EPIRA_DMMMSU.pptx

Understanding RA9136 or “The Electric Power Industry Reform Act”

Electric Power Industry Management Bureau

DEPARTMENT OF ENERGY

Don Mariano Marcos Memorial State University

San Fernando City, La Union

03 December 2015

Outline of Presentation

• History of the Philippine Electricity Industry

• The EPIRA Regime• Salient Features and Implementation• Policy Initiatives and Other Measures

3

How important electricity is in your life?

How the Power System Works

5

Development of the Power Industry

• state ownership and monopolies • most of the state-owned companies experienced

financial difficulties• Financial/crisis affected most economies ability to

sustain investments• Technological innovations in the 1980s have changed

the traditional vertically integrated monopoly approach• Most countries adopted market approach to power

supply and introduce competition and unbundling of the industry, with Chile and United Kingdom as pioneer economies

6

• In 1894, La Electricista was the first electric company to provide electricity in Manila

• Constructed a central power plant on Calle San Sebastian now Hidalgo St., in Quiapo, Manila

• Generated electricity using 10 of 60-Kilowatt AC steam generators

• In 1903 it had about 3,000 electric light consumers

History of the Philippine Electricity Industry

LATE 19TH CENTURY

7

• Manila Electric Railroad and Light Company was established

• a 50-year franchise was granted for the construction, maintenance and operation of an electric railway and a light heat power system from Manila to Pasig

• Franchises for electricity distribution were given to private and municipal or city government-owned utilities and cooperatives


1903

8

• NPC was created to develop the country’s potentials for power generation

• as a non-stock government corporation

• NPC was restructured to a fully government-owned stock corporation

• NPC Charter was amended and was granted an authorized capital stock of P 50 billion


1936 - COMMONWEALTH ACT 120

1960 - REPUBLIC ACT 2641

1971 - REPUBLIC ACT 6395

9


• Generation and transmission of power through the nationwide transmission grid was vertically integrated, centrally controlled and managed, and wholly-owned by the NPC

1972 – PD 40

Pre-EPIRA Power Sector Structure

NPC Vertically Integrated Owns portfolios of

plants Contracted IPPs to

meet demand Tariffs are regulated Cross Subsidies

embedded in the rates

Customers

Large Industries and Bulk Users

DUs/ECs

IPPs NPC Plants

11

• power supply shortages in the country started to become evident due to absence of investments in new base load power plants

• the 620-megawatt Bataan Nuclear Power Plant that was expected to operate commercially was mothballed for political and safety reasons.

• power supply considerably lagged population growth, causing a full-blown power crisis in the late 1980s and early 1990s


1980 - 1990

12


1980-1990• Executive Order 215 was issued in 1987 and

provided incentives for the private investors to enter the generation sector

• Luzon grid had 41 days of brownouts for a total yearly duration of 429 hours while in 1990, there were 103 days of brownouts for an annual duration of 1,273 hours

• 1990, the government passed Republic Act 6957, the first build-operate-transfer law in Asia

13


1980-1990• 1997, IPP generation increased to 46.3

percent of total generation or about 35 IPPs. • The private sector completed around 11,000

MW of installed capacity on a BOT/BOO• ROL/ROM was adopted to ensure efficient

operation of power plants• The government assumed risk thru take-or-

pay

• The risks affected NPC’s ability to sustain additional capacity and financial obligations

• Asian crisis and political instability in the country in the late 90s resulted to excess power supply which was increasingly costly for NPC incurring a loss of $5.9 billion in 1999 ballooning to $9.9 billion in 2000

The Need for Reform

The Electric Power Industry Reform Act of 2001 (EPIRA) Regime

• Mandates the over-all restructuring of the Philippine Electricity Sector

• Calls for the privatization of National Power Corporation

RA 9136 was passed into law on 08 June 2001 and became effective on 26 June 2001

• Total Electrification• Supply Reliability• Competition and Transparency• Private Sector Investment

o Generationo Transmission (through Concession)o Distributiono Supply

• Strong and Independent Regulatory Bodyo Promote Competitiono Consumer Protection

• Customer Choice and Demand Side Management

EPIRA Objectives

Unbundling of electricity rates and services for greater transparency and accountability

Opening up of high voltage transmission lines for easy access of distributors and large consumersOpening up of distribution lines for contestable consumers

Privatization of NPC Generating Assets

The Restructured Power Sector

Competitive generation

End-Users• Contestable• Captive

Competitive Retail Supply

Regulated Transmission and

Distribution

Establishment of WESM

EPIRA Governing and Implementing Bodies

NEA

Prepare ECs to operate in a competitive market;

