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Controlling electricity market in the Philippines

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Electrical linesman install new power lines in Manila. Despite a resurgent economy, economic analysts say that improving infrastructure is a key requiment if this growth is to be sustained. AFP

Controlling electricity market in the Philippines

Way back in 2001, it was decided that control of the electricity market in the Philippines was needed. If we left it to the players, the power generators, and the electricity distributors, they would be left to pretty much work out whatever deal they liked. That would not be good for us who have to pay for the electricity bought out of that deal.

So the Electric Power Industry Reform Act (Epira) was born. Among other things, it created a spot market where power could be traded. Generation companies could offer their electricity and distributors could bid for it. It stabilised the market, and kept prices in check. Around 10 per cent of power available has to be traded on this market. It’s called WESM, the Wholesale Electricity Spot Market. And is controlled by a board called the Philippine Electricity Market (PEM Board) where I sit on as an independent member. It actually took the Philippine Electricity Market Corp (PEMC), which the PEM Board oversees, three years to put in place the operations of the WESM.

WESM provides a transparent and competitive electricity market for the country to ensure that generation is balanced with the ever-changing demand for electricity. It encourages competition from the generating companies. With the competition the market provides, efficiency improves.

PEMC and WESM were originally overseen and developed by the Department of Energy (DOE), as the country’s policymaking government agency for the energy sector, but Epira contemplated that it be privately owned and that the operator be fully independent. As with so much under the Aquino administration, that never happened. When Duterte came to power and appointed Al Cusi to head the DOE, one of Epira’s key mandates was finally accomplished. PEMC fully transitioned to become a private, nonprofit (note that – no profit was to be made) governance organisation, independent of the government. An election was held for members of the Board to represent the various stakeholders: generators, transmission line operator (NGCP), and distributors. Plus four independent directors.

Also under the Epira, the day-to-day management of WESM has to be controlled by an independent operator with no ties to anyone. It is called the independent market operator (IMO), and the Independent Electricity Market Operator of the Philippines (IEMOP) took on this role starting September 26, 2018. It must be nonstock, nonprofit. It was supposed to have been established within a year of the signing of Epira, but it wasn’t. It could have been allowed to make profits, too, but the framers of the Epira thought the public would be better served if it only covered its costs. Those costs, and the cost of PEMC and WESM, add a miniscule less than one centavo/kWh to your bill.

Cusi took on the task and approached the Philippine Stock Exchange (PSE) for guidance on how to do it, as the markets operate in similar ways. The PSE wanted to become the IMO with Singapore Exchange Ltd (SGX), which operates the electricity bourse of Singapore. But having foreigners controlling our electricity market was not seen as desirable.

The implementing rules of the Epira required that the IMO be run by an organisation that had run a similar market, with a minimum of two years of running that market. There was no one in year 2007, when the legislation required the transfer to happen. Nor was there any when the shift was finally affected.

In 2012, the Department of Justice was asked if it was necessary to go out to public bidding anyway. They opined that it wasn’t. Hence, the PEM Board, through the recommendation of the PEMC Transition Committee created by the DOE, decided in 2017 that the wisest thing to do was to move the people who had been running WESM to the IEMOP, as they had the more than two years of experience required. And, let me repeat, no one else did. So going to open bidding as some are now arguing would make no sense. And, as it is a nonprofit organisation, there would be no financial gain for the public by doing so. There would be no competition for offering the lowest toll; the amount is determined by cost. IEMOP just covers its costs in operating the market.

Maybe those arguing to cancel this arrangement want to convert it into a profitable organisation. I can see no other reason to want to challenge something that is working successfully.

Inevitably, there have been mistakes along the way as PEMC learned how to operate a spot market. It was a new concept, not common in Asia. So we had to learn as we went along. Today, it is a fully-functioning, successful system that is ensuring that consumers get a fair deal, and that power is available. Why upset the apple cart?

Peter Wallace/PHILIPPINE DAILY INQUIRER/ASIA NEWS NETWORK

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