Shakeup in energy sector: Stakeholders highlight need to keep Epira, with some provisions revised

By Lenie Lectura – June 18, 2017 

from Business Mirror

Sixteen years since the Electric Power Industry Reform Act (Epira) of 2001 was enacted into law, industry stakeholders observed more private-sector involvement in the energy industry, ushering in new power projects that boosted the country’s power supply, ultimately benefiting consumers.

“Epira came in June 2001. Maybe, from the start, it was going slow. But from my personal observation, there’s a lot of power projects that came on stream for the last three or four years, [and] a lot of capacity still coming on stream. Not bad at all, because it takes years to put to bed a power project,” Emmanuel de Dios, GE Philippines CEO and formerly Department of Energy (DOE) undersecretary, said in an interview.

Based on the 2016 Philippine Electricity demand-supply data from the DOE, there are 5,068 megawatts (MW) of committed power projects, some of which are currently under way, and some 18,225 MW of indicative power projects that could take off in the future.

AboitizPower President Antonio Moraza noted how Epira has helped improved the country’s power supply. “I think Epira has been very effective. The government is no longer guaranteeing take-or-pay contracts. It also has freed balance sheet so it can use resources for other areas of development. Prices have come down. We now have ample supply. Plants that were privatized have now been rehabilitated and now more efficient and reliable,” he said in a text message.

The DOE said it continuously encourages investments in power generation in view of the increasing peak demand, which is expected to triple by 2040.  In 2016 peak demand in Luzon hit 9,726 MW; the Visayas, 1,893 MW; and Mindanao, 1,653 MW.

Based on projections, the country’s demand for energy will triple between 2016 and 2040. Petroleum products are expected to continue to dominate the country’s final energy demand by 2040. From 13.9 million tons of oil equivalent (MTOE) in 2015, it is estimated to reach 40.5 MTOE by 2040, representing a threefold increase.

Electricity demand is, likewise, anticipated to grow four times from its 2015 level, while demand for other fuels, such as biomass, coal and natural gas, will only be minimal.

On a sectoral basis, the transport sector will have the highest demand in 2040, at 30.08 MTOE. As a likely result of the government’s push toward industrialization and urbanization, the energy demand for the industrial and residential sectors is projected to double, or even triple, by 2040. “When we talk about infrastructure, people fail to realize that energy is the blood of economic activity,” de Dios added.

The Manila Electric Co. (Meralco), for its part, is hoping that the strong investor appetite would continue in the many years to come.

Joe Zaldarriaga, the utility firm’s spokesman, said the Epira has encouraged competition, especially in the power-generation business. The law, he said, also increased efficiencies in distribution, as evidenced by all-time low system-loss levels. “If we look at it, further current retail rates approximate that of around eight years back, which, perhaps, shows that the market is working as it is,” he said in an e-mail reply.

Aside from all-time low losses, Meralco also noted the frequency and duration of outages are also at record lows, and there is more innovation in the power sector. “All the while, strong load growth is also being supported by private-sector investments. We do hope that the environment will continue to improve by encouraging more investments and further increase the efficiency in the power industry for the benefit of consumers.”

Review

Energy Secretary Alfonso G. Cusi said last week there is a need to review existing laws, such as the Epira and those concerning the downstream oil industry and renewable-energy sector.

He stressed that Epira need not be amended, but only undergo a review for a more effective implementation of the law that once promised healthy competition, with hopes that Philippine electricity rates would be one of the lowest in the region someday.

“The Epira, the downstream oil industry and renewable-energy industries are also in need of timely restructuring courtesy of legislative action,” he said.

A review will involve maintaining efficient working relationships with key stakeholders, Cusi stressed. As such, his office must also closely liaise and work with Congress in pursuit of a relevant legislative agenda aimed at improving the energy sector.

“It must be emphasized that a lot of the DOE’s strategies are hinged on the action of Congress, such as the introduction of new legislation or amendments to existing legislation, and also the approval of the agencies’ respective budgets,” he said.

Energy efficiency and conservation, natural gas, liquefied petroleum gas and declaring energy projects as “projects of national significance”, are particular areas of concern that are in need of urgent legislation right now, Cusi said.

Delays

The proposed review is also meant to correct the delays in the implementation of some of the segments under Epira.

“Some are delayed, but these are now being scheduled. We have identified the causes of delay and we are now working on how to speed up the implementation,” Energy Undersecretary Felix William B. Fuentebella said.

“Indeed, supply has improved. Price has gone down. There are more players so the price of electricity is becoming more competitive. In general, the goal is being achieved, but there are some delays,” Cusi noted.

One of the delays they were referring to is the implementation of the Retail Competition and Open Access (RCOA), a landmark policy meant to give consumers the choice to choose their own supplier of electricity to encourage competition in the generation and supply sector.

“Epira is incomplete without RCOA,” Fuentebella said. He could not stress enough how vital this policy is in order for consumers to fully appreciate the benefits of Epira.

