Philippines: Competition brings down prices

Philippines: Competition brings down prices

The Department of Energy (DoE) has completed its strategic plans for the
country's power and energy sectors for 2017. By the way things are shaping,
both industry players and consumers stand to gain from these developments.
That is, if these get the support of the 17th Congress as well, especially
measures that require legislation.

Based on the DoE plan, it looks like "competition" will definitely be the
hallmark of the electric power industry.

Competition has been introduced and sped up the procurement and distribution
of electricity under existing laws.

Energy Secretary Alfonso Cusi has given us an initial glimpse of the
strategic plans the DOE will pursue under the administration of President
Rodrigo Duterte. Largely focused on further enhancing energy reforms, the
DoE's strategic plans were crafted during the first six months of the
Duterte administration.

Apparently learning from the mistakes of his predecessors at the helm of the
energy sector, Cusi made sure the Duterte administration will start from the
right track. While still crafting the energy plans, the DoE Secretary
coordinated with the leaders and members of the Joint Congressional Power
Commission (JCPC) to obviously secure the necessary support from lawmakers.

Senator Sherwin Gatchalian, chairman of the Senate committee on energy,
confirmed this to us during our breakfast forum the other day. Cusi and
Gatchalian literally led our power-packed discussion during this week's
Kapihan sa Manila Bay at Cafe Adriatico in Malate. From our discussions,
Cusi and Gatchalian echoed the sense of urgency to review the country's
existing power supply situation in a bid to bring down electricity prices.

The senator disclosed the JCPC would start deliberating on these proposed
reforms early in January 2017 with coordination with the DOE headed by
Secretary Cusi. He said he would confer with his counterpart from the House
of Representatives led by Marinduque Rep. Lord Allan Jay Velasco who chairs
the House committee on energy.

Offhand, Gatchalian disclosed, the JCPC would focus on necessary remedial
legislations to plug the loopholes and strengthen existing laws, namely, the
Electric Power Industry Reform Act (EPIRA), Renewable Energy (RE) Law and
Bio-Fuels Act.

Gatchalian believes the proposed energy reforms would make the Philippines
more competitive as an investment destination for power-intensive
manufacturing business. But more than that, the JCPC review would check into
the "social benefits" of the Filipino consumers from these laws in terms of
lower electric prices to both households and industrial users.

For his part, Cusi assured the public the DOE has undertaken steps to
further develop other sources of energy, including the use of nuclear energy
now being studied by experts hired by government. Cusi clarified, however,
the review is not limited to the mothballed 620-megawatt (MW) Bataan nuclear
power plant (BNPP) in Morong.

We share Cusi's view that competition will further spur growth as it will
help bring the prices of electricity down. When the economy grows, the
demand for power increases exponentially. What power generators and
suppliers give up by way of rates, they gain in terms of volume demand.

Some of the world's biggest economies apparently share this view. India, for
example, is aggressively pushing for competition in retail power supply. The
United Kingdom, meanwhile, continues to ensure that its wholesale and retail
electricity markets remain competitive despite controversies involving some
of its biggest players.

Despite controversies facing the Energy Regulatory Commission (ERC), it
appears the power sector remains optimistic that current reforms will
continue to gain ground. It looks like the sector will still end 2016 on a
high note. The unprecedented good working relationship between the DoE and
ERC has helped a lot in the bid to get the industry to support mandated
reforms.

Unfortunately for ERC, President Duterte announced last Monday he "fired"
all the commissioners, including their chairman Jose Vicente Salazar over
corruption allegations based on the suicide of ex-ERC director Francisco
Villa Jr.

There was initial resistance among industry players to the idea of a
Competitive Supply Procurement (CSP) system when this was first implemented
in our country. It will be recalled that under this system, distribution
utilities are obliged to solicit bids for their power requirements. The
system prevents distributors from favoring power generators who are
affiliated to them. These affiliates have been relegated to the category of
suppliers of last resort. This way, "sweetheart deals" become next to
impossible. This assures consumers that the electricity they buy from
distributors was purchased at the least possible cost.

A controversial feature of the Retail Competition and Open Access (RCOA) is
the requirement for large distributors to register a retail electricity
supplier (RES) affiliate. With the Manila Electric Company (Meralco)
throwing its support to this move with the application for license of its
RES affiliate a few days ago, it looks like most if not the whole of the
industry is now backing the reform.

The RCOA is another policy which was met with resistance initially. The aim
is similar to that of the CSP. Here, power generators and distributors vie
to supply the requirements of large electricity consumers part of what is
called the "contestable market."

Cusi also wants not just players, but also technologies to compete. He
questioned anew the practice of putting a cap on what certain power
generating technologies can contribute to the grid. He pointed out this
policy does not favor the interest of consumers who want a reliable power
supply at the most affordable cost.

This is because some energy technologies like power plants run by RE sources
are definitely more expensive than others.

The advent of stronger competition both for business and in the area of
generation technology is challenging industry players to bring out their
best. Investments are expected to continue to pour into the sector as Cusi
announced his stand that competition should also apply to the generation
technologies.

The biggest winner remains to be the ordinary Filipino consumers who deserve
the assurance that we can continue to afford the price of electricity and
that it is reliably supplied to us.

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Link to Original Article:
http://www.philstar.com/opinion/2016/12/23/1656175/competition-brings-down-p
rices

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com