By
Lenie Lectura - December 30, 2017
Issuance
of landmark policies, court restraining orders and change in leadership. These
were the highlights that shaped the energy sector in 2017.
“It’s a
bit challenging and, at the same time, we have to work more to ultimately give
consumers what they deserve. We have laid down the policies meant to protect
consumers, and we will continue to look for ways to keep it going,”
said Department of Energy (DOE) Secretary Alfonso Cusi in an interview.
The
energy chief was referring to the retail competition and open access
(RCOA), a landmark policy that should have allowed consumers to choose their
own supplier of electricity but was stopped by the Supreme Court (SC) in
February 2017.
Also, it
was a relief for the energy sector when Executive Order (EO) 30 was
issued. The Malacañang order was meant to fast track energy-related projects.
On the average, it takes more than five years to put up one power plant.
RCOA
RCOA, in
a nutshell, allows consumers to source power from a licensed retail electricity
supplier (RES) to encourage competition in the generation and supply sector. At
present, the majority of power consumers are being supplied by Manila Electric
Co. (Meralco), the country’s largest distribution utility (DU) firm.
It can
be recalled that the SC issued on February 21 a temporary restraining
order (TRO) against a DOE circular and Energy Regulatory Commission (ERC)
resolutions days before these were supposed to take effect.
The
mandatory switching of consumers with an average peak consumption of 750
kilowatts (kW) to 999 kW, which should have taken effect on June 26, 2017, was
among the rules that were halted by the SC.
But the
mandatory switching of power users consuming an average of at least 1 megawatt
(MW) per month is already in effect.
Various
entities sought clarification on the effects of the TRO, specifically the
participation of contestable customers in the RCOA and the issuance of licenses
for RES.
While
the TRO remains in effect, the DOE signed two department circulars that
will hopefully pave the way for the resumption of the implementation of
the RCOA scheme.
The DOE
said it was compelled to provide immediate guidelines to affected power
industry entities, which sought clarification on the implications and effects
of the TRO on the pre-existing RCOA processes.
“The
issuance of the circular is necessary to address policy and regulatory gaps
resulting from and consistent with the above-mentioned cases and TRO,” said
Cusi.
The
newly issued circular on “Providing Policies on the Implementation of RCOA for
Contestable Customers (CC) in the Philippines Electric Power Industry” is meant
to implement RCOA on a voluntary basis instead of mandatory.
Section
1 of the said draft circular calls for the voluntary participation of CCs with
average peak demand of 750 kW and above, for the past 12 months, in the retail
market.
Section
2, meanwhile, also calls for the voluntary participation of consumers with
average peak demand of 500 kW to 749 kW in the retail market by June 2018, or
an earlier date specified by the ERC.
By
December 2018 or an earlier date, electricity end-users within a contiguous
area whose aggregate average peak demand is not less than 500 kW for the
preceding 12-month period may aggregate their demand to be part of the
contestable market and may voluntarily enter into RSC with aggregators.
Aggregators
refer to any person or entity engaged in consolidating electric power demand of
end-users in the contestable market for the purpose of purchasing and reselling
electricity on a group basis.
The DOE
and the ERC shall annually review and issue policies to achieve the full
implementation of RCOA until it reaches the household demand level.
The
other circular is meant to allow a local RES, or an affiliate of a
distribution utility that functions as a RES, to continue serving the
captive market under a separate entity.
“DUs may
provide electricity services to contestable customers within their franchise
area as a local RES, upon authorization from the ERC; provided, that the DU
shall comply with the unbundling provisions of the RA 9136 and Rule 10 of the
rules and regulations to implement RA 9136,” stated the circular “Providing
Policies on the Implementation of RCOA for RES in the Philippines Electric
Power Industry.”
RES are
the entities licensed by the ERC to supply electricity to end-users in
contestable market.
“We had
to do something since many are asking for guidance. These two circulars address
the voluntary aspect, allowing customers to choose whether they want to remain
as captive customers or forge a contract with a RES,” said DOE Undersecretary
Felix William Fuentebella.
The DOE
stressed the need to provide guidance to affected entities and continue the
implementation of the key reforms of the Epira pending the resolution of the
SC.
“Epira
is incomplete without RCOA. We can’t say Epira will be a failure if RCOA is not
implemented, but rather it will just be incomplete,” Fuentebella pointed out.
Since
Epira was enacted into law 16 years ago, the power industry’s generation,
distribution and transmission sectors were already unbundled. Monopoly no
longer exists.
