To Amend or Not to Amend the EPIRA

Mark Joseph V. Pasco

February 2019

I. Introduction

National Power Corporation (NPC) was created under Commonwealth Act No. 126
on 03 November 1936 as a non-stock government corporation which aims to develop
hydraulic power and production of power from other sources. The Act was amended in
1960 in which NPC was converted into a stock corporation wholly owned by the
government by the virtue of Republic Act (RA) 2641. Further, its charter was revised in
1971 under Republic Act 6395 for the comprehensive development, utilization and
conservation of water resources in addition to the total electrification of the Philippines.
Correspondingly, NPC was granted an authorized capital stock of Php 50 billion1.

The NPC, from its non-profit character, is exempted from all taxes, duties, fees,
imposts and other charges by government and government instrumentalities2. In addition,
all returns from the capital investment including the excess revenues from its operations
will be dedicated for expansion. As a result, power generation and transmission was
controlled, managed and owned by the NPC until the late 1980s.

In 1987, entry of power generation from the private sector through the independent
power producers (IPPs) was introduced. In 1995, the Philippine Independent Power
Producers Association, Inc. (PIPPA), was formed to provide adequate and reliable
electricity, in addition to NPC’s. However, wholesale power purchases from the IPPs were
predominantly through NPC.

In June 2001, The Electric Power Industry Reform Act (EPIRA) or Republic Act
9136 was enacted to restructure the power industry and change the ownership from
government to private sector to provide reasonable price of electricity and perform
missionary electrification in the areas not connected to the grid. The law organized the
power industry into four sectors namely, the generation, transmission, distribution and
supply3. Changes brought about by the reform resulted to the creation of other
government owned and controlled corporations (GOCC), the Power Sector Assets and
Liabilities Management Corporation (PSALM) and the National Transmission Corporation
(TRANSCO).

1
NPC was granted an authorized capital stock of P 50 billion corresponding to 500 million shares of stock at P100
par value, of which 270,488,708 shares were issued equivalent to P 27.049 billion
(https://www.napocor.gov.ph/index.php/about-us/who-we-are/epira-ra-9136)
2
Section 13, Republic Act 6395
3
Section 5, Republic Act 9136
II. Highlights of EPIRA Law
A. Agencies formed through EPIRA

A number of government agencies were formed as a result of the enactment of the

law. First on the list is the creation of National Transmission Corporation also referred to
as TRANSCO, which shall assume the authority and responsibility of NPC for planning,
construction and centralized operation and maintenance of its high voltage transmission
facilities, including grid interconnections and ancillary services4.

TRANSCO started its operation last 01 March 2003. The corporation managed the
power transmission system that links power generation plants to the electric distribution
facilities in the country. Further, RA 9136 also mandated the privation of the company
through an outright sale or management concession agreement.

After several failed biddings, the TRANSCO concession was finally awarded last
December 2007 to the National Grid Corporation of the Philippines (NGCP). On 15
January 2009, TRANSCO turned over the management and operation of its nationwide
transmission system to NGCP with the exemption of the ownership of all transmission
assets. TRANSCO, as the owner, is mandated with five key responsibilities 5:

 Protect national government’s interests by ensuring NGCP’s compliance with

terms and conditions of the Concession Agreement and the policies of the
Department of Energy (DOE);
 Handle all existing cases, including the right-of-way and claims which accrued
prior to turnover date;
 Divest remaining sub-transmission assets to technically and financially
qualified electric distributors nationwide;
 Undertake the operation, maintenance, consultancy and other technical
services for the Philippine Economic Zone Authority (PEZA); and
 Administer the Feed-in-Tariff Allowance Fund for renewable energy
generators.

Another GOCC formed by the EPIRA Law is the Power Sector Assets and
Liabilities Management Corporation (PSALM). The mandate of the corporation is to
manage the privatization of NPC generation assets, real estate and other disposable
assets, and IPP contracts with the objective of liquidating all NPC financial obligations
and stranded contract costs in an optimal manner6.

