INSIDER VIEW: To fix the power industry's woes, it's time to amend EPIRA

A few months ago, I bumped into my DOE Secretary, Sonny Viray.  We reminisced about the way we were when we were facing a power crisis with no money in the government coffers. Well, we did lick the problem and we laid down the foundation for the liberalization and privatization of the sector. With all the challenges we are facing today, I told him I would like to sing Louie Ocampo’s signature song: “Tell me, where did WE go wrong?”

Twenty years ago, the Philippines enacted the Electric Power Industry Reform Act (EPIRA) R.A. 9136, a landmark legislation that aimed to restructure and liberalize the electric power industry. The EPIRA promised to provide the Filipino people with quality, reliable, secure, and affordable supply of electric power for the country's economic development and public interest. 

However, after two decades of implementation, the EPIRA has not fully delivered on its promises and expectations. The basic problem I have with the sector today is that there is no market mechanism in the sector today that tells investors or generators when and where to build new generation. The practice of leaving it to the various utilities has led to a very fragmented and inefficient investment in the generation sector. The government has added the Competitive Selection Process (CSP) which is not only complicated but is also anything but competitive.

Some of the other key changes that I propose are: 

• Requiring the ERC (Energy Regulatory Commission) to change the methodology of determining cost of equity from the Capital Asset Pricing Model (CAPM) to some other method more reflective of Philippine realities;
  
  

• Allowing competition in the transmission and distribution businesses; democratizing power through microgrids and similar technologies that enable self-generation and self-management of power systems by households, communities, businesses, and other entities;
  
  

• Removing all threshold in the open access provision of the EPIRA;
  
  

• Reorganizing the Energy Regulatory Commission to make it more pro-active in the sector and faster in responding to issues brought before it;
  
  

• Devolving the electric cooperatives who do not owe the National Electrification Administration as independent utilities; 
  
  

• Creating a Forward Electricity Market where all forward electricity contracts may be bought or sold by generators, utilities, contestable customers; 
  
  

• Fixing the portfolio of power purchase contracts for captive customers to consist of a fixed peso component and a floating peso component to re-allocate the risks being borne by consumers; 

These amendments are not complete. However, they are necessary to address the current and emerging issues and challenges in the electric power industry, and to ensure that the EPIRA fulfills its mandate of providing the Filipino people with a quality, reliable, secure, and affordable supply of electric power. 

I have already discussed changing ERC's methodology of determining cost of equity in my previous column, so I will explain the rest of these recommendations in the coming weeks.