“We have
unbundled the major sectors. Now, we are at the stage of unbundling further
what had been unbundled. RCOA is among the last stages of Epira for the law to
be fully implemented,” said Fuentebella.
The ERC,
for its part, said the TRO would unduly burden consumers.
Atty.
Rexie Digal, ERC spokesman, explained in a text message that RCOA affords the
end-users the ability to choose their supplier of electricity, including
the ability to negotiate for the rate that would be charged to them.
The
scheme, she said, starts with large customers but is expected to reach the
household at some point.
“Delay
in the implementation would deprive the ordinary consumers from enjoying the
fruits of competition sooner. The end-users would remain as captive to their
DUs for a long period of time,” she explained.
EO 30
Another
policy that benefits both consumers and the private sector investing in the
energy sector was issued on June 30.
Executive
Order 30 states that concerned government agencies shall act upon applications
for permits involving Energy Projects of National Significance (EPNS) not
exceeding within a 30-day period. If no decision is made within the specified
processing timeframe, the application is deemed approved by the concerned
agency.
This
effectively reduced the time to process the permits needed for power projects
to take off.
“It is
the policy of the State to ensure a continuous, adequate and economic supply of
energy. Hence, an efficient and effective administrative process for energy
projects of national significance should be developed in order to avoid
unnecessary delays in the implementation of the Philippine Energy Plan (PEP),”
stated the EO.
Within
the DOE, permits for all energy projects are processed within 25 days.
Securing a permit from the DOE, however, is only 10 percent of the entire
permitting process.
According
to Sen. Sherwin Gatchalian, chairman of the Senate Committee on Energy, it
takes 1,340 days to secure a permit, 359 signatures needed for the permit,
and which involves 74 different agencies, including the DOE.
“That’s
the amount of complexity. This is only predevelopment stage, which is apart
from building the power plant,” said Gatchalian in an interview.
DOE
Director of Renewable Energy Management Bureau Mario Marasigan said that with
or without the EO, the agency has reduced the permitting process from 120 days
to 45 days, then to 25 days just recently.
“Our
concern is energy projects are delayed because of the local permitting process,
including those from national and regional offices like the DENR [Department of
Environment and Natural Resources] and LGUs [local government units], among
others,” he said.
Under
the existing setup, there is no fixed timeline, that is why permitting process
alone takes as long as four years or even more. Add another three to four years
for project construction,” said Marasigan.
Cusi
said the longer the processing of energy projects gets, the more expensive they
become, which could also impact on the delivery of energy services and their
affordability.
“Given
that energy investors have complete requirements, cutting down the period of
issuance of permits will certainly speed up the realization of energy
projects,” Cusi said.
In order
for an energy project to be considered among the EPNS, power generation and
transmission projects must have a capital investment of at least P3.5 billion,
significant contribution to the country’s economic development, significant
consequential economic impact, significant potential contribution to the
country’s balance of payments, significant impact on the environment, complex
technical processes and engineering designs, and significant infrastructure
requirements.
TRAIN
Just
when the year is about to end, a bill, which seeks to impose higher taxes
on fuel, cars, tobacco and sugary beverages, was signed into law.
On
December 19 President Duterte signed into law the Tax Reform for Acceleration
and Inclusion (TRAIN) bill. The TRAIN law or Republic Act 10963 is expected to
generate P130 billion in revenues and finance the administration’s “Build,
Build, Build” infrastructure program.
“I hope
it brings development and progress to our country for the benefit of all,” said
Cusi.
The
TRAIN’s initial impact on power rates will reach P0.04 per kWh. It will then
increase to P0.07 per kWh if excise tax on coal reaches P150 per metric ton.
Overall, the total impact is P13.2 billion worth of pass-on charges to
consumers.
A Senate
Ways and Means Committee briefer said the P10 coal excise tax rate has remained
unchanged since 1988, while the local industry has been exempted from paying
excise tax since 1976.
Gatchalian
said the excise tax would become a “pure pass-on charge” resulting in an
additional P13.2 billion in electricity costs that consumers inevitably would
have to shoulder.
The two
chambers of Congress agreed on a compromise tax rate of P150 per metric ton on
coal, divided into tranches over the next three years upon its enactment. This
means the excise tax would be P50 per metric ton in 2018, P100 in 2019, and
P150 in 2020. The original Senate version proposed a “100-200-300” hike
scheme.
Gatchalian
explained the negative implications of the tax hike: “The tax hike up to P150
after three years will result in an average monthly rate increase of P14.348
for a 200-kWh household served by a 100-percent coal contracted distribution
utility. This is equivalent to the price of half a kilo of rice for 2.7 million
households.”