4
Section 8, Republic Act 9136
5
About TRANSCO, https://www.transco.ph/about
6
Section 49, Republic Act 9136
 In June 2001, PSALM started its operations with the following functions7:
 Structure the sale, privatization or disposition of NPC assets and IPP contracts
and/or their energy output based on such terms and conditions that will
optimize the value and sale prices of these assets;
 Liquidate NPC’s stranded contract costs using proceeds from sales and other
properties, including proceeds from the Universal Charge;
 Restructure existing loans of NPC; and
 Collect, administer and apply the NPC portion of the Universal Charge.

In addition, the TRANSCO shall be wholly owned by the PSALM. Further, PSALM
was given 25 years from the effectivity of EPIRA to fulfill its mandate unless otherwise
extended by law. At the end of its corporate life, all assets belonging to it including
outstanding liabilities will revert to and be assumed by the national government.

Another agency created by the EPIRA is the Energy Regulatory Commission

(ERC). The ERC is an independent, quasi-judicial regulatory body in the electric industry,
replacing the existing Energy Regulatory Board (ERB) which was created under
Executive Order No. 1728. The newly created commission shall promote competition,
encourage market development, ensure customer choice and penalize abuse of market
power in the restructured electricity industry9.

The five main objectives of the ERC are as follows 10:

 To promulgate/approve rules, regulations, guidelines and policies;

 To enforce rules, regulations including issuance of permits and licenses;
 To resolve cases (rates and other cases) and disputes;
 To promote consumer interest; and
 To become a dynamic organization of professional people with the highest
degree of technical competence and integrity.

The last agency created under the EPIRA is the Wholesale Electricity Spot Market
(WESM), established by the Department of Energy (DOE). The market shall provide the
mechanism for identifying and setting the price of actual variations from the quantities
transacted under contracts between sellers and purchasers of electricity 11.

A year after the enactment of the EPIRA, WESM rules were disseminated. In
November 2003, the Philippine Electricity Market Corporation (PEMC) was incorporated
7
About PSLAM, https://www.psalm.gov.ph/corporate
8
Section 38, Republic Act 9136
9
Functions of ERC, Section 43, Republic Act 9136
10
Objectives of ERC, http://www.erc.gov.ph/ContentPage/12
11
Section 30, Republic Act 9136
as a non-stock, non-profit corporation, as was designated to serve as the autonomous
group market operator after a year to undertake the preparations for and the initial
operations of the WESM. In June 2006, WESM commenced commercial operations in
Luzon, and four years later, the Visayas Grid12.

B. Other agencies supporting the EPIRA

On 09 December 1992, Republic Act 7638 was approved, resulting in the creation
of the Department of Energy, rationalizing the organization and functions of government
agencies related to energy and other purposes. DOE supervises government institutions
relative to the power industry such as NPC, TRANSCO, PSALM and the National
Electrification Administration (NEA).

DOE’s mandate is to ensure a continuous, adequate and economic supply of

energy with the end in view of ultimately achieving self-reliance in the country’s energy
requirements through the integrated and intensive exploration, production, management,
and development of the country’s indigenous energy resources, and through the judicious
conservation, renewal and efficient utilization of energy to keep pace with the country’s
growth and economic development and taking into consideration the active participation
of the private sector in the various areas of energy resource development13.

In addition to the agency’s functions, DOE was mandated to supervise the

restructuring of the electricity industry. The DOE shall formulate policies for the planning
and implementation of a comprehensive program for the efficient supply and economical
use of energy consistent with the approved national economic plan and with the policies
on environmental protection and conservation and maintenance of ecological balance,
and provide a mechanism for the integration, rationalization, and coordination of the
various energy programs of the Government. In addition, DOE shall develop and update
annually the existing Philippine Energy Plan. The plan shall provide policy direction
towards the privatization of government agencies related to energy14.

Another agency cited in the EPIRA is the National Electrification Administration.

