ERC-EPDP DIALOGUE
17 February 2015
10:00 am – 12:00 nn
ERC Board Room
Attendance:
 ERC Chairman Hon. Zenaida G. Cruz-Ducut
 ERC Commissioner Gloria Victoria C. Yap-Taruc
 ERC Commissioner Alfredo V. Non
 ERC Commissioner Josefina Patricia Asiril
 ERC Executive Director Atty. Francis Saturnino Juan
 ERC Director for Planning and Information Atty. Francisco Villa
 EPDP Program Director Dr. Majah-Leah V. Ravago
 EPDP Deputy Program Director Leon Flores III
 EPDP Data Management Unit Manager Dr. Dennis Mapa
 EPDP Technical Expert Dr. Raul Fabella
 EPDP Policy Development & Advisory Component Advisor Prof. Ruperto R.
Alonzo
 EPDP Policy Development & Advisory Component Associate Atty. T.I.M. P.
Guanzon
 EPDP Policy Development & Advisory Component Technical Assistant Peter
Paul Taton
 EPDP Capacity-Building Component Advisor Dr. Rolando Danao
 EPDP Capacity-Building Component Associate Aubrey Trinidad
 EPDP Research Assistant Miah Maye Pormon
 EPDP Junior Research Assistant Shirra Jazel de Guia
Agenda:
I. Opening Remarks from ERC Chair Zenaida G. Cruz-Ducut
II. EPDP Presentation by Dr. Majah-Leah V. Ravago
 Comm. Taruc mentioned the role of UPecon Foundation in the rate rebasing
of the water sector
III. ERC Presentation by ERC Director Atty. Francisco Villa
 The discourse focused on ERC’s mandate as regulators under the EPIRA.
The following topics were mentioned:
o The legal history of electricity regulation
 The first law that involved electricity regulation was the
Commonwealth Act 146 that established the Public Service
Commission. The PSC regulated any public utility in the
country
 From there, laws evolved focusing on the fuel mix, petroleum,
and the electric industry.
 Before, there was a monopoly in the generation, transmission,
and distribution of electricity by Napocor
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During the Marcos regime, the focus was on petroleum
products, pricing, and coal as a fuel source
 The Energy Regulatory Board (ERB) was created in the late
80s
 Another innovation at this time was allowing the private sector
to generate electricity. However, the government distributed it
 The Electric Power Act of 1993 was created to address the
electricity crisis, and allowed BOTs for electricity generation.
 Republic Act (RA) 7832 was passed into law. This is still
relevant today because it discusses systems loss during
transmission.
 In 1995, ERB created Resolution No. 95-21 on the Rules and
Regulations Governing the Operation of Public Services
 The deregulation of the downstream oil industry followed
 After which, the components of Napocor were unbundled
 The EPIRA was passed in 2001. This was because the supply
of electricity was not stable, and the government could not
provide for it anymore. As such, prices became high. Its
objective is to abolish monopoly and to encourage competition
towards retail competition and open access
 The privatization of the electric industry gave way to the
establishment of the National Power Corporation (NPC),
independent power producers (IPP) contracts, and Retail
Competition and Open Access (RCOA).
 The Philippine Distribution Code (PDC) and the Philippine
Grid Code (PGC) were made by ERC based on the mandate
from EPIRA.
 DOE crafted the IRR Of EPIRA.
o ERC logical framework
 In 2012, the ERC logical framework was based on economic
growth towards poverty reduction. In 2015, this was changed
to inclusive growth towards poverty reduction
o Overview of ERC’s role post EPIRA specifically in Generation,
Transmission, and Distribution
IV. Discussion
 EPIRA
o EPIRA envisions that the whole archipelago will be operated by 1
market. However, Mindanao is not integrated into the market because
it is not connected to the Luzon-Visayas grid.
 On Retail Competition and Open Access
o Under RCOA, you will choose your electricity supplier
o 70% of generation companies should be privately owned so that there
will be more players
o The licenses of retail electricity suppliers (RES) are suspended right
now because their growth is being studied
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o We are still in the initial phase of open access, specifically we are still
transitioning into it. We have just allowed the 1MW but it is
voluntary. It is not yet mandatory because the market is not yet ready.
o Under open access, the tariffs of generation companies will not be
regulated but their operations will be. The regulation of their
operations will be done by the ERC.
o The supply of distribution utilities to the captive market still needs to
be regulated until the country reaches full RCOA because until then
the captive market relies on the distribution utilities.
o The 6 month transition period to the 1MW contestable market stared
after December 2012. However, the transition period was extended.
