UNIVERSITY OF SCIENCE AND TECHNOLOGY OF SOUTHERN PHILIPPINES

College of Engineering and Architecture

Department of Electrical Engineering
Lapasan, Cagayan de Oro City

In Partial Fulfillment of the Requirements

In
EE Law, Codes, and Professional Ethics

“Reaction Paper In Republic Act No. 9136 An Act Ordaining

Reforms In The Electric Power Industry, Amending For The
Purpose Certain Laws And For Other Purposes Known as
Electric Power Industry Reform Act Of 2001”

Presented by:
Noven S. Villaber
BS Electrical Engineering – 02

Presented to:
Engr. Christopher S. Dolino
Instructor, EE Law, Codes, and Professional Ethics

May 2020

1|Electric Power Industry Reform Act of 2001

 An Act Ordaining Reforms in the Electric Power Industry, Amending for the
Purpose Certain Laws and for Other Purposes (Republic Act No. 9136) shorten as
Electric Power Industry Reform Act of 2001. It was enacted by the Senate and House of
Representatives of the Philippines in Congress nineteen years ago. Aimed to achieve reliable
and competitively priced electricity—a goal that has continued to evade us. But some countries
that have yet to move away from subsidized power are already pursuing their own versions of
Epira, on the recognition that their power pricing management cannot be sustainable or their
implementation is starting to be ineffective.
Similar to other previously implemented policies, the EPIRA has been subjected to a
number of criticisms primarily due to its perceived ineffectiveness particularly in reducing
retail power prices. Power rates in the Philippines remain high relative to its neighbors. As a
result, some called for its review and amendment, others clamored for an outright appeal.
Despite its important policy implication, very little do we know about the consequences of
the EPIRA, despite the fact that the law was implemented for the past nineteen years.
As I read the material, Epira’s intent was straightforward which is to remove
monopolies in the power industry through privatization of the National Power Corporation’s
assets, and encourage competition in the industry to make it more cost-effective and efficient to
the consumer as well as to the distribution utility. With these, electricity prices should go down.
But our electricity prices have stayed high and increasing. The law has been blamed for high
prices due to the removal of government power subsidies, the layering on of profits due to the
not bundling of the different industry subsectors, and the introduction of the Wholesale
Electricity Spot Market (WESM). The generation charge that is the WESM’s object is the main
cost driver and largest portion of the monthly power bills we all pay.