NEA was created through Presidential Decree 269 to promote, encourage and assist all
public service entities engaged in supplying electric service, particularly electric
cooperatives, which are willing to pursue diligently the total electrification of the country.
Because of their non-profit nature, cooperative character and the heavy financial burdens

12
About WESM, http://www.wesm.ph/inner.php/about_us/wesm
13
Declaration of policy, Section 2, Republic Act 7638
14
Role of the Department of Energy, Section 37 Republic Act 9136
that they must sustain to become effectively established and operationally viable, electric
cooperatives, shall be given support and assistance by the National Government15.

In relation with the EPIRA, additional mandate for NEA were established under the
supervision of DOE. NEA shall prepare electric cooperatives in operating and competing
under the deregulated electric market, specifically in an environment of open access and
retail wheeling. In addition, NEA shall strengthen the technical capability and financial
viability of rural electric cooperatives and review and upgrade regulatory policies to
enhance the viability of rural electric cooperatives as electric utilities16.

III. Development of Power Industry Through EPIRA

A. Missionary Electrification

The Small Power Utilities Group (SPUG) was created as a functional unit of NPC
to pursue missionary electrification. SPUG shall be responsible for providing power
generation and its associated power delivery systems in areas that are not connected to
the transmission system. The missionary electrification function shall be funded from the
revenues from sales in missionary areas and from the universal charge to be collected
from all electricity end-users as determined by the ERC17.

The DOE together with NPC-SPUG, NEA, Distribution Utilities (DUs), New Power
Providers (NPP) and Qualified Third Parties (QTP), pursuant to Rule 13 of the
Implementing Rules and Regulations of RA 9136, prepared the 2016-2020 Missionary
Electrification Development Plan (MEDP). MEDP covers the development plans and
programs of the government to increase access to sustainable energy in the areas not
connected to the main grid and improve the efficiency in the use of energy 18.

As of the end of 2015, 287 missionary areas were served by SPUG, NPPs, QTPS
and DUs all over the country. Further, SPUG areas were classified with regard to the level
of energy consumption which are Large Areas, Medium Areas, Small A Areas, Small B
Areas, Philippine Rural Electrification Service (PRES) Mini Grids and QTP Mini Grids.

Large areas cover Palawan main grid including Busuanga Island, Occidental and
Oriental Mindoro, Mainland of Masbate and Marinduque, Basilan, Catanduanes, Siquijor,
Tawi-tawi, Camotes Island and Romblon Island19. Medium areas comprise other island
from Palawan which are El Nido, Roxas, Cuyo, Taytay and San Vicente. Also included
are areas from Sultan Kudarat, Ticao Island in Masbate, Batan Island in Batanes, Polilio

15
Declaration of National Policy, Section 2, Presidential Decree 269.
16
Additional Mandate of NEA, Section 58, Republic Act 9136
17
Missionary Electrification, Section 70, Republic Act 9136
18
Executive Summary, 2016-2020 Missionary Electrification Development Plan
19
Table 2.2015 Large NPC-SPUG Areas, 2016-2020 Missionary Electrification Development Plan
Island in Quezon, Lubang Island in Occidental Mindoro, Tingloy in Batangas and
Rapu-rapu Island in Albay20.

Small A areas cover the off grid islands of Luzon with 28 power plants, Visayas
with 21 power plants and Mindanao with 14 power plants corresponding to a gross
generation above 50 MWh. On the other hand, Small B areas refers to a gross generation
below 50 MWh other than PRES mini grid areas which caters the off grid islands of Luzon
and Visayas with 14 and 18 power plants, respectively21.

PRES mini grids were financed by the concessional and commercial loans through
the Filipino-French partnership which involves the electrification of approximately 18,000
households using solar home systems and small generating sets. 14 municipalities from
Masbate Island and 4 municipalities from Ticao Island were among the areas covered by
PRES project22.

Table 1 – Small Islands and Isolated Grids per Cluster23

From Table 1, large areas comprise 942.65 GWh or 87.71% of the total gross
generation, majority of which are from Luzon off grid area. Further, large areas have 24
hours of electricity service. Medium areas accounts to 104.41 GWh or 9.72 % of gross
generation while other clusters accounts to only 2.57%.