Review and upgrade regulatory policies to enhance viability of electric cooperatives

DOE

Supervise the restructuring of the industry

Establish the Wholesale Electricity Spot Market (WESM)

Energy Policy and Long-Term Planning

Consumer EducationJoint Congressional Power Commission

(JCPC)

Legislative oversight. Composed of 7 members

from HOR and 7 from Senate

ERC

Independent, quasi-judicial regulatory body

Promote competition Ensure customer choice Penalize abuse of market

PSALM

Management of NPC assets and liabilities and transmission company pending privatization

Manage NPC Privatization process

Assume NPC debt and IPP Contracts

Administer Universal Charge

TRANSCO

Assume the transmission function of NPC

Act as the System Operator of the nationwide electrical transmission and sub-transmission system, transferred to it by NPC

Fit-All Fund Administration

NPC

Continue to generate and sell electricity from undisposed generating assets and IPP contracts of PSALM;

Perform Missionary Electrification

EPIRA Governing and Implementing Bodies

PEMC

Market Operator

Central Registration Body (CRB)

Salient Features of the EPIRA

Section 36: Unbundling of Functions and Rates


Section 36: Unbundling of Functions and Rates

Generation/ Transmission

GenCos/IPPAs

Transmission

• Ownership• Administration • Operation

• Maintenance

• Ownership• Operation• Maintenance


Generation Sector: A business affected with public interest shall be competitive and open.

Generation Companies Operate facilities used in the

generation of electricity

secure from the ERC a certificate of compliance

Secure health, safety and environmental clearances from appropriate government agencies under existing law

Comply with cross-ownership provisions

Comply with the PGC, WESM Rules and other relevant issuances

Transmission Sector: A regulated common electricity carrier business subject to ratemaking powers of ERC.

National Grid Corporation of the Philippines (NGCP)

Under concession act as the System Operator of the nationwide electrical transmission and sub-transmission system

Provide open and non-discriminatory access to its transmission system.

Ensure and maintain reliability adequacy, security, stability and integrity of the grid.

Preparation of the Transmission Development Plan Exercise the power of eminent domain

Distribution Sector: A regulated common carrier business requiring national franchise

Private DUs - 19 Provide non-discriminatory access to its distribution services system

impose and collect distribution wheeling charges and connection fees as approved by the ERC

supply electricity in the least cost manner to its captive market

prepare and submit to the DOE their annual Distribution Development Plan (DDP)

exercise the power of eminent domain

Electric Cooperatives – 120

LGU/Multi-purpose – 8

Supply Sector:A business affected with public interest, electricity rates are competitive and not regulated by the ERC.

Suppliers Engage in retail supply of electricity

with Contestable Customers

Secure Supplier’s license from the ERC

Demonstrate and comply with technical capability, financial capability, and creditworthiness requirements for Suppliers

Comply with rules and regulations on abuse of market power, cartelization, and other anti-competitive or discriminatory behavior

identify and segregate the components of its supplier’s charge

Unbundling of Functions and Rates

What are you paying for???


Unbundling of Functions and Rates

What are you paying for???

Generation Charge

Transmission Charge

DSM ChargesSystem Loss

ChargeSubsidiesGovernment TaxesUniversal ChargesFIT-All

Generation Charge

Transmission Charge

Distribution Charge

Section 36:

Unbundling of NPC Rates(26 Mar. 2002)

Unbundling of DUs rates (June 2003)


Generation Charge

refers to the cost of power generated and sold to the distribution utility (DU) by the NPC as well as the IPPs.

Components of Unbundled Electricity Bill

Transmission Charge

refers to the regulated cost or charges for the use of a transmission system, which may include the availment of Ancillary Service.



Metering Charge

is the cost of metering, which includes meter reading, operating and maintaining power metering facilities.Supply Charge

includes the cost of rendering service to customers, such as billing, collection, customer assistance, and related services.

Distribution Charge

is the regulated cost of building, operating and maintaining the distribution system, which delivers power from high-voltage transmission grids to commercial and industrial establishments and to residential end-users.

System Loss Charge

Represents recovery of the cost of power lost due to technical and non-technical losses currently pegged at 8.5% for private distribution utilities (PDUs) and 13.5% for electric cooperatives (Ecs).


