Think-tank urges Congress to review power reform law

MANILA, Philippines – A private think-tank has called on Congress to review the existing law on electric power reform to strike out a provision allowing cross ownership between generation and distribution companies.

Forensic Law and Policy Strategies Inc. (Forensic Solutions), founded by former Justice Secretary and Solicitor General Alberto Agra, said this provision in the Electric Power Industry Reform Act (EPIRA) tends to undermine the free market competition and has been driving up electricity rates to the detriment of consumers.

In a policy paper, Agra and Asian Development Bank (ADB) consultant Mari Jennifer Bruce noted that the ultimate goal of Republic Act 9136 or the EPIRA – which is to break up the monopoly in the electric power industry – has not been achieved because of a watered-down provision that allows cross ownership between the generators and distributors of electric power.

Forensic Solutions noted that the EPIRA should have guaranteed free competition among the players, but what it had accomplished so far is to let power distributors and generators enter into “sweetheart deals” and let associated generation companies dictate the price of electricity in the spot market, which, in the end, has led to high electricity rates for consumers.

“To get to retail competition, we must first clean up the fundamentals of wholesale competition. Provisions in the EPIRA allowing ownership concentration in the generation sector must be revisited,” the Forensic Solutions paper said.

“More importantly, the allowable cross-ownership between distribution utilities and generation companies must be abolished. Otherwise, the last three decades would be nothing but one botched-up attempt after another to reform the electric power industry,” it added.

Agra once headed the Office of the Government Corporate Counsel, while Bruce had served as director at the Office of the Chief Presidential Legal Counsel and court attorney in the Supreme Court.

In the policy paper, Forensic Solutions pointed out that the EPIRA adopted the “wholesale competition” model in an attempt to eliminate the monopoly of the National Power Corp. (Napocor), and encourage the private sector to invest in the electric power industry.

Under this mode, distribution utilities buy electricity directly from generators which, in turn, have access to the transmission network, but the distribution utilities have monopoly over retail in their respective franchise areas, Agra and Bruce said in the policy paper.

Thus, under this setup, consumers cannot choose their power suppliers but would have to settle for the distributors that control the monopoly over electric power in their respective areas, Agra and Bruce added.

To carry out the “wholesale competition” system, they noted that Napocor was mandated under the EPIRA to sell 70 percent of its generation assets in Luzon and the Visayas, power purchase agreements were renegotiated, cross subsidies were abolished and an electricity spot market was created from which distributors are required to source their power requirements.

At the time when the EPIRA was enacted, lawmakers noted that to encourage private investments, the government must absorb a substantial portion of the Napocor’s debts, given the state of its power plants and the unfavorable terms of its contracts forged with independent power producers (IPPs), Agra and Bruce said.

To make investment in the industry even more attractive to the private sector, they said absolute competition restrictions traditionally existing in the wholesale competition model were watered down by restricting cross ownership only in the transmission aspect, but allowing cross-ownership among power distributors and generators.

“The Congress, at that time, saw that such diluted provisions were sufficient to prevent harmful monopoly and abuse, and would lead to lower electricity rates,” said Agra and Bruce.

But instead of achieving these goals, they said the law encouraged associated generation companies to determine the price of electricity in the spot market.

“Distribution utilities, on the other hand, entered into sweetheart deals and purchased their energy requirements from these associated generation companies and IPPs even if the prices were higher than the Napocor rates,” they said.

“In either instance, the cost of electricity is passed on to end users,” Agra and Bruce noted.

Agra and Bruce said Congress should correct the EPIRA provisions that allow these abuses, by removing provisions on cross ownership so as to encourage retail competition that would allow power consumers to really choose their suppliers.

Moreover, full competition in the power industry should allow open access to both transmission and distribution networks together with associated facilities, and ensure that distribution is separate from retail activities, they said. –Donnabelle L. Gatdula (The Philippine Star)