It may be noted that SPUG plants under large areas were offered to the private
sector through the NPPs. 15 plants were included in the first wave areas for privatization
based on fuel consumption and allocation from universal charge for missionary

20
Table 3.2015 Medium NPC-SPUG Areas, 2016-2020 Missionary Electrification Development Plan
21
Table 6.2015 Samll B NPC-SPUG Areas, 2016-2020 Missionary Electrification Development Plan
22
Table 7.2015 PRES Mini-Grids, 2016-2020 Missionary Electrification Development Plan
23
Table 1.2015 SIIGs per Cluster, 2016-2020 Missionary Electrification Development Plan
electrification (UCME). 8 out of the 15 areas were successfully privatized which will result
to the significant reduction of UCME.

Figure 1 – Framework of Stakeholders in SPUG Areas24

To encourage NPPs application, a framework of stakeholders was created. In the

process, DUs will inform the DOE and ERC on their intention to privatize its generations
services and a competitive selection process (CSP) will take place. CSP will then be
implemented by NEA as the mandated supervising agency, responsible for the
implementation of standard procurement process.

As part of the total electrification mandate of SPUG, additional power plants were
constructed. Table 2 shows the increase in number of power plants from 287 to 291 from
2011 to 2015 for NPC and from 10 to 30 power plants for Non-NPC. Total rated capacity
increased from 288.777 MW to 406.107 MW which corresponds to an increase in
dependable capacity for the given years from 221.538 MW to 305.549 MW for both NPC
and Non-NPC plants.

24
Figure 11. Framework of Stakeholders in SPUG Areas
 Table 2 – SPUG Plant Comparison for 2011 and 201525

In addition to the increase in power plants and power generation for off grid areas,
performance of providing electricity services focuses on reducing plant uses or losses,
promoting efficient generation with lesser fuel consumption rate and improvement in
reliability26. In terms of reducing plant use and losses, DOE issued a “Transitory Technical
guidelines for Allowable Fuel rates and Plant Use and Losses” last September 2012 for
compliance of NPC-SPUG plants.

Further, to ensure the reduction of losses, plant age should be considered. As of

December 2015, 5 power plants fall from 15-20 years of age. 4 power plants fall from 10-
15 years of age while 129 power plants fall from less than a decade of age 27. For plants
to have the optimal efficiency, regular maintenance should be conducted.

Efficient fuel consumption should also be considered to increase efficiency. Power

plants with higher generation incur a lower fuel rate for small, medium and large areas.
Maximizing the utilization of existing generation units and proper sizing of new units also
adds up to efficiency. Proper planning to study the appropriate sizing of generators were
efforts made by NPC-SPUG.

In summary, continuous improvement and better electricity service for missionary

areas will be provided to customers. NPC management spearheaded the formulation of
new strategies towards efficiency improvements. Identification of quick response to
emergencies, fuel pilferage, delay in fuel deliveries, frequent brownouts, system
protection and low collection efficiency in selected areas were among issues addressed.

Table 3 is the list of various measures implemented by SPUG in line with its
corporate strategies. Corresponding problems and accomplishments were indicated

25
Table 11. SPUG Plant Comparison for 2011 and 2015, 2016-2020 Missionary Electrification Development Plan
26
Performance Assessment, 2016-2020 Missionary Electrification Development Plan
27
Table 2.1 SPUG Power Plants per Age Bracket as of December 2015, 2016-2020 Missionary Electrification
Development Plan
based on actual scenario from previous years which can hinder the operations and effect
efficiency and reduce losses.

Table 3 – SPUG Strategies to Improve Efficiency and Better Electricity Services 28

28
Table 23, SPUG Strategies to Improve Efficiency and Better Electricity Services in 2015, 2016-2020 Missionary
Electrification Development Plan
B. Universal Charge

As stated in Section 34 of RA 9136, a universal charge shall be determined, fixed

and approved by the ERC, effective within one year from the signing of the Act. UC shall
be imposed to all electricity end-users for the payment of stranded debts in excess of the
amount assumed by the National Government, stranded contract costs of NPC and
stranded contract costs of distribution utilities.