Lifeline Discount /Subsidy

• refers to the subsidized rate given to marginalized/low-income captive market end-users who cannot afford to pay at full cost

• Coverage varies per DU• Non-lifeline citizens pay for the

subsidy


20kWh=5%19 kWh=10%18 kWh=20%17 kWh=30%16 kWh=40%

0-15 kWh=50%

Senior Citizen DiscountThis is a socialized pricing mechanism for senior citizens provided under RA 8884 providing discounts to Senior Citizens consuming 100 kWh/month. 50% to Senior Citizens Center and 5% to Senior Citizens electricity bill.

KIM

Value Added Tax

This is a consumption tax imposed on the sale of electricity and related services through all the stages of generation, transmission, distribution and sale of electricity to the final consumer.

RE-sourced electricity are exempted from paying VAT

Local Franchise Tax

This is levied by provinces and cities for businesses enjoying a franchise, and paid to such local government units, in accordance with the provisions of Sections 15 and 137 of the Local Government Code.

Components of Unbundled Electricity

Bill

It is a non-bypassable charge, which shall be collected from all end-users on a monthly basis by the distribution utilities.

Universal Charges


Missionary Electrification Charge

Refers to the cost associated with the provision of basic electricity service in unviable area, with the ultimate aim of bringing the operations in these areas to viability levels. (Php0.1561/kWh)

Environmental Charge

The Environmental Charge of Php0.0025 per kWh is a charge to be used for the rehabilitation and management of watershed areas.Stranded Contract Cost of

NPC, under Section 32 of the EPIRA, refers to the excess of the contracted cost of electricity under eligible IPP contracts of NPC over the actual selling price of the contracted energy output of such contracts in the market. (Php0.1938/kWh)

NPC

Types of UC:


No UC:

• Stranded Debts of NPC• Equalization of Taxes and

Royalties

FIT-All (Renewable)

The FIT-All is a uniform charge imposed on all On-Grid electricity consumers who are supplied with electricity through the distribution or transmission network. It is essential to the implementation of the FIT System as established under Section 7 of Republic Act No. 9513, otherwise known as the Renewable Energy Act of 2008 (RE Law). (Php0.0406/kWh)

Section 5 and 7 Republic Act 9513 or Renewable Energy Law


• Mandated Rate Reduction– Section 72, Rule 19 A reduction in NPC rates equivalent to P0.30 per

kWh granted to residential customers

• Loan Condonation– Section 60, Rule 31 Mandates PSALM to assume all financial obligations

of ECs to NEA and other government agencies incurred for financing rural electrification program

ERC shall ensure a commensurate reduction in the rates of ECs resulting from savings due to removal of amortization payments of loans


WESM Establishment

Luzon26 June

2006

Visayas26 Dec.

2010

Mindanao?


Privatization

GenCos

IPP Contracts

High Voltage Transmission

Generation93.53

%

IPP Administrators

Concessionaire

Successor GenCos

76.85%

42


Section 31 Retail Competition and Open Access

• Opening up of retail electricity supply to competition

• Allowing “Contestable Market” to choose their Supplier

• May reach household level based on ERC evaluation

• Commercial operation in Luzon and Visayas last 26 June 2013


Section 2 (a): Total Electrification• Rural Electrification - DUs• Missionary Electrification - NPC SPUG• Waived areas – Qualified Third Party


Cross-Ownership/Anti-competitive Provisions• TransCo prohibition to own generating

assets• Installed generating capacity limitation

for Generation Companies– 30% in a grid– 25% in national grid

• Contracting limitation between DU and affiliated GenCo

• Divestments


Market Share Limitations

First Gen11%

QPPL3% Others

6%

PSALM49%

NPC31%

Pre-privatization

As of March 2015

San Migu

el18%

Aboitiz

16%

First Gas14%

PSALM

16%AES 4%

SEM Calac

a3%

GN Powe

r3%

QPPL3%

NPC6%

GBPC4%

Others12%

PHILIPPINES


Basic Documents of EPIRA

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Pursue Market for Competition, e.g. RCOA Intensify Monitoring and Governance of the Electricity Market

• Abuse of Market Power • Anti-Competitive Behaviour• Close monitoring of Market Share/Cross Ownership• Further develop metrics for competition

Supervision, governance and reforms for Electric Cooperatives Conduct of IEC for better understanding, appreciation and

consumer empowerment

Policy Initiatives and Other Measures

52

DOE-Supported Websites

End of EPIRA Background

DEPARTMENT OF ENERGY

Presented by theElectric Power Industry Management Bureau (EPIMB)

“Public Information Campaign on the Implementation of EPIRA”

03 December 2015

EPIRA_DMMMSU.pptx

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