For me there is a lot of section that needs revisions as development goes by in our
country and the need of electricity is primarily necessary. But I will focus on the issue that
compensation package of TRANSCO personnel remain unchanged since the corporation’s
inception in 2001. Section 12. Powers and duties of the TransCo Board. The following are
the powers of the Board: (c) to organize, re-organize, and determine the organizational
structure and staffing pattern of TransCo; abolish and create offices and positions; fix the
number of its officers and employees; transfer and re-align such officers and personnel; fix
their compensation, allowance and benefits; (d) To fix the compensation of the President of
TransCo and to appoint and fix the compensation of other corporate officers;. There must be
a provision on the approval process for the adjustment in the compensation of TransCo
2|Electric Power Industry Reform Act of 2001
Personnel inasmuch as no adjustment in compensation has been given to the employee
since 2001.
Furthermore, In Section 64 is in conflict with one of the functions delegated to the
TransCo Board as stated in Section 12 entitled “Powers and Duties of the Board”. Among the
functions of the TransCo Board stated in Item (c) of Section 12 are “to organize, re-organize,
and determine the organizational structure and staffing pattern of TransCo; abolish and create
offices and positions and positions; fix the number of its officers and employees; transfer and
re-align such officers and personnel; fix their compensation, allowance and benefits.” The
conflict arising from the mentioned EPIRA sections has basically caused the compensation
package of TransCo personnel to remain unchanged since the corporation’s inception in
2001. Though I recognize that Section 64 intends to instill fiscal discipline with respect to the
adjustments to the compensation of Transco personnel, I believe that the TransCo Board can
capably evaluate the factors justifying merit increase such as increase in the cost of living and
industry salary competitiveness. Moreover, TransCo’s operating expenses are also regulated
by the Energy Regulatory Commission (ERC) giving additional form of oversight on this
budgetary item.
Here are some issues and comment that I’m very much concern regarding with the
EPIRA. One of these is the Energy security. There is a number of indicators that could
reflect the country’s energy security. For one, the term is complex and could cover a
multitude of indicators. The International Energy Agency (IEA), for example, defines energy
security as “the uninterrupted availability of energy sources at an affordable price.” In our
context, however, we limit the discussion of energy security to mean shielding the sector
from external shocks (e.g., global crude oil price shocks) that may influence price or
adversely affect availability of energy sources, depending on the country’s imported energy
source. This implies that energy security is correlated with less dependence on imported
energy sources.
The next one is Affordability as I mentioned earlier in the third paragraph. Since the
early 1980s, the Philippine power rates remained the highest compared to all other electricity
prices in its neighbor countries. For industrial power rates, the Philippines has the highest and
potentially remained the most expensive in the region since the early 1980s.
My living experiences are the proofs that the power rates bill are still increasing and
there might some arrangement with this issue but in my case I guess it wasn’t applicable for
some reason that’s why I’m still experiencing the increasing amount of electricity bill.
Several neighboring countries have average tariffs that are much lower than that of the
3|Electric Power Industry Reform Act of 2001
country. These lower tariffs result from Government policies to provide subsidies in the form
of frozen tariffs, sale of fuel to utilities at below market rates and utility-losses shouldered by
the government.
Despite of this, Epira has a regulation in regards to this matter in Chapter 2 Sec 36
provides for the unbundling of the rates of NPC between transmission and generation
rates. Consequently, the rates shall reflect the respective costs of providing each service.
Inter-grid and intra-grid cross subsidies for both the transmission and the generation
rates shall be removed. The statute also provides for the unbundling of distribution
wheeling charge from the retail rate and the rates shall reflect the respective costs of
providing each service. The unbundling of retail tariffs to separate prices for retail power
supplies and associated customer services to be supplied competitively from the regulated
“delivery” charges for using distribution and transmission networks that would continue
(primarily) to be provided by regulated monopolies.
The third one is Promoting supply development. There was supposed to be an
improvement in the regulation of the distribution and transmission sectors, especially in the
search for a better rate-setting methodology or refinements to the reviled RORB, or return on
rate base.
The Epira is profuse in its mention of the need for and development of power supply.
It was supposed to be the main mandate of the DOE to provide the strategy and policy
direction for the energy mix and development, and for reducing power costs and ensuring
supply.
For good measure, the Epira provided for a legislative oversight to ensure that
everyone was doing his job and the law was serving the best interest of the country and the
consumers. The Joint Congressional Power Commission must supposed to assure the public
that the law was responsive to the needs of the people and country, and to make amendments
when needed.
The fourth one, it was the Epira’s IRR, passed on Feb. 27, 2002, that provided the
mechanism for avoiding market domination.
Rule 11 Section 4 (b) of the IRR watered down the clear intent of the law by
providing that “in cases where different persons own, operate or control the same generation
facility, the capacity of such facility shall be credited to the person controlling the capacity of
the generation facility.” Sounds harmless?

4|Electric Power Industry Reform Act of 2001

 The idea of limiting concentration of capacity is to assure that there will be enough
players who can truly compete for power supply. This IRR provision, combined with Sec. 45
(b) of the Epira, kills that objective.
All the sister company of a distribution utility has to do is to bring in partners who
will “control” the capacities of its various self-negotiated genco capacities and its ownership
of the affiliated genco will not count against the utility. The utility can then own 80 percent of
the demand of its sister company in bypass of the 50-percent limit and this will not count
against its capacity concentration limit as long as it does not “control” capacities. Too much
sidestepping! This carefully worded trick did not end up in the Epira IRR by accident.
The next one is Less appreciation for demand-side management. Chapter 1 Section
2 of the EPIRA declares that the law seeks to “encourage the efficient use of energy and other
modalities of demand side management”. It is also implied in the definition of terms (Sec. 4)
that DSM will be undertaken by the distribution utilities to encourage end-users in the proper
management of their load to achieve efficiency in the utilization of fixed infrastructures in the
system. While laudable, there had been no explicit direction nor clear policy direction on how
to use demand management in maintaining not only the stability of the grid but also in
meeting long-run demand in a more cost-effective way.
Furthermore, there are some Undeserved profits. If the regulators’ hearts were in the
right place, the operative word should be “incurred” costs. Projected investments are not
costs incurred but allowed by PBR, resulting in undeserved profits for the distribution utility
and an unfair burden on the consumers.
Although the Section 25 also provided an opening for “such other principles that will
promote efficiency as may be determined by the ERC,” it behooves the regulatory agency to
construe this strictly to the best interest of the electricity end-users. As it is, PBR promotes
efficiency only in overcharging the consumer.
Also, about Spot market. Section 30 of the Epira that created the WESM is sadly
ambiguous on its objective. The section provided just for the activities to create one and for
the roles of the ERC and the DOE. In effect, the Epira mandated only the creation of a
wholesale electricity spot market without really making clear what the goal is for the
consumers or its role in the grid.
Everything was left to the ERC and DOE to formulate. Under this vacuum of purpose,
the private power generators, acting as “market participants,” managed to dominate in writing
the rules and in defining the objectives. They created a game where only generators and
aggregators win and the consumers lose.
5|Electric Power Industry Reform Act of 2001
 Section 31 of the Epira established open access to reduce power cost by empowering
consumers in choosing their generation suppliers. It was in the name of the pursuit of open
access that Napocor’s assets were sold at fire-sale prices.
A three-year target was set and PSALM was regularly put under pressure by
interested gencos to privatize the Napocor assets, evidently expecting to buy them for a song.