It can be recalled that the Supreme Court (SC) issued on February 21 a temporary restraining order (TRO) against a DOE circular and Energy Regulatory Commission (ERC) resolutions days before when some of the RCOA rules were supposed to take effect.

In particular, power users consuming an average of at 1 MW per month are required to source power from a licensed retail-electricity supplier (RES). At present the majority of power consumers are being supplied by Meralco, the country’s largest distribution-utility (DU) firm.

The petition for a TRO was sought by the Philippine Chamber of Commerce and Industry, San Beda College Alabang Inc., Ateneo de Manila University and Riverbanks Development Corp. They pointed out that the Epira does not call for a mandatory switch for customers to purchase their electricity from a DU to a RES.

Senate Committee on Energy Chairman Sherwin T. Gatchalian will seek the legal opinion of the Joint Congressional Power Commission  (JCPC) so this can be used to establish the legality of RCOA during hearings at the SC.

Gatchalian said a legal opinion would “give a lot of weight to the arguments raised on RCOA”.

“From the consumer standpoint, it’s a very negative position. The power sector was privatized thinking in the end that consumers would have the power of choice. But this didn’t happen because it was stalled. And because of this, only the power generators benefited from it,” Gatchalian said.

He said the Senate would initiate the move by recommending the issuance of a legal opinion. “The Senate will trigger it. Now, we will give a memo to JCPC to study and if it finds merit then that will be an official resolution from JCPC,” the senator said.

Hopefully, this will be in place within the month, Gatchalian added.

AC Energy, the power arm of conglomerate Ayala Corp., said Epira has demonstrated how open competition helps lower power prices.

However, “Epira should be fully implemented soon, especially the WESM [Wholesale Electricity Spot Market] in Mindanao and RCOA at the household level,” AC Energy President John Eric Francia said.

The spot market in Mindanao would be launched this month, but the start of commercial operation has yet to be declared.

Fuentebella also noted a delay in the transfer of WESM to an independent market operator (IMO).

Under Epira, the Philippine Electricity Market Corp. (PEMC), operator of WESM, must be transformed into an IMO one year after WESM was launched in June 2006. So far, PEMC has existed for 11 years now.

The transfer of the WESM to the IMO is also meant to dispel concerns of continuing government intervention at the WESM.

Currently, the PEMC Board is a 15-man body made up of representatives from each sector of the electric power industry, as well as independent members. The PEMC Board is chaired by the energy secretary until the transition to the IMO.

Based on a draft DOE circular, the composition of the seven-member IMO board includes an economist, academic, finance person, lawyer, engineer, governance member and the president of the IMO.

Semirara Mining and Power Corp. CEO Isidro Consunji shared the same view, saying some of the goals in the Epira “cannot be felt now”.

Though he agreed that the generation companies operate better now, he noted some aspects in the power sector that still need improvement. “Regulatory bodies [like the] Energy Regulatory Commission [are] not stable, electricity prices yet [to be] optimized due to effect of take-or-pay contracts still in effect, SPUG [small power utilities group] areas need accelerated program of development,” Consunji said.

Gatchalian agreed. He noted  “instability within the regulator.”

Challenges

The DOE cited numerous challenges that could be encountered in meeting the agency’s target additional power capacity of 43,765 MW by 2040.

“All these ambitious energy plans are not without their share of challenges that delay or prevent their fruition,” Cusi said.

Some of the pressing roadblocks to DOE’s aspirations include the following:

  • Ensuring energy security, reliability and reasonably priced energy;
  • Passage of energy-related bills (e.g. energy projects as projects of national significance, energy efficiency and conservation, etc.);
  • Harmonization of laws/policies;
  • Social acceptability of energy resources or technologies; and
  • Energy resource development hindered by transnational/geographical boundaries.

“With tenacity and consistency in adhering to all these well-considered plans and road maps, we will prevail against the usual bane of ningas-cogon, or the habit of habit of starting out a task (with overwhelming enthusiasm but leaving it half-done) mediocrity and shortsightedness, and prove capable of achieving the long-term energy objectives of the country for the benefit of the present and future generations of Filipinos,” Cusi said.

One way to address the delays in some aspects of Epira, the DOE has formally proposed to Malacañang the issuance of an executive order (EO) that will declare energy-related facilities as projects of national significance.

“Permitting takes a lot of time. So, we asked that an EO be issued to declare power projects, not just [as] power plants,[but] as [projects with] national significance,” Cusi said.

According to Gatchalian, it takes 1,340 days to secure a permit, 359 signatures for the permits to be signed, and involves 74 different agencies, including the  DOE, which is only 10 percent of the entire process.

“So that’s the amount of complexity. This is only predevelopment stage, which is apart from building the power plant,” Gatchlian said.

Hopefully, the government can overcome these challenges so consumers can immediately feel all the gains that should be achieved through the implementation of Epira.