energy Services

Inc.25 June 2004

Cawayan Sorsogon, Luzon 0.4Sorsogon II Electric

Cooperative, Inc.

30 September

2004

AmlanNegros Oriental,

Visayas0.8 ICS Renewables, Inc.

10 December

2008

AgusanBukidnon,

Mindanao1.6

First Generation

Holdings Corp.*4 June 2004

Loboc Bohol, Visayas 1.2Santa Clara International

Corp.

10 November

2004

TalomoDavao City,

Mindanao3.5

Hydro Electric

Development Corp.**

25 March

2004

Decommissi

oned Plants

Bataan Thermal Bataan, Luzon 225 Rubenori, Inc. 16 April 2009

Manila Thermal Manila, Luzon 200 Gagasan Steel Inc. 25 April 2008

Sucat ThermalMuntinlupa City,

Luzon850

Cebu II Diesel Cebu, Visayas 54 Taifu Metal ExchangeCorp.

22 January2009


10/16

10

Fuel Type Plant Name LocationCapacity

(MW)Winning Bidder Bid Date

Aplaya DieselMisamis Oriental,

Mindanao108

TEC Industries, Inc. 25 May 2009General Santos

Diesel

South Cotabato,

Mindanao22.3

Total Capacity of Luzon-Visayas grids 3,778.23 *Lopez-owned/controlled**Aboitiz-owned/controlledTotal Privatized Capacity 3,072.23

NPC and IPP Privatization Status (Tan, 2010)

Privatization of NPC Assets as of End 2009

85.25% bidded out 76.07% turned over

Transfer of NPC-IPP contracts to IPP Administrators

37.32% bidded out 29.60% turned over

Note: Official figures from PSALM and ERC (shown above) are slightly different.

Figure 2: The WESM and Its Dispatch Mechanism (Tan, 2010 and WESM Overview, 2007)


11/16

11

How the WESM Operates (Diokno-Pascual and Fortaleza, 2009)

Step 1: Buyers and sellers submit hourly bids to the Market Operator (MO), PEMC. There

are 24 one-hour trading periods in a day and bids take place 24 hours in advance.

Step 2: MO matches bids from buyers and sellers, and then schedules the dispatch. Demand

and supply of electricity are stacked into merit order based on bid price, with thelowest bid plant being dispatched first. Buyers pay a uniform market clearing price(MCP), which is the last bid price that met the demand.

Step 3: MO submits the dispatch to NGCP, the System Operator (SO), for implementation.

Electricity from the matched generators will be transmitted to the distribution

utilities through NGCPs transmission facilities.

Step 4: Buyers and suppliers settle payments through the WESM. The final price (LMP) is

based on the MCP plus market adjustments and congestion cost.

Table 2: Comparison of Power Rates (Diokno-Pascual and Fortaleza, 2009)Period NPC (P/KWh) IPPs (P/KWh) WESM (P/KWh)

Jan Sept 2007 5.4396 4.1743 6.2260

Oct 2007 Mar 2008 4.3170 4.1036 6.6546

Jan 2007 Mar 2008 4.9296 4.1773 6.2048

Table 3: WESM Share of Energy Supplied in Luzon (14th

Status Report, 2009)Billing

Month

Metered

Quantity, MWh

Spot Quantity,

MWh

Percent

Share

Bilateral

Quantity, MWh

Percent

Share

Nov 2008 3,447,266.38 535,759.02 16 2,911,507.37 84

Dec 2008 3,151,245.74 545,175.13 17 2,606,070.61 83Jan 2009 2,906,720.56 604,622.65 21 2,302,097.92 79


12/16

12

Billing

Month

Metered

Quantity, MWh

Spot Quantity,

MWh

Percent

Share

Bilateral

Quantity, MWh

Percent

Share

Feb 2009 3,358,810.66 766,465.14 23 2,592,345.53 77

March 2009 3,222,969.29 537,701.69 17 2,685,267.60 83

April 2009 3,503,547.55 414,910.72 12 3,088,636.83 88

Table 4: Alleged Spot Market Gaming by Meralco (Diokno-Pascual and Fortaleza, 2009)

PeriodPeak Off-peak

NPC IPP WESM NPC IPP WESM

Jan Sept 2007 41.49% 43.82% 14.70% 9.34% 64.13% 26.53%

Oct 2007 Mar 2008 53.21% 42.14% 4.65% 23.39% 62.33% 14.28%

Jan 2007 Mar 2008 44.01% 44.32% 11.67% 14.43% 64.36% 21.21%

Figure 3: The PEZA Open Access Program and Results (Roxas, 2008)


13/16

13

Comparative Distribution Rates

Figure 4: Sources of Electricity Production for Select Countries (Green Electricity, 2009)

References

Rubrico, J. U. (2010, April 10). Philippines power at crisis point.Asia Times. RetrievedApril 21, 2010, from: http://www.atimes.com/atimes/Southeast_Asia/LD10Ae01.html

Dauigoy, E.K., Ho, A. L. and Sotelo, Y. (2010, April 9). Rotating brownouts worsen in

Metro.Philippine Daily Inquirer. Retrieved April 21, 2010, from:http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20100409-263171/Rotating-

brownouts-worsen-in-Metro


14/16

14

Paares, J. P. (2010, March 11). Mindanao placed under state of calamity amid power crisis.