UC shall also be used for missionary electrification, equalization of the taxes and
royalties applied to indigenous or renewable sources of energy and an environmental
charge equivalent to one fourth of one centavo per kilowatt-hour or Php 0.0025/kWh.
Environmental fund shall be used for watershed rehabilitation and management under
NPC.

Figure 2 – What is Universal Charge in Your Electric Bill?29

29
What is the Universal Charge in Your Electricity Bill as of 14 December 2013, National Power Corporation
website,https://www.napocor.gov.ph/index.php/advocacies/infographics/universal-charge
 Missionary charge amounts to approximately eleven centavos which is utilized for
the missionary electrification program from the off grid areas. Another share of the UC is
the NPC stranded contract cost of Php 0.1938/kWh being collected by PSLAM and paid
for the IPP contracts as of December 2013.

Latest approved rates by PSALM, as of 30 September 2018 are shown on the table
below. The environmental fund or environmental charge (EC) and the stranded contract
cost (SCC) remains the same. However, UCME increased from Php 0.1163/kWh to
Php 0.1561/kWh as approved by the ERC.

Table 5 – Approved Universal Charge Rates30

The universal charge shall be passed on and collected from all electricity users on
a monthly basis by the distribution utilities. Collections shall be remitted to PSALM which
in turn shall create a Special Trust Fund. After which, all amounts collected shall be
distributed to the beneficiaries as determined by ERC.

NPC-SPUG, as a beneficiary of the universal charge, shall be subsidized per

kilowatt-hour sold, which is also known as the universal charge for missionary
electrification or UCME. Table below shows the UCME subsidy from 2011 – 2015
increased from 2011-2015 followed by another decrease in 2013. However, an increase
was attained in 2014 followed by a decrease in 2015.

30
ERC – Approved UC Rates from PSALM website, https://www.psalm.gov.ph/universal/administrationofUC
 Table 4 – UCME Subsidy, 2011-201531

Increase or decrease in NPC’s charge of UCME depends on the number of hours

of electricity access and increase in demand or capacity of off-grid areas. It is noted that
an immense decrease for the last two years was caused by the privatization of SPUG
plants specifically for large areas which resulted in less electricity access handled by
SPUG.

C. Unbundling Rates and Functions

Unbundling rates and functions were presented at Section 36 of the EPIRA Law.
It states that within six months from the effectivity of the Act, NPC rates shall be unbundled
between transmission and generation charge which shall reflect the cost of each service.
In addition, DUs shall file revised rates for the approval of ERC.

The ERC prepared a summary of “Knowing More My Unbundled Electric Bill”32 to

familiarize electricity end users the detailed components of what they are paying for.
Beforehand, electric bill is bundled which in effect do not detail the payment for the
services rendered by NPC and DUs.

An example of an electric bill is presented to show the different components of an

unbundled electric bill. First data shown is the meter reading, the difference between the
previous and present to calculate the kWh used. After which the other charges were
presented such as generation charge and transmission charge which are the majority of
the bill. Also included are the system loss charge, distribution charge, metering charge,
supply charge, lifeline rate subsidy, interclass subsidy, power act reduction, currency

31
Table 24. UC-ME Subsidy, 2011-2015, Section 2.5 Universal Charge for Missionary Electrification, 2016-2020
Missionary Electrification Development Plan
32
Knowing More My Unbundled Electric Bill from ERC, www.erc.gov.ph/Files/Render/media/
exchange rate adjustment, franchise tax and universal charge. UC covers both the
missionary electrification charge and environmental charge.

