Private power plant operators score renewed uncertainty in regulatory environment

Published by rudy Date posted on June 17, 2014

MANILA – Business groups warned that the unstable regulatory environment risks stunting the power sector at a time when the economy has been flourishing.

In a briefing today, Ernesto B. Pantangco, Management Association of the Philippines (MAP) committee on energy chairman, said that proposed amendments to the Electric Power Industry Reform Act of 2001 (EPIRA) and recent moves by the Energy Regulatory Commission (ERC) to restrain the Wholesale Electricity Spot Market (WESM) could drive away investors.

“We’ve been growing at an average of about 4.5 percent for the last 2 years and there’s been no new plant coming in to meet the demand growth. Then you put these regulatory uncertainties [and] EPIRA amendments… If you introduce so many uncertainties in all aspects –the EPIRA, the regulatory regime, and so on and so forth — and then what happens is that nobody’s gonna build,” he said.

A number of proposals for a review of the EPIRA are pending before Congress amid allegations that the law had failed to bring down power rates and spur investments, two of the mandate’s primary goals.

However, local and foreign business groups earlier released a joint position paper that scored proposed amendments to the EPIRA as these could turn off investors wary of regulatory uncertainties.

Peter W. Wallace, Wallace Business Forum chairman, said the proposed amendments to the EPIRA are but knee-jerk reactions to the spike in prices in the WESM late last year.

“People just immediately said we need to change everything because of this spike in prices without looking at what was the fundamental reason for that and what was the real solution. Today we have a situation where people want to amend the EPIRA because it has not worked. Implementation is the problem,” he said.

WESM prices skyrocketed to record highs in November and December last year following the maintenance and repair works on the Malampaya natural gas platform, which supplies over a third of Luzon’s power supply, and a number of major plants in Luzon.

The ERC, however, ordered the spot market operator, the Philippine Electricity Market Corp, to regulate prices in the WESM after it found “massive withholding of capacity” among power suppliers at the time when electricity supply was constrained.

“[But] that’s what WESM is all about, that there will be volatility. When prices are high, it is signaling something. You want some of the peaking plants to be available because they will be available for the short period of time that they will be in operation. If you don’t allow that high price those peaking plants will not be put into the system,” Romeo L. Bernardo, Aboitiz Power Corp director, said.

“Even with the spike in prices, the average prices for [2013] was still lower than [2012]. We’re not talking about high prices, we’re talking about volatility in prices,” he said, adding that while the situation showed that the public had a high aversion for volatility “the basic reality is reserves are thin.”

Pantangco said ERC’s decision to lower the price cap at the WESM from P64 per kilowatt-hour (kWh) to P32 and then introduce a secondary ceiling of P6.245 per kWh was arbitrarily set without even consulting stakeholders.

“There should be some rationale on certain decisions that are made by our regulatory agencies. You cannot just arbitrarily set a WESM cap, there has to be public consultations. These are rate-setting mechanisms and there are proper procedures for doing so. It cannot be done arbitrarily and then immediately implemented. There has to be dialogue,” he said.

Pantangco, who also sits as executive vice president of First Gen Corp, said power plant operators have long been urging the ERC to review the price cap as it may not reflect their true costs.

Yet the P32 kWh introduced by the regulator only took into account the cost of privatized power barges operating in Mindanao. Since the owners of these power facilities have to remit payment to the government, naturally they would cost more to operate than a number of peaking plants in Luzon.

By his estimates, Pantangco said the price cap should only range between P12-14 kWh, subject to verification through public consultations. –Euan Paulo C. Añonuevo,

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