New energy chief seen giving priority to consumer protection

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.

Reference:

Lectura, L. (December 30, 2017). New energy chief seen giving priority to consumer protection. Business Mirror. Retrieved from https://businessmirror.com.ph/new-energy-chief-seen-giving-priority-to-consumer-protection/

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