Figure 3 – Unbundled Electric Bill33

33
What Goes Into My Unbundled Electric Bill from ERC, www.erc.gov.ph/Files/Render/media/what%20Goes.pdf
 From Figure 3, the generation charge is the first component with a biggest charge,
which refers to the cost of power generated and further sold to DUs either by NPC or
IPPs. Next component and also the second biggest in terms of value is the transmission
charge, which refers to the cost of using a transmission system. System loss charge
represents the cost of recovering power due to either technical or non-technical losses,
set by ERC to 9.5% for private distribution and 14% for electric cooperatives.

Next would be the distribution charge which referes to the cost of operating and
maintaining the distribution system which converts power from high voltage transmission
usually at 69 kV, 115 KV and 138 kV, to commercial/industrial establishments including
residential users. Other incidental charges include metering and supply charge. Metering
charge includes the cost for all activities including operation and maintenance of metering
facilities. Supply charge referes to the cost of rendering services to electricity end users
including billing and collection, customer assistance and other related services.

On the other hand, the government offers subsidies thru lifeline rate subsidy,
interclass subsidy and power act reduction. Lifeline rate subsidy refers to the
appropriation for the marginalized end users who cannot afford to pay full cost. Meralco
offers said subsidy to customers which consumes 100 kWh or less in a given month.
Further, interclass subsidy refers to subsidized customer classes ranging from residential,
small industrial, government hospitals and streetlight services. Lastly, the power act
reduction refers to the mandated reduction in electric bill of Php 0.30/kWh which is
mandated under RA 9136.

Other electric bill components are the currency exchange rate adjustment,
franchise tax and universal charge. The currency exhange rate adjustment or CERA
refers to adjustments due to fluctuations of exchange rate of Philippine pero to US dollar.
Franchise tax refers to the franchise taxes which must be paid by the private utility
companies, either national or local. Local franchise tax ranges from 0.05%-0.75% of gross
revenues which goes to local government units while the national franchise tax costs 2%
of gross revenues which goes to the national government. Universal charge refers to the
missionary electricfication and environmental charge which was detailed earlier.

IV. Challenges Affiliated to the Power Sector

Last 10 April 2017, Mr. Cecilio Arillo wrote an article in Business Mirror entitled
“Congress must look at EPIRA Now”. Sixteen years after the EPIRA was passed,
consumers continue to bear skyrocketing electricity rates and experience brownouts, not
to mention a big section of the country still remain without electricity 34. RA 9136 was
signed by then President Gloria Macapagal-Arroyo to ensure quality, reliable and cheap
supply of electricity. In her 9th SONA, the president declared “The next generation will
benefit from low prices from our Epira”.

34
Congress must look at Epira now by Cecilio Arillo, https://businessmirror.com.ph/2017/04/10/congress-must-
look-at-epira-now/
 The discussion from the debilitating give-and-take policy, a question was posted
asking who benefited and suffered from EPIRA. Under the law, power purchase
agreements (PPAs) were legitimized and resulted to “take-or-pay” arrangments that
oblige electricity consumers to pay for the production costs of electricity as projected by
private corporations and not for the actual electricity consumed.

PPA is no longer reflected in electricity bills but may come from listed charges such
as generation, transmission, distribution, system loss and the like. End users also pay for
NPC’s stranded debts which still amounts to billions of pesos thru the UC. Said debts
continue to grow which results to consumers shouldering the rate increases.

EPIRA also aims to provide reasonable prices of electricity. However, after its
enactment, the control of more than half of the generating capacity of the country,
equivalent to 52%, were controlled by top piwer players which includes the Lopez Group,
San Miguel Energy Corporation, Aboitiz Power and group of companies of Manuel V.
Pangilinan. Section 28 of the EPIRA discussed the de-monopolization and shareholding
dispersal. It states that in comppliance with the constitutional mandate for dispersal of
ownership and de-monopolization of public utilities, the holdings of persons, natural or
juridical, including directors, officers, stockholders and related interests, in a distribution
utility and their respective holding companies shall not exceed twenty five percent 35.

Also discussed were critical issues as a result of privatization. In comparison with

other countries like the USA, New Zealand and others located in Latin America and Asia,
privatization failed to ensure public benefits as promised. Also, matters on brownouts,
skyrocketing power rates, increase in corruption and financial problems in the power
sector are among end results.

