Pre & Post EPIRA

Implementation Impact to
the Power Industry
By:
Joeune B. Merencillo
Reil Von Pangan
Primo B. Revilla III
Leo Marcelo P. Villalba
Outline
• Pre-EPIRA
• Post-EPIRA
• Advantages and Disadvantages of Post-EPIRA
• Good and Bad Effects of Post-EPIRA
• Flaws of EPIRA
Flaws on EPIRA
• Competition Policy
• Regulatory Issues
• Performance-based rate making (PBR)
• Transparency
• Vested Interest

from: Economics of Electric Energy, IPPs, the PPA, and the

EPIRA
Flaws on EPIRA: Competition Policy
• Only introduced competition in the GENERATION Level.
• More than half of generation capacity, entire transmission system and
part of distribution are controlled by FEW large companies.
• SMPC, Aboitiz, Lopez (52%)
• WESM – virtual monopolies and cross ownerships between
distribution utilities and power generators.
• Distribution sector is still remaining monopolistic.
• Even though the distributor faces competition, they still have power to raise
prices, subject to approval of the ERC.
Flaws on EPIRA: Regulatory Issues
• EPIRA deregulation on the power sector.
• Transferred the Monopoly from the State to the private sector and
lack of regulation to curb generation charges.
• ERC authorized by EPIRA to determine universal charge, gave
distribution utilities the RIGHT TO PASS on the burden of paying
stranded costs under the IPP contracts to consumers.
Flaws on EPIRA: Performance Based Rate
Making (PBR)
• ERC considers “alternative” rate-setting methods, at Section 43(f)
junking more transparent Return on Rate Base (RORB) and adoption
of PBR.
• PBR – distribution utility is allowed a return on investment on
installed facilities and on future investments – not mandatory as long
as utility achieves a level of “performance” and will be penalized
when not achieved.
• Meralco – announced multibillion-peso capital investment,
consumers pay for the return on investment giving Php 6 Billion
Revenue suffering only P300 million for nonperformance.
http://opinion.inquirer.net/71714/epira-an-imperfect-law-
imperfectly-implemented
Flaws on EPIRA: Transparency
• The so-called unbundling of rates to make the electricity bill
transparent has become a meaningless exercise.
• Purchased Power Adjustment (PPA), as of June 2002, the PPA was
already more than half of the electricity bills of consumers.
• PPA – represents the increase in cost of power purchased from the NPC and
other supplier or IPPs. Hidden among the generation, transmission, systems
loss charges, franchise taxes, and Generation Rate Adjustment Mechanism.
• Take-or-pay provision, NAPOCOR has to pay the IPPs wether power was
actually consumed or not. – increase in the consumer bills.
Flaws on EPIRA: Vested Interest
• Continued tolerance of old contracts whose onerous provisions have
only contributed to the ever-rising debts of the NPC
• Onerous contracts are dollar-denominated, making NAPOCOR obligations
vulnerable to foreign exchange fluctuations.
• Passing to consumers forming higher rates.
• Allegations of bribery involving congressmen in the 11th House of
Representatives.
• Onerous contracts are dollar-denominated, making NAPOCOR
obligations vulnerable to foreign exchange fluctuations.