Ten years of EPIRA: a decade of increasing private power monopoly

June 10, 2011

by superadmin

Ten years after, all the EPIRA has done is usher in the monopolization into private hands of the power industry where giant corporate energy players have been making significant profits at the expense of the public and national development

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

Part One: EPIRA: failed promise of affordable electricity

IBON Features– Republic Act (RA) 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001 sought to establish a liberalized and market-based power industry because this will supposedly deliver a quality, reliable, secure and affordable supply of electricity for the public. EPIRA’s comprehensive power sector plan defined the restructuring and privatization of power generation, transmission and distribution in the country. In short, it articulated how the government will rely primarily on the profit-seeking private sector, including foreign investors, for the country’s electricity needs.

The power sector however is a natural monopoly in providing an essential service yet with significant financial, economic and technological barriers to entry. In this context all the EPIRA has done is usher in the monopolization into private hands of the power industry where giant corporate energy players have been making significant profits at the expense of the public and national development.

The bulk of the country’s generation facilities and contracted capacities have been privatized, the transmission sector is in private hands, and the distribution sector which was already liberalized prior to EPIRA remains dominated by a handful of private distribution utilities. Increased control of the industry by foreign and local companies over the past decade has increased private power profits at the cost of more expensive electricity for the Filipino people.

The National Power Corporation (NPC) generating plants and contracted capacities with independent power producers (IPPs) have been sold particularly to the San Miguel, Aboitiz and Lopez groups. For instance, the San Miguel group took 76% worth of total 3,346 megawatts (MW) rated capacity of privatized NPC-IPP contracts in 2009 and 2010, aside from 620 MW worth of generation plants. The Aboitiz group meanwhile bought 36% of the total 4,103 MW rated capacity of privatized generating/operating plants. The Lopez group in turn took 14% of privatized plants. The power industry from generation, transmission, distribution to supply is thus now almost entirely controlled by the private sector.

The World Bank’s public-private partnership (PPP) in infrastructure database shows that the Aboitiz Group is the foremost beneficiary of privatization, followed by the Lopez Group, DMCI, Suritimo and J-Power. In the EPIRA period alone, there were 42 PPP power projects in the Philippines.

A company or related group can own up to 30% of installed generating capacity and 25% of the national installed generating capacity. It can own distribution utilities (DUs) as well. The restriction on cross-ownership only applies to ownership of generation with transmission. DUs, in turn, capture the entire market in their franchise areas (residential and general service users). In the end, this defeats the EPIRA claim of consumers having the option to choose the utility which can provide them with the cheapest electricity available.

Private monopolies: Generation, transmission and distribution

The NPC owned or controlled some 90% of the countries generating capacity before privatization. A decade after EPIRA, the power industry is dominated by just a few companies and families – many of whom are believed to be close business allies of past and current administrations.

Generating capacity in this country of some 100 million Filipinos is in the hands of basically seven or eight major players. The concentration is particularly strong in the biggest three firms. The Cojuangco-owned San Miguel Power Corporation (SMPC) has the largest generating capacity after just two years in the power business. The Lopez group, with foreign company BGL as partner, is followed by the Aboitiz group, with SN Power AS (Norway) and Pacific Hydro Limited (Australia) as partners.

The EPIRA also mandated the creation of the Wholesale Electricity Spot Market (WESM), which will supposedly set up a competitive electric power market. Yet while there are 30 registered trading teams from 23 generating companies participating in Luzon, for instance, just the six biggest generators in terms of registered MW account for 61% of the total registered 11,652 MW. This unavoidable 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.

There have already been accusations of price-rigging by WESM operators. NPC and its IPPs were accused of jacking up prices when they composed the majority of WESM members. In an August to September trading cycle, NPC and PSALM were alleged to have colluded to manipulate prices in the WESM – the average price started at Php2.72/kWh but spiked to Php4.853/kWh and even reached Php6.88. WESM’s price determination methodology was approved by the Energy Regulatory Commission (ERC) but has also been questioned because it sets the clearing price based on the highest tender price of generation companies.

Meanwhile, the transmission sector is run by the National Grid Corporation of the Philippines (NGCP) – a consortium of State Grid Corp. of China and OneTaipan Holdings of Henry Sy, Jr. acquired from Enrique Razon’s Monte Oro Resources.

Private DUs (PDUs) have the largest market share among DUs with corporate interests in generation also present in distribution. The three largest PDUs in terms of the number of customers and gigawatt-hours sales are Meralco (of the San Miguel, Lopez and Pangilinan group) followed by the Visayan Electric Company (VECO) and Davao Light and Power Company (both of the Aboitiz Group).

Meralco is the largest PDU in the country covering cover some 25 million Filipinos in 29 cities and 82 municipalities in Luzon. VECO is the franchise owner of Metropolitan Cebu, including Consolacion, Liloan, Talisay, Minglanilla, Naga and San Fernando. The Aboitizes own other PDUs as well such as the San Fernando Light and Power Corp, Cotabato Light and Power, Subic Enerzone and others; the Lopezes are with the Panay Electric Company (Lopez).

Meralco bought over half of its power requirements in 2008 and 2009 from through bilateral contracts with IPPs and only 48% from WESM. In this period, average NPC rates were at Php3.98 which was much lower than the Php4.85 price from Lopez IPPs. In October 2008, for example, NPC’s rate was only Php3.70 while First Gas priced its energy from Sta. Rita and San Lorenzo plants at a much higher Php6.31 and Php6.61, respectively.

Profits in the power sector

Corporate profits in the power sector have generally been on the rise in the last decade – the top 25 revenue-making corporations in electricity generation, collection and distribution saw their profits jump ten-fold between 2001 and 2009–even as their profits dipped in 2003, 2007 and 2008 years. These huge corporate profits are extracted from their customers.

In 2009, for instance, Meralco’s Php183.7 billion in gross revenues made it the country’s biggest corporation by revenues, with a net income of Php5.6 billion that was more than double its Php 2.1 billion in 2008). Meralco has the highest average effective residential rate among the private distribution utilities at Php10.67 per KWh and the second highest commercial rate at Php9.05 per KWh. Meralco has also been controversial for its overcharging: it anomalously passed on to its customers operating expenses worth Php3.5 billion in 2004 and Php2.9 billion 2007 that it should not have. It also anomalously valued property and equipment worth Php3.7 billion in 2004 and Php3.6 billion in 2007 as part of its rate base even if these were not instrumental in electricity distribution to justify increases in the distribution charge. Estimates of total refunds owed by Meralco to its customers from overcharging since 2003 range from Php14 billion to Php34 billion. Even VECO is estimated to have overcharged its costumers by Php4.4 billion over the period 2004-2008.

Monopoly burden

Modern economic activity is power-intensive and economic progress cannot but in general require higher levels of power supply at reasonable prices – EPIRA has clearly not delivered this. It has already been reported that Philippine rates are among the highest in Asia. Over the period 2004-2010, average annual growth in total generation capacity of 3.6% was significantly outpaced by the average annual growth in gross domestic product (GDP) of 5.2% (with the country facing several hours of rotating brown-outs in 2010). The rising power rates over the last decade of EPIRA are especially problematic for the country’s poor families.

All these indicate that an industry as vital to the economy as energy should not be turned over to private corporate interests. Instead of laws like EPIRA, government should develop a vision of a state-supported energy sector to fulfill the promise of sufficient, affordable and efficient electricity for Filipinos. IBON Features