The government’s idea in crafting the EPIRA came from Asian Development Bank
(ADB) and World Bank’s reform program which states that public ownership and
government monopolies inherently lead to poor performance of utilities and eventful
financial ruin. The Freedom from Debt Coalition, a reliable private organization,
mentioned that wrong prescriptions allowed the government to abandon its social contract
that existed with its constituents by surrendering its obligation to private sector.

A number of challenges brought about by EPIRA will be briefly discussed and the
effects of the policies given by the power sector to its customers.

A. Power Puchase Agreement (PPA) or Power Supply Agreements (PSA)

A power purchase agreement defined by the World Bank is defined as the security
in the payment stream for a Build-Operate-Transfer (BOT) or concession project for an
independent power plant36. The contract will be between the purchaser which is often a

35
De-monopolization and shareholding dispersal, Section 28, Republic Act 9136
36
Key features of a power and energy purchase agreement, https://ppp.worldbank.org/public-private-
partnership/sector/energy/energy-power-agreements/power-purchase-agreements
state owned electricity utility and a private power producer. Power supply agreement as
defined by ERC is a bilateral agreement between a generation company and a distribution
utility for the purchase and supply of power37. In comparison, both comprised of contracts
related to power supply by a producer and a purchaser.

ERC reviews and approves PSAs in relation to Section 25 of RA 9136 which covers
retail rate. It states that retail rate charged by the DUs shall be subject to regulation by
ERC based on the principle of full recovery of prudent and reasonable economic costs
incurred, or such other principles that will promote efficiency. PSA computation includes
the capacity fee or capital recovery fee, operations and maintenance fee, and fuel
recovery or energy fee.

Capacity fee or capital recovery fee which covers the retrieval of capital or
investment in the construction of power plant. It is a fixed cost for the project duration or
economic life of the plant. Operations and maintenance fee covers the cost in operating
and maintaning the plant like fuel, wages of employees, applicable taxes and other
expenditures. Fuel recovery fee or energy fee covers the pass through cost to allow the
recovery of fuel consumed to generate power which depends on the plant heat rate.

The Matuwid na Singil sa Kuryente Consumer Alliance Inc. discussed power

purchase agreements in deeper view. Most of the bilateral power supply contracts veing
signed by the distribution utilities, specially by Meralco with its sister companies, First Gas
and Meralco PowerGen projects, are of the Napocor 1990 power crisis BOT vintage,
when the country was starving for power38.Unfortunately, IPPs were guaranteed capacity
security based on EPIRA’s retail rate, which resulted in undue advantage of power
generators and avoidance of accountability by DUs.

As summarized, NPC’s BOT type of contracts contained features that were

essential during the power crisis but should be refined and updated under the current
market power generation industry. IPPs, concessionare, power producers under BOT
contracts partake guaranteed take-or-pay capacity payments, maintenance downtime
allowance, no penalties and responsibilities for excess downtimes and pass on charge
for fuel costs.

Guaranteed take-or-pay capacity payments is a way for the government to finance

construction power plants that eventually it will own. The private sector will build the power
plant, operate it within an agreed period and finally turn it over to the government. Included
in the contract is that NPC provides the fuel to the plant operator which in turn will convert
it to electricity. The power producer will guarantee the government a level of efficiency
which is called the heat rate. However, procurement risks in relation to fuel including its
supply is the responsibility of NPC.

37
Basic concepts on Power Supply Agreements (PSA), Energy Investment Forum,
https://www.doe.gov.ph/sites/default/files/pdf/e_ipo/leif_2014_2.pdf
38
Power purchase agreement – It’s time for a new paradigm on bilateral supply contracts,
https://philippinepowerinsights.wordpress.com/tag/power-purchase-agreement/
 BOT arrangement is a financing scheme for the power producer so the government
gurantees that its financing is paid in the form of guaranteed capacity payments or take-
or-pay. At the end of the agreed term, the government will own the plant. NPC’s obligation
to make payments is in turn is guaranteed by the national government which results to
“sovereign guarantees” of BOT contracts. Other classification of BOT schemes are Build-
Own-and-Operate (BOO), Build-Rehabilitate-Operate-and-Transfer (BROT),
Rehabilitate-Operate-and-Maintain (ROM) and Lease-Rehabilitate-Operate-and-
Maintain ((LROM).

