Philippines: Industries frown on new power rules

Philippines: Industries frown on new power rules

Not everybody is pleased with the forthcoming retail electricity rules.

The Energy Regulatory Commission wants competition, or market forces, to
determine the cost of electricity in the hope of lowering power rates in the
Philippines. But industries are far from convinced that the ERC rules will
promote competition in the power sector.

A major business group warned that the rules on retail competition and open
access, or RCOA, in the electricity sector might hurt local industries and
undermine, instead, ERC's efforts to reduce power rates in the Philippines.

RCOA is a scheme in which retail power suppliers vie for contracts in an
open market, or the "contestable market." The framers of the Electric Power
Industry Reform Act, or Epira, had thought that competing in an open market
was an effective way to drive electricity prices down. The creation of that
market begins with the one-megawatt-and-up peak consumption category, and
will eventually include large residential customers.

The Federation of Philippine Industries, however, disagreed with the ERC's
new rules on RCOA, saying they ran counter to the country's drive toward a
competitive retail electricity market.

"Certain resolutions recently issued by the Energy Regulatory Commission on
the RCOA implementation run counter to the spirit of free market and
competitive environment as espoused by the Epira," FPI chairman Jesus Lim
Arranza said,

Arranza referred to ERC Resolutions No. 10 and 11, which effectively limit
the choice of customers to select their power supplier by disallowing
distribution utilities and other industry players from taking part in the
retail electricity service (RES) market and imposing market share caps on
all RES suppliers.

"It is ironic that what the ERC is trying to achieve with the open access
scheme is exactly the opposite that the industries could be facing soon if
this mechanism is put in place," Aranza said.

The FPI said contestable customers-or those with monthly power consumption
of at least one megawatt-were concerned about the intervention of the ERC in
the deregulated retail electricity supply market, given the prevailing
competitive environment where customers are free to choose their suppliers.

As more and more customers will soon be part of the contestable market, FPI
said, the likely scenario is one in which contestable customers will be at
the mercy of the few remaining suppliers.

The FPI said if companies were unable able to secure the cheapest power
rates, ERC's new rules would severely hurt local manufacturers as prices
might potentially pick up.

The industry group said most of the manufacturers might pass the higher cost
of their production to customers by increasing the price of their goods,
which could impair their competitiveness under the Asean Economic Community
integration regime.

The FPI for at least three years has pushed for deferment of the RCOA's
implementation, out of concerns about insufficient power supply.

It also expressed dismay over the seeming lack of consultation with
customers, especially big manufacturers and companies that will be directly
affected by the rule changes.

"What they are guaranteeing is transparency but not lower power cost. It is
a supplier's market. Many contestable customers have not been approached by
a supplier, thus, they will be served by a supplier of last resort the rate
of which will be based on WESM (Wholesale Electricity Spot Market) prices
plus a 10 percent premium," Arranza said.

The ERC recently issued a draft resolution amending the schedule of
mandatory retail competition and open access, which allows large power users
to choose their own suppliers.

The ERC said in a draft resolution that end users with an average monthly
peak demand of at least 1 megawatt were mandated to enter into supply
contracts with a retail electricity supplier by Feb. 26, 2017.

The regulator earlier imposed a December 2016 deadline for the retail supply
contracts. The draft resolution is still subject to comments from industry
players.

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Link to Original Article:
http://thestandard.com.ph/business/business-columns/ray-s-e-ano/221018/indus
tries-frown-on-new-power-rules.html

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com