Manila Standard Today. Retrieved April 21, 2010, from:

http://www.manilastandardtoday.com/insideNews.htm?f=2010/march/11/news3.isx&d=2010/march/11

Ho, A. L. (2010, April 9). Power down, rates up. Philippine Daily Inquirer. Retrieved April20, 2010, from: http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20100409-

263166/Power-down-rates-up

Remo, A. R. (2010, March 8). Power supply still unstable, says NGCP.Philippine Daily

Inquirer. Retrieved April 21, 2010, from:http://newsinfo.inquirer.net/inquirerheadlines/regions/view/20100308-257444/Power-

supply-still-unstable-says-NGCP

Santos, J. F. (2010, April 15). Meralco customers complain as bills soar due to higher power

rates, consumption.BusinessWorld. Retrieved April 20, 2010, from:

http://www.gmanews.tv/story/188497/meralco-customers-complain-as-bills-soar-due-to-higher-power-rates-consumption

Cabreza, V. (2010, April 4). RP power 3rd most costly in Asia.Philippine Daily Inquirer.

Retrieved April 21, 2010, from:http://newsinfo.inquirer.net/breakingnews/regions/view/20100404-262343/RP-power-3rd-

most-costly-in-Asia

Frequently Asked Questions: EPIRA (RA 9136).Department of Energy. (n.d.). RetrievedApril 18, 2010, from: http://www.doe.gov.ph/FAQ%27S/epira.htm

Tan, R.A. (2010). Regulating Towards A Brighter Future [Powerpoint Presentation].Energy

Regulatory Commission. Retrieved April 28, 2010, from:http://www.erc.or.th/ERCWeb/Upload/Document/10.30-

12.30%203Rauf%20A.%20Tan(Philippines).pdf

Briola, J. (2009, November). From state monopoly to de factor electricity oligarchy.PeopleAgainst Immoral Debt (PAID!): Official Publication of the Freedom from Debt Coalition

Vol. 13 No. 1, pp 7-27.

WESM Overview,Asian Energy Advisors. (2007). Retrieved April 18, 2010, from:

http://asianenergyadvisors.pbworks.com/f/WESM-Overview.pdf

Republic Act No. 9136, Electric Power Industry Reform Act of 2001. (2001, June 8).

Retrieved April 18, 2001, from: http://www.doe.gov.ph/EP/RA9136.pdf

Mira, R. and Singson, J. (2007, Februrary). Occasional Paper No. 5: The Challenge of

Restructuring the Power Sector and Privatization of NPC Assets. Congressional Planning

and Budget Department, House of Representatives. Retrieved April 18, 2010, from:http://www.congress.gov.ph/download/cpbd/Occasional_Paper_05_EPIRA.pdf

Bordamonte, J. and Miraflor, J. M. (2008, September 29). TRANSCO: The Filipinos Last

Line of Defense Against Privatization.People Against Immoral Debt (PAID!): OfficialPublication of the Freedom from Debt CoalitionVol. 13 No. 1, pp 28-32.


15/16

15

Fortaleza, W. (2009, November). The Undistributed Powers: Power Plays in Distribution

Utilities.People Against Immoral Debt (PAID!): Official Publication of the Freedom fromDebt CoalitionVol. 13 No. 1, pp 33-42.

Rimban, L. and Samonte-Pesayco, S. (2002, August 5-8). Trail of Power Mess Leads toRamos.Philippine Center for Investigative Journalism. Retrieved April 21, 2010, from:http://www.pcij.org/stories/2002/ramos.html

Restructuring & Privatization of the Philippine Electric Power Sector.Power Sector Assets

and Liabilities Management Corporation (PSALM). (2010, January 31). Retrieved April21, 2010, from:

http://www.psalm.gov.ph/documents/prospectus/2010/JANUARY%202010%20INDUST

RY%20PROSPECTUS_Final%20(2).pdf

Corporate Profile,Meralco. (2009, June 4). Retrieved April 19, 2010, from:

http://www.meralco.com.ph/Corporate/about/aboutus.htm

Pangilinan group hikes Meralco stake.BusinessWorld. (2010, March 30). Retrieved April 22,2010, from: http://www.bworld.com.ph/main/content.php?id=8321

ERC adjusts 2010 generation capacities and sets market share limits,Energy Regulatory

Commission. (2010, March 29). Retrieved April 23, 2010, from:http://www.erc.gov.ph/new/10-3-29%20adjusts%202010gen%20capacities.html

Diokno-Pascual, M. and Fortaleza, W. (2009, November). Why WESM Wont Work.People

Against Immoral Debt (PAID!): Official Publication of the Freedom from Debt Coalition

Vol. 13 No. 1, pp 43-54.