Operations and maintenance fee covers the plant downtimes for both planned and
unplanned maintenance. Power plants are allowed thave 45-60 days of downtime except
for coal fired power plants which only requires 20 days. BOT type bilateral contracts pay
the power plant their capacity fee even during downtime, in addition to the cost of
maintenance. Examples of which are NPC paying to Mirant for Pagbilao and Meralco
paying for QPL Mauban, Sta. Rita and San Lorenzo natural gas power plants. These
caused the increase in generation cost passed on to energy consumers.

For NPC and its IPPs, monitoring of contract performance including fuel efficiency
limits is being handled by the ERC. However, for private companies like Meralco, lack of
transparency in monitoring of power plants in terms of downtime allowances from sister
companies is hard to assure. In addition, the law nor the government regulating bodies of
the EPIRA did not issue any penalties for excessive downtime with BOT contracts.

Fuel recovery fee or charge on fuel costs as stated in BOT contracts is the
responsibility of the off-taker like NPC and Meralco. NPC supplies fuel to its BOT plant
operators and a validation of fuel conversion effeiciency is guaranteed. However, for
Meralco and its sister company, First Gas Power, guarantee on fuel efficiency is lacking.
In the end, all fuel costs are passed on to customers.

B. Philippine Electricity Rates

Philippine electricity rates still highest in Southeast Asia as of end 2016 due to
continued lack of government subsidies39 according to the report from DOE. Philippines’
power rates are among the highest in the region, at par with the level in Singapore,
equivalent to Php 5.84 per kWh in terms of electricity rates to industries. However, in
terms of commercial and household rates, the Philippines has the highest which costs
Php 7.49 and Php 8.9 per kWh, respectively. For Singapore, a uniform rate is at Php 7.27.

Other countries like Thailand, Indonesia, Malaysia, Korea and Taiwan have
subsidies from the government. About 41% of their tariffs are subsidized in the form of
cash grants, subsidy on fuel or deferred expenditure. In our country, additional costs are
imposed with regard to taxes, fees and other charges which forms part of the electricity

39
Philippine electricity rates still highest in Southeast Asia, Department of Energy,
https://www.doe.gov.ph/energists/index.php/83-categorised/electric-power-industry/12561-philippine-
electricity-rates-still-highest-in-southeast-asia
rates. In year 2016, the International Energy Consultants (IEC) made a study on
Meralco’s rates, being the country’s largest power distributor. From statistics, Meralco
moved from second highest in Asia to third highest, fourth in Asia Pacific and 16 th world
wide.

From the Business Mirror Article published on 07 August 2018, another study from
the IEC, the top 5 countries in Asia with highest power rates are Japan with Php 12.31
per kWh, next is the Philippines with Php 8.96 per kWh, third is Singapre with Php 8.83
per kWh, followed by Hong Kong at Php 6.53 per kWh and Thailand with Php 6.23 per
kWh40. Dr. John Morris, Managing Director and lead consultant of IEC said that electricity
tariffs in Luzon will further go down should investment in power generation be made.

Further from the study, generation charge increased from Php 5.2651 to
Php 5.3491 which is the result of increase in costs of power supply agreements due to
lower average plant dispatch and higher fuel prices. Meralco’s distribution, supply and
metering charges meanwhile have remained unchaged since July 2015.

C. Remote and Unviable Area Electrification

40
Average electricity price in Philippines 2nd highest in Asia – think tank from business Mirror,
https://businessmirror.com.ph/2018/08/07/average-electricity-price-in-phl-2nd-highest-in-asia-think-tank/