As examples, one local genco conglomerate bid $362 million for the 600-megawatt
(MW) Masinloc coal plant. PSALM did not award it to the genco and rebid it a year later. A
foreign IPP (independent power producer) came in to offer a bid. This time the local group
offered $732 million but it still lost because the foreign IPP offered more than $900 million.
Eighteen months later, a 100-MW diesel plant on Panay island that Napocor built for P1.2
billion was privatized for only P250 million, with the buyer getting an assured market from
Napocor for P300 million.(This example is taken from an author of a news inquirer David
Celestra Tan)
In addition to that, some of the problem is Automatic adjustment. PBR is purchased
power adjustment by another name. The issue, however, is not that the generation rate is
automatically passed on to the consumers but that there have not been enough safeguards in
the bilateral contracts and the Wholesale Electricity Spot Market (WESM) to protect the
consumers from exorbitant generation charges. The rules are stacked against the consumers.
Investments in generating facilities, transmission systems and distribution utilities are
essential, and under the current system the assurance of fair ROI is accepted. Consumers,
however, are entitled to protection from undue profits. For a sustainable system, the interests
of the power service providers and the power service users need to be balanced and made
equitable.
At the time the Epira was being sold to the public, one of the major claims was that a
wholesale electricity spot market would reduce power cost. Now the spot market operator,
Philippine Electric Market Corp. (PEMC), says its main goal is assurance of transparency and
order in the trading of electricity. The WESM is a large bureaucracy and its inner workings
are hard to figure out and hence “nontransparent.”
The trading rules were set by the “power participants” and dominated by power
generators. The WESM has failed the consumers because of a faulty structure, a lack of true
safeguards for the public and opportunistic market practices of participants.
Despite of the problems that EPIRA encountered it also achieved a lot in many
aspects which benefited both the community and the power generation company. It also

6|Electric Power Industry Reform Act of 2001

provides good service to the consumer by protecting and having their rights into practice. I
can really tell that EPIRA improves various aspect in the power industry in the Philippines.
One of its wonderful outputs is Elimination of cross-subsidies within and among
various grids, and among various classes of consumers. Section 36 of the Act states that
inter-grid and intra-grid subsidies for both transmission and the generation will be removed,
which was targeted to be completed along with the ERC approval of the unbundled
transmission and generation rates. The removal of subsidies is in line with the provision of
EPIRA to have retail rates that reflect the respective costs of providing the electric service.
The removal of subsidies was designed to phase out in a period not exceeding three
years from the establishment by the ERC of a universal charge (UC) to be collected from all
electricity end-users. The ERC may extend the period of removing the subsidies for another
year if the termination of the subsidies would have material adverse effect upon the public
interest, especially on residential users or would have an immediate, irreparable and adverse
financial effect on the distribution utility.
Moreover, Epira creates a wholesale electricity spot market for the trading of
energy, by which competitive market forces would establish generation tariffs and make
costs more transparent. I agree to this one, Section 30 of the EPIRA provides for the
creation of the wholesale electricity spot market (WESM). In particular, the law mandates
that DOE to establish WESM within one year after the effectivity of the law. The said market
was designed to provide the mechanism for identifying and setting the price of actual
variations from the quantities transacted under contracts between sellers and purchasers of
electricity.
WESM enabled distribution utilities and electricity suppliers to purchase bulk
electricity directly from generating entities or to buy it from spot market. The WESM serves
as an avenue for generated power to be dispatched on the basis of prices bid into the market,
with the lowest priced electricity dispatched first – a concept known as merit order. It was
envisioned that WESM would provide the economic signals needed to encourage efficient
investment in new generation capacity.
Thus one of the best outcomes of EPIRA that makes me commend of its effectivity
since it was implemented is that it Improved reliability of electric supply. One of the
objectives of the EPIRA is to ensure that the supply of electricity would meet the demand of
the consumers to ensure continuous access to electricity.
This implies that achieving a balance between demand and supply of electricity is
crucial, particularly when technologies that would store electricity is not yet available at the
7|Electric Power Industry Reform Act of 2001
moment. Failure to secure this balance would mean power outages which can be disruptive
not only for households but for the entire economy. But through this law it was being saved
from failures. Aside from reliability it also improved its quality of electric supply and
security of electric supply which is very important to the community since we are dealing
with the 21st century where technology is fast developing.
In this progressive country where developments is unstoppable I hope that EPIRA
would also develop provision or improve some sections to further strengthen the law some of
which I would like them to look are the following:

DUs to continue improving the generation mix at the DU level, particularly in

Mindanao.

DOE and with the help from the industry players and academic institutions, to
carefully examine the components of the systems loss, with the view to identify ways of
reducing it. Consequently, this exercise may lead to a review of the ERC-set cap on systems
losses (System Losses in transmitting and distributing power).

DOE and with the help from the industry players and academic institutions, to review
whether or not the government is “overtaxing” the energy sector. This may include reviewing
the legislations on taxes on electric power and whether or not these can be gradually reduced
or phased out.

Aside from that, one way of strengthening the law is to have some adjustments in
some sections in various chapter so that it will be more productive and effective like in Sec
71 it talks about the role of the government. Section 71 can be adjusted to expand the role of
Napocor as the ready generator of last resort. These government-owned facilities can be the
provider of services as reserve and emergency power to the national grid transmission
company. It does not have to be a losing proposition.

Under a clearly defined service role in the grid, the 600-MW Malaya plant could have
been dispatched properly not just when there was short supply but also when needed to act as
calibrator of WESM prices for the protection of the consumers.

Power is an essential public service. Privatization or not, it is still ultimately a

government responsibility. When it is in short supply or too expensive, the people demand

8|Electric Power Industry Reform Act of 2001

answers and actions from the government, which might as well have ready capability to
answer the call to augment supply or keep the prices reasonable.

Napocor is still full of competent power people. We just need an enlightened

definition of their role in the power grid.

Consequently, it should reinstate the VAT exemption of power. The Epira did the
right thing and exempted power generation from the value-added tax under Section 6 for the
“objective of lowering power costs to end-users.”

Power and energy are primary inputs in industrial production and commercial activity,
and determine the country’s manufacturing competitiveness. However, after the national
coffers were depleted in the aftermath of the 2004 midyear elections, the government passed
a VAT law in May 2005 that removed the tax exemption of power generation costs.

If we truly want to reduce power rates, the VAT on power generation should be
phased out. The annual revenue to be lost from exempting power from the tax can be
recovered from increased revenue from the resulting growth in the manufacturing and
commercial sectors that can be refresh by more competitive power costs.

The government, of course, cannot make this national sacrifice unless we stop the
abuses of the private sector.

In the same way, the Epira vaguely introduced in Section 43(f)(iv) the concept of not
allowing distribution utilities to pass on to the consumers, as part of their installed
investments, the cost of management inefficiencies and misjudgments that result in higher
cost to consumers. This has not been sufficiently enforced by the regulators and may need to
be emphasized in an amendment to the Epira.

Given our legislature and the logistical power of those who will be adversely affected,
it is unrealistic to hold out hope for structural amendments to the Epira that protect
consumers unless we find the courage to really change it the right way. I’m talking about
Pass on of cost of inefficiencies in this section.

Even if the Epira is not amended, all hope is not lost. There are some solutions.
Restore true competition and open up the market for power generation supply. It is within the
power of the ERC to pass a regulation requiring the holding of competitive bidding for
9|Electric Power Industry Reform Act of 2001
bilateral contracts intended to serve captive markets, which in most distribution franchise
areas.

Section 45 (b) of the Epira allows a distribution utility to contract up to 50 percent of

its power demand from affiliated companies, but is silent on how the contracting should be
done.

