EPIRA: Failed promise of affordable electricity

June 8, 2011

by superadmin

Today marks the 10th year of the EPIRA, the law that was built on the premise that privatizing the power sector and giving play to `free market’ forces would compel firms to compete in terms of lower electricity prices.

(Part One of a two-part series on EPIRA’s 10 years)

(Part Two: A decade of EPIRA: ten years of increasing private power monopoly)

IBON Features— Ten years after the passage of the Electric Power Industry Reform Act of 2001 (EPIRA), the Philippines tops Asian countries as having the highest electricity rates charged on residential consumers– proving that privatizing the power sector has not resulted in affordable electricity in the past decade. Moreover, power privatization including through EPIRA has only resulted in putting the sector in the hands of private profit-seeking monopoly interests.

The EPIRA was passed in 2001 amid protests from various sectors against privatizing the power sector. EPIRA’s comprehensive power plan argued that the privatization of the generation, transmission and distribution of power is the key to providing the public a quality, reliable, secure and affordable supply of electricity.

The law was built on the premise that privatizing each component of the power sector and giving play to supposed free market forces would compel firms to compete in terms of lower electricity prices. However, a Department of Energy report shows that the residential rate for electricity in the Philippines has reached US$ .18 per kilowatt hour (kWh). This is more than double its equivalent in 2001 (US$.08 cents). The electricity rate for residential customers in Japan is US$ .17/kWh and US$ .15 in Singapore. Commercial rates are also high at US$.13 while these are at around US$ .14/kWh in Singapore, and US$ .12 in Japan.

Even the Joint Foreign Chambers of Commerce have pointed out that residential consumers in Thailand, South Korea and Indonesia pay only the equivalent of the generation charge being paid by Filipinos.

Average MERALCO residential rates have increased 119% from P4.87 per kWh in 2000 before EPIRA to P10.67 per kWh today. MERALCO is the largest PDU in the country and charges the highest average effective residential rate and the second highest commercial rate at PhP9.05 per kWh.

The Visayan Electric Company (VECO), the country’s second largest PDU, charges the lowest industrial rates but relatively high residential rates. VECO is owned by the Aboitizes whose businesses are located within the franchise area of the electric company. Electricity rates in Mindanao have also increased under the third largest PDU, Davao Light and Power Corp., which is also Aboitiz-owned.

Onerous charges

Rates have increased under EPIRA because of a host of onerous charges. These have included legitimizing burdensome provisions from dubious contracts with IPPs as well as new charges towards ensuring profits for the power monopolies. The controversial PPA which pays IPPs for power that has not been consumed, for instance, has been `hidden’ under various charges. It is dispersed between the generation charge, transmission charge, systems loss charge, franchise taxes and generation rate adjustment mechanism (GRAM).

Under the EPIRA, the tax component and the universal charge (UC) component of electricity bills are among the items which increased the highest in the last several years. These components are added burdens that the EPIRA has allowed private firms to charge to end-consumers.

The UC, a charge collected by generation firms that includes missionary electrification, obliges customers, mostly households, to pay for providing electricity in areas not connected to the main grid, watershed management as well as subsidy to indigenous renewable resources. It increased by more than 190% since 2003 for Meralco customers.

EPIRA also passed on to consumers the payment of the franchise, energy and value added tax to the benefit of power utilities. This billing component which has increased by 475% was shouldered by consumers instead of the power sector’s business players.

In practice, the ERC has been reduced to a mere approving agency for electricity rates. It has not kept watch over the mandate of EPIRA to make sure the public enjoys affordable power rates and that it is ensured and testified to by a staff of the Investigation and Enforcement Division. It is also even at the forefront of pushing for a change in rate-basing methodology to the performance-based rate (PBR) which allows power utilities to declare a target revenue for the next five years.

Through the PBR, businesses can unjustly oblige customers to pay for projected electricity consumption such that consumers shell out amounts even for electricity which they have not yet consumed. For example, the Manila Water Inc. and Maynilad Water have started to collect rates based on a projected revenue of millions from the Wawa Dam, Angat Water and Laiban Dam, but no project has flourished as of this writing. Meralco’s 10.4% increase in distribution revenues in early 2009 were attributed to the PBR which included the collection of underrecoveries. It was also allowed to increase rates by almost Php 0.41/kWh in April and December 2009 using the PBR despite questions of irregularity posed by the Commission on Audit (COA).

Set up under EPIRA, the WESM was supposed to provide the closest thing to a free market for the suppliers and buyers of electricity. Yet while 23 generating companies for instance participate in the Luzon WESM, the country’s largest, just the six biggest generators in terms of registered MW account for 61% (7,117 MW) of the total registered power. This concentration creates the conditions for cartelized manipulation of prices in what is supposed to be a `competitive’ market, with high prices far beyond the true cost of generation subsequently passed on to end consumers.

At the losing end

For years, ordinary consumers have shouldered the brunt of privatization not only in terms of power supply instability but also in terms of increasing rates that unjustly include power costs that do not benefit consumers. The EPIRA has allowed for the deregulation of electricity prices. Private power producers have manipulated prices and rendered the government-mandated ERC tasked to weigh the justness of rate hike petitions in consideration of the public almost powerless. Power firms have reaped profits on one hand, and on the other hand imposed unjust rates and passed the cost of producing electricity on to consumers through various fees under `unbundled rates’. Consumers have also been burdened by unreasonable charges such as the universal charge that covers the recovery costs of distribution utilities, among others.

EPIRA in its 10 years of implementation has highlighted the fact that power should not be treated as a business. Electricity, after all, is a basic service that should be provided to the people with consideration of their ability to pay and to the economy as a whole according to its development needs. Ensuring affordable power rates remains a crucial task for President Aquino, who ten years ago voted against the EPIRA when he was still House representative. IBON Features