Power industry backs ERC reforms

By Ernesto Hilario -  January 30, 2017

http://www.businessmirror.com.ph/power-industry-backs-erc-reforms/

Power-industry insiders decry what they call a misperception now hounding their sector. The misperception, they pointed out, is that power-sector players are out to block the reforms being pushed by the Energy Regulatory Commission (ERC) under the leadership of Chairman Jose Vicente B. Salazar.

The misperception is not good, they pointed out. It tends to create an image of an industry that simply wants to milk customers and keep them under the oppressive regime of a monopolistic setup.

The misperception may have been brought about by the spate of legal action seeking to stop Salazar from aggressively pursuing the power-sector reforms mandated under the Electric Power Industry Reform Act (Epira). Among those that have been questioned in court are the reforms that push for competition among power-sector players. The legal action may have given the impression that the industry is against competition.

This is not an accurate perception, the insiders pointed out.

In fact, the country’s biggest power-sector organization has come out in the open and publicly expressed full backing for Salazar and the ERC in the latter’s bid to put competition in place. It will be recalled that last December, the Philippine Independent Power Producers Association (Pippa) came out with a media statement expressing full support for the said reforms.

Pippa specifically underscored its full backing for the so-called mandatory contestability. This has to do with ERC’s policy called retail competition and open access (RCOA). Here, power distributors compete for the business of customers with electricity requirements of 1 megawatt per month and more.

The fact is RCOA “desecrated” the age-old principle of the sanctity of the franchise area. Under this policy, once a customer hits that power requirement threshold, it enters the contestable market and is free for qualified suppliers to compete for.

One aspect of this policy has recently been questioned before the Supreme Court by a group of businessmen. That petition may have spurred speculations that the industry is set to form a solid phalanx against Salazar’s reforms and keep the sector under a sorry status quo state. The December Pippa statement should demolish that misimpression.

According to the Pippa statement, “mandatory contestability is a new and exciting phase in the electric power industry”. The organization also said it hopes “that the ERC is on top of its implementation”.

Pippa President Anne Estorco Macias clearly pointed out that the organization “hopes the reforms will continue next year, as the country needs to modernize and expand its current infrastructure”.

Macias clearly stated that Pippa “supports the initiatives and reforms of the [ERC] chairman and
commissioners”.

Insiders explain that apparent tension and occasional animosity between the regulatory agency and the industry “are both expected and healthy”. They said these are necessary ingredients of the transition from what used to be a virtual monopoly to an open market.

“Both the regulator and the players are still sorting things out,” they pointed out. In fact, it is good that the industry occasionally resort to the High Court to ask for a clarification of the law, the rules and the policies. The tension is merely part of the birthing pains.

The Pippa statement of support for the ERC is significant and important. It is significant because Pippa counts the biggest players in the industry among its members. The likes of First Gen, Alsons, Aboitiz, Manila Electric Co. and San Miguel are in its roster. The statement also underscores that this often-vilified sector is actually supportive of the public aspiration for reasonable and more affordable power rates and better service—which are what competition brings about.

The Pippa support has also spurred hope that the country is in the right direction as far as power- sector reforms are concerned. The ultimate goal is to bring down power rates and remove the country’s reputation as having one of the most expensive electricity supply in the region. When this happens, investors are more likely to come in, create jobs and spur economic growth.

Before, the government tried to keep power rates low. The means adopted was the fatal policy called state subsidy. We are still reeling under the toll exacted by that policy and it will take time before the ill effects are completely removed.

The other way to achieve the goal is genuine competition.

ERC’s job is to ensure that the competition rules are clear and fair and that the field is level. It is the job of the private-sector players to gear up for the inevitability of heightened competition in the power sector.

In a previous column, we said Salazar should expect to be at the receiving end of the pressure since he is the main champion of these power-sector reforms.

Salazar should not take it against the industry when the latter registers resistance and questions his reforms. That is the prerogative of investors. That should not be interpreted as opposition nor an attempt to block reforms.

Salazar has the backing of the industry his agency is regulating. He should take advantage of this rare expression of support to sustain the major reforms that the ERC has already begun.