Technically, it allows negotiation of bilateral contracts and does not prohibit bidding.
The ERC and the executive branch, therefore, may assert this to safeguard public interest.
Captive customers in the franchise areas of utilities cannot choose suppliers under the open
access regime.

The DOE can be the lead agency in determining the country’s requirements for new
capacity and in supervising the bidding for the supply needs of distribution utilities. There is
a need to go beyond “tallying” the committed projects of the private sector.

The current initiatives of the new ERC commissioners to require utilities to subject
bilateral contracts to competitive bidding are a step in the right direction. But to truly protect
consumers, the bidding should be done under the auspices of the DOE.

In addition to that, we should limit concentration of capacity. Limits are intended to

promote maximum true competition and prevent manipulation of available supply for the
benefit of consumers.

Amend Rule 11 Section 4b of the Epira implementing rules and regulations (IRR) that
provides for counting the capacity only for the party “controlling the capacity”—a
circumvention of the limits.

Stockholders of a power plant have a say or influence on whether their plant should
run. Not just the managers or capacity controllers. Owning a power generating company
(genco) is the motivation for distribution utility owners to negotiate preferential rates and
terms for their own gencos it needs the action of the DOE and the approval of the JCPC.

Moreover, there is a need to strengthen safeguards in pass-on charges to consumers.

Generation rates are not the only pass-on charges that consumers must be protected against.
This protection must include from system loss and fuel pass-on of generators.

10 | E l e c t r i c P o w e r I n d u s t r y R e f o r m A c t o f 2 0 0 1
 I suggest that Congress must amend the EPIRA to state that Meralco and other
electric power provider must submit regular audited financial statements on a quarterly basis
so that the generation charges are fairly accounted for. Then, the independent auditing firms
that are found to intrigue and manipulate the figures will be stripped of their licenses to
operate so that corruption may not occur among electric power provider.

A big challenge that our country faces in amending the Epira is whether our leaders will
spring to action and rise above politics, whether the people are willing to send clear signals to
Congress that they want change now, and whether those who have enjoyed a windfall from the
law would see that it is to their long-term interest that consumers are served fairly and
reasonably.

Based on my reading, I found these two important clues or ideas. First, the EPIRA
appears to be a well-thought power sector reform design, having followed most of the
features of the kind of reform structuring that have been found to be successful historically.
Nonetheless, the country deviated from the ideal restructuring and regulatory reform by
including provisions that seeks to provide subsidies between end-users and as well across
geographic areas. This has consequential costs on the efficiency of power pricing.
Second, significant progress had been attained, although a number of measures should
be in place to sustain the progress and promote more competitive power supply and retail
rates for all consumers. These measures include exploring the opportunities of demand-side
management in meeting growing energy requirement of the country, as well as re-examining
its conflicting objectives of electrification and efficient power pricing.
Fostering competition in the country’s power industry is one of the major objectives
of EPIRA. Therefore, it is important to emphasize that the increase in competition is attach
on how effective the sector can attract additional players. This will ensure that no huge mark-
ups of the necessary can be maintained in the long run. But the long-run tendency of the
market to have more competition in the market is prevented by the uncertainties brought
about by sudden interventions of the government. In other words, when problems arise, these
problems are sometimes addressed in ways that are inconsistent with the market approach.
Needless to say, there should be strong political commitment to implementing the reform.
Having said this, future evaluations of these policies are needed to determine their
cost effectiveness and to identify more efficient alternative measures to attain the same
objectives.

11 | E l e c t r i c P o w e r I n d u s t r y R e f o r m A c t o f 2 0 0 1
 Epira is indeed working because we can feel and see the progress in our community
even nationwide. But it can only be as effective as how well we enforce it to ensure sufficient
competition in the industry, and how well we ensure that we have adequate power supplies,
regular and reserve alike. In fact, if we work hand in hand and be a responsible citizen where
we could only see the positive side make the negative side into a good thing because I believe it
is not just for the industry but also for the people, the consumer, the costumer and the society.
But I am hoping for the betterment as well by improving it’s law and hoping that they would
also consider the provision raised by certain General Companies or Distribution Utility or some
offices that has concern regarding the Epira and I hope that they would be more open-minded
to some suggestion.

21 years of existence and the life cycle goes on and on and electricity has been a part of
our daily necessity specifically young millennial. If I’m not mistaken since most of the time
technology has become one of the thing that is very essential and vital as we go along with our
daily life. Since Epira bring us the good life we need so for us to continue living this life we
must be responsible with our action and be a citizen that embody respect and responsibility.

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