While
proponents of the coal tax increase may downplay it as negligible, Gatchalian
said that Filipinos are already struggling through the pain of paying the
highest power rates in Southeast Asia. With this, Gatchalian said those who
oppose the move “miss the point entirely.”
Meralco,
the country’s largest power distribution firm, said all it could do for now is
to “prepare our consumers”.
Company
spokesman Joe Zaldarriaga said Meralco has stated in the past its position
about the issue. Preparation, he said, includes a massive information campaign
on the impact on power rates. “We really need to prepare our consumers for the
rate impact, including possible adjustments in the FIT (feed-in-tariff) and
universal charges starting next year,” he said when sought for comment.
Meanwhile,
the National Electrification Administration (NEA) also expressed grave concern.
“I
believe this will discourage investors in putting up generation facilities that
are not friendly to the environment,” said NEA chief Edgardo Masongsong.
“With more than 50 percent of energy source coming from coal, I am afraid we
will be paying more for our electricity consumption.”
On the
other hand, higher excise tax on coal will promote the development of
renewable energy (RE) sources.
“It
should be favorable for RE,” said SN Aboitiz Power President Joseph Yu,
who agreed that the tax adjustment will encourage the utilization of RE in the
country. He said that for those who are not using coal as fuel, this will “have
a lifting effect on profitability, which will then make RE projects more
viable.”
Gatchalian,
meanwhile, called on the DOE to fast-track the implementation of the RCOA
circular to mitigate the effects of projected electricity rate hikes.
“With
the coal tax in place, all the more that we need to implement RCOA to
democratize our power sector. The RCOA will help lower costs to protect
consumers from the inflationary effects of the coal tax.
“Once
you give the consumers the power of choice, they can choose whether they want
coal, renewable energy or geothermal, whichever is cheaper for them,” said
Gatchalian.
The
senator reiterated the expected impact of the coal tax on consumers. He
estimates an increase of P10 in the monthly electricity bills of average
households in 2018, P20 by 2019, and P28 by 2020, noting that these estimates
are bound to grow as new coal plants come online in the near future.
The
National Renewable Energy Board (NREB), the advisory body tasked with the
effective implementation of RE projects in the Philippines, meanwhile,
commented that the government needs to fully implement the mandate of the
Renewable Energy Act of 2008, which includes the issuance of the rules on
Renewable Portfolio Standards (RPS) for on-grid and off-grid areas and Green
Energy Option Program.
RPS
requires distribution utilities to source a portion of their power supply from
eligible RE sources. The Green Energy Option, meanwhile, is a mechanism to
provide end-users the option to choose RE as their source of energy.
“NREB
already endorsed all three draft rules for approval of the DOE. NREB is set to
endorse the RE market rules to DOE for approval by the end of the year after
finishing the public consultation,” said NREB Chairman Jose Layug.
Energized ERC
Finally,
internal squabble within the ERC was finally put to rest after its chairman was
dismissed and a new one was appointed.
Duterte
has appointed former Solicitor General and Justice Secretary Agnes Vicenta
Devanadera as the new ERC chief.
Devanadera,
who was appointed on November 22, will serve the ERC until July 10, 2022,
replacing the embattled former ERC head Jose Vicente Salazar.
Salazar
was sacked in October over allegations of corruption in the agency.
ERC
Commissioners Alfredo J. Non, Gloria Victoria C. Yap-Taruc, Josefina Patricia
M. Asirit and Geronimo D. Sta. Ana, with the entire ERC staff, expressed
optimism as they welcomed Devanadera on her official assumption of office on
December 4.
“With
all the qualifications, experience and wisdom that she has earned… we can
expect a more energized ERC,” Cusi said.
Devanadera,
for her part, underscored the importance of safeguarding office synergy to help
ERC move forward in a faster and more effective manner. “Let us work together,
let us work as a team,” she said.
She
encouraged ERC personnel to adhere to the values of work efficiency,
effectiveness and technical or professional competence. “We must not lose
sight of the most basic principle of public service: we must put people first.”
Industry
stakeholders welcomed this development.
Aboitiz
Power Corp. President Antonio Moraza said, “There is now a clear leader so this
can only be good for the industry.”
Cusi
added that Devanadera is “competent for the post.”
Meralco
President Oscar Reyes said the utility is hopeful that the agency will be able
to focus more on addressing immediate concerns of the industry. “We welcome her
and we hope that all will be addressed sooner,” said Reyes.
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