ERC is looking at a longer transition period. Once ERC finishes the
guidelines for the mandatory contestable market, the RCOA will be
fully operationalized.
o There is a question of whether we have enough retail suppliers because
the current RES are switching roles. These RES get the blended price,
add profit margin, and as a result burden their contestable consumers.
o Currently, there are around 1,000 contestable consumers in Luzon and
Visayas with a total consumption of 2,500MW. However, the retail
suppliers still have control over the market. The choice ends up in the
hands of the suppliers rather than the consumers.
o There are switching rules for customers to switch from one retailer to
another. Suppliers and contestable consumers enter into a long-term
power supply agreement. However, most consumers are not aware of
their energy requirements. In other countries, the electricity sector is
really competitive. The price, value added, and switching cost should
be factored in and not just the price per se.
o How can one ensure that catering to the contestable market will not
harm the captive market?
o It is easy for suppliers to get a license.
Nonetheless, the
responsibilities and expectation are not clear for suppliers.
On the Spot Market
o The market design is a question of policy. This policy was determined
by DOE. The power to tweak the market is with DOE. The only thing
that ERC can do is observe what things should be further studied.
o The ERC does not have an hand in tweaking the market Perhaps, it
should have a stronger hand.
o The market surveillance committee meeting should be done on a
regular basis and not just twice a month.
On ERC and its functions
o Before, generation was a public utility requiring a franchise from
Congress, and subject to the 60-40 ownership rule in the Constitution.
Now, ERC just issues the Certificate of Compliance to generation
facilities. This certificate is subject to technical, financial, and
environmental standards. Generation facilities are required to renew
their certificates every five years. They are required to comply with
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the PGC, PDC, and the WESM rules. ERC has a scorecard
mechanism to check the efficiency of generation facilities.
o ERC should, by law, have 5 commissioners. Currently, it only has 4.
o ERC provides regulatory operations service to transmission and
distribution facilities, and market operations service to generation
companies and suppliers.
On Costs and Subsidies
o ERC tasked NPC to study the subsidized approved generation rate.
o The goal of the government is 90% household electrification by 2015.
It is a challenge to upgrade certain areas because the cost of powering
them up is prohibitive. The demand for electricity in these small
islands is very small i.e. kW only. This is currently being reviewed by
the ERC. The cost of providing to these areas ranges from Php20 to
Php45. On the other hand, these areas are only paying about Php5.
How can one justify the electrification of more areas when it means
increasing the cost of other consumers? The cost of the missionary
electrification program is greater than the benefits received from it.
The more connections are made, the higher the tariff is for grid users.
Subsidies impact the competitiveness of the industrial sector.
o What is the appropriate level of subsidy to support all the energy
activities of the government?
o The universal charge and the lifeline charge are in the EPIRA.
o Under the EPIRA, cross subsidy is not allowed. It seems, however,
that the universal charge for missionary electrification and the lifeline
rate are the exceptions. Palawan and Mindoro receive half of the
universal charge – missionary electrification subsidy.
o There has to be a way not to burden the consumers.
o The rate design is two tiered. This needs to be studied. All the rates
are subject to a public consultation and ERC approval.
o There is also a cost based evaluation of power supply agreements that
goes through the ERC.
ERC concerns
o Understaffed. The EPIRA was patterned after the US. When
Congress crafted the plantilla positions of ERC, it failed to take into
account the need for a group to be dedicated solely for regulation and
enforcement.
o ERC is not able to let in enough generation companies so as to make
the market competitive. The best way to illustrate this is to look at the
history of how many MW was put into place since the market was
opened.
o The market to support EPIRA was not yet existing and ripe when the
law was passed.
o Very strong local government code, and protection of IP rights. The
decision to put up a generation company can be hindered by the
following factors:
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The location will cover numerous local government unit
jurisdictions (LGU) and will thus require different permits
from all these LGUs
 The ever-changing political climate in these LGUs due to term
limitations. The best example is Redondo.
 The opposition on the ground from civic society groups and
even IP groups.
ERC needs that EPDP can attend to:
o ERC would like to address certain behaviors of generation companies.
There is collusion between their respective stockholders leading to a
way around the market share limitation under the EPIRA. ERC did
not consider the sophistication of these generation companies. It
would be good to review the resolution regarding the determination of
market share limitations.
o The need for a local-national impasse through bill that will declare
energy related project as projects of national significance, not subject
to LGU requirements. Currently, there are bills seeking to amend the
BOT law regarding projects of national significance. It will be better if
there is a separate bill for energy.
o The Writ of Kalikasan that allows the SC to issue a temporary
restraining order to projects that may cause irreparable harm to the
environment. A discussion with the SC is needed regarding how the
Write of Kalikasan can be tempered.
o Look at the possibility of creating domestic energy zones.
o Look at how to retain security assets for generation so that the
government is not tied down. If the private sector holds 70% of power
generation, can the government retain a certain amount? There is a
need to set up protocols and guidelines for this.
o Look at genealogy of corporations in terms of their control, finances,
and structure
ERC’s capacity building needs
o Economic overview on macro and microeconomics
o Exposure/How to use and interpret the FIES and NSO data