14th EPIRA Implementation Status Report,Department of Energy. (2009, April). Retrieved

April 18, 2010, from:http://www.doe.gov.ph/EP/14th%20EPIRA%20Status%20Report.pdf

Woodhouse, E. J. (2005, September). The IPP Experience in the Philippines. Working Paper

No. 37, Program on Energy and Sustainable Development, Stanford University. RetrievedApril 22, 2010, from: http://iis-db.stanford.edu/pubs/20816/PhilippinesIPP.pdf

About WESM, Wholesale Electricity Spot Market. (n.d.) Retrieved April 21, 2010, from:http://www.wesm.ph/page.php?p=189

Apt, J., Blumsack, S. and Lave, L. B. (2004, October). Rethinking Electricity Deregulation.

Elsevier The Electricity Journal Vol. 17 No. 8, pp 11-26.

Apt, J., Blumsack, S. and Lave, L. B. (2006, August). Lessons from the Failure of U.S.

Electricity Restructuring. Carnegie Mellon Electricity Industry Center Working PaperCEIC-05-09. Retrieved April 20, 2010, from:

http://repository.cmu.edu/cgi/viewcontent.cgi?article=1236&context=tepper

Annual Market Assessment Report (AMAR) 2006-2007, Wholesale Electricity Spot Market.(2007, June). Retrieved April 21, 2010, from:


16/16

16

http://www.wesm.ph/templates/default/market.monitoring.and.assessment.view.record.php?title=63f85d8740258df3e16602bb84caf905&id=9&filename=WESM-AMAR-2007.pdf

Gatdula, D. L. (2010, February 14). ERC okays rules on power supply options. The

Philippine Star. Retrieved April 22, 2010, from:

http://www.philstar.com/Article.aspx?articleId=549399&publicationSubCategoryId=66

Pabico, A. P. (2007, November 16). A commission of power.Philippine Center for

Investigative Journalism. Retrieved April 22, 2010, from: http://pcij.org/stories/a-commission-of-power/

Republic Act No. 9511, An Act Granting the NGCP a National Franchise to Engage in the

Electricity Transmission Business. (2008, July 28). Retrieved April 23, 2010, from:http://www.senate.gov.ph/republic_acts/ra%209511.pdf

A Dozen Ways to Reduce Electricity Rates Towards Sustainable and Pro-Consumer Electric

Power Industry.Freedom from Debt Coalition. (2008, June 17).People Against ImmoralDebt (PAID!): Official Publication of the Freedom from Debt CoalitionVol. 13 No. 1, pp

58-59.

Roxas, F. Y. (2008, March). Competition, Lower Prices in Electricity [PowerpointPresentation].Asian Institute of Management Policy Center. Retrieved April 22, 2010,

from:

http://www.policy.aim.edu/downloads/EPS/Lec_Competition_Lower_Prices_in_Electricit

y.pdf

Republic Act No. 7916, Special Economic Zone Act of 1995. (1995). Retrieved April 28, 2010,from: http://www.humanrights.gov.ph/docs/RA7916.pdf

Republic Act No. 9513, Renewable Energy Act of 2008. (2008, July 28). Retrieved April 28,

2010, from: http://www.doe.gov.ph/popup/RA%209513.pdf

Velasco, M. M. (2010, January 16). Only court ruling can untangle legal knot in ecozone

power regulation.Manila Bulletin. Retrieved April 21, 2010, from:

http://www.mb.com.ph/node/238766/only-court-ruling-can-untangle-legal-knot-ecozone-

power-regulation

Green Electricity Making A Difference.PriceWaterhouseCoopers and World Wildlife Fund.(2009, May). Retrieved April 28, 2010, from:http://www.naturemade.ch/Dokumente/Kommunikation/pwc_green_electricity_making_a

_difference%5B1%5D.pdf

Energy [R]Evolution, A Sustainable Philippine Energy Outlook. Greenpeace International,European Renewable Energy Council. (2008, August). Retrieved April 23, 2010, from:

http://www.greenpeace.org/raw/content/seasia/en/press/reports/energy-r-evolution-a-

sustain.pdf

Congressional Ad hoc/Oversight Committees, Senate of the Philippines. (2009, September).

Retrieved April 20, 2010, from: http://www.senate.gov.ph/committee/oversight_mem.pdf

reforming the philippine electric power industry reform act (epira)

Documents