Power Failure: Ten Years of EPIRA (1)

IT will be ten years to the day by next week when Republic Act No. 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001 was enacted into law. Its passage was railroaded through Congress amidst a very strong lobby from the creditors of the National Power Corporation (NPC) led by the Asian Development Bank (ADB) and the International Monetary Fund (IMF). These power sector reforms and the sale of state-owned power assets to private business were part of the pre-conditions of the IMF for the country to obtain more loans and funds from its creditors.

Those who pushed the bill repeatedly promised that the price of electricity would go down and that there would be no more crisis in power generation once the EPIRA takes effect. The bill sought to restructure the electricity industry and privatize the assets of NPC in order to cut its losses from outstanding loans and pass on the burden of power infrastructure investment to the private sector. On the side, the government will be earning revenues from the sale of generation plants that were owned by the NPC.

Yet contrary to what had been promised, the EPIRA has failed to bring power rates down. We continue to read about impending power crises as electricity generation failed to keep up with demand. There is now a trend towards the concentration of ownership and control in the power sector to only a few families and corporations. Worse, consumers and small businesses carry the burden of ever increasing power rates with the pass-on provisions of the Act and the embedding of the infamous power purchase agreement (PPA) into everyone’s unbundled electricity bill.

From the time EPIRA was passed until 2009, effective residential electricity prices per kilowatt hour rose by around 50 percent. From an ffective rate of P5.76 per kWh in 2001, it has risen to P8.65 by 2009 with a high of P8.98 in 2007. Looking at our own 300 kWh usage, our household effective rate hovered around P10.5 this year. That translates to a little bit over an eighty percent increase in effective rates since 2001. Part of this rise is due to increases in power generation charges from NPC. NPC’s effective rates increased from P2.39 kWh in 2000 to P4.67 this year. Other increases were due to recoveries (a.k.a. pass-on costs) of transmission and distribution utilities. On top of these is the value added tax that is imposed across all the components of your bill—including local and franchise taxes and systems losses.

The initial, and fleeting, 30-centavo Power Act reduction in 2001 has already been erased several times over due to these pass-on provisions in the EPIRA. The EPIRA has also hidden away the PPA which came from the contracts entered into by the NPC with independent power producers. The Energy Regulatory Commission (ERC) instituted various cost recovery mechanisms over the years such as the Generation Rate Adjustment Mechanism (GRAM) to allow the continued collection by the NPC of charges similar to the PPA. For distribution utilities, there is the Automatic Adjustment of Generation Rates and System Loss Rates (AGRA) where fuel and contract costs are passed on to consumers. The AGRA is automatically passed on to consumers without hearings from the ERC.

The establishment of the wholesale electricity spot market (WESM), which purportedly would be the leveling mechanism to bring down the prices of electricity, was partly the reason why rates rose to ridiculous levels in 2010 due to speculation and lack of generation capacity. The ERC also opened the doors for a new way to set electricity rates. From the return on rate base (RORB) system, it instituted the performance-based regulation (PBR) for distribution utilities and even in the transmission rates of the National Grid Corporation of the Philippines (NGCP). Under the PBR, rates are set based on promises of operation performance, costs and capital outlays planned by the company. Consumers are thus paying for something that has not happened yet.

These are just examples of how the privatization and deregulation of electric power by the EPIRA resulted in high electricity rates for consumers. We shall detail other aspects of the EPIRA in succeeding columns and propose solutions that can push rates down and secure our energy supply.

After seeing its effects for one decade on everyone, neoliberal power reform has to be reversed. This is important since energy utilities are strategic in nature to the development of the country. If these industries are left to monopoly capital, whose interest is to recoup their investment and rake in profits—it will result in an unending increase in utility costs and our national interest will not be addressed. –GIOVANNI TAPANG, Ph.D, Manila Times

Dr. Tapang is the chairperson of AGHAM and a convenor of POWER (People Opposed to Warantless Electricity Rates).