EPIRA changes needed amid industry shifts

The energy landscape has changed vastly with the forming of a blockbuster partnership among the biggest conglomerates that has committed to pumping in $3.3 billion for a liquefied natural gas project while the Malampaya project remains on track.

The landmark deal integrates the local energy sector into the global natural gas supply chain.

Industry groups suggested that the time is ripe for the Electric Power Industry Reform Act or EPIRA to be amended to ensure fair competition and the lowest possible price of electricity for consumers.

The EPIRA passed during the term of former President Gloria Macapagal Arroyo, mandated the Energy Regulatory Commission and Philippine Competition Commission to promote competition, encourage market development, ensure consumer choice, and penalize abuse of market power in the restructured electricity industry.

The law also promotes competition by creating a level playing field, among others, in the competitive retail electricity markets. 

Despite the law, collusion among players has become a constant problem.

Under the EPIRA, supply contracts are required to undergo a so-called competitive selection process, or CSP, which is the holding of bidding to come up with electricity at the least cost.

CSP in tandem with the spot market or the Wholesale Electricity Spot Market would theoretically ensure that every kilowatt of electricity that flows in the grid is the cheapest available.

Manipulation or gaming of the market, however, resulted in the EPIRA failing to meet its objectives.

For instance, in the CSP for 1,800 megawatts of electricity to fill the need for baseload and anticipated demand, some power plants always get the upper hand.

Gaming market persists

The Ilijan plant qualified in the CSP for a power supply agreement. From indigenous natural gas, before it was acquired by San Miguel Global Corp., it now runs on imported LNG.

The terms in the PSA seem not grounded with the current price of imported fuel.

It is substantially more expensive than indigenous natural gas which is derived from the Philippines’ crown jewel, the Malampaya field off the province of Palawan.

Malampaya gas is $12.38 per MMBtu while imported LNG is $14.55 per MMBtu, or 20 percent more expensive. Imported LNG reached $15.78 per MMBtu at one point last year.

Transport, or freight cost, also adds to the cost that consumers eventually shoulder in their monthly bills.

Considering previous instances when SMGP bid too low to acquire PSAs under CSP but eventually asked the regulator to change the terms of the contract, a repeat of the situation that resulted in higher electricity costs is not remote.

The PSA has a ceiling of P7 per kWh but records will show that Ilijan generates power at a cost of P8.40 due to the use of the more expensive imported LNG as against other plants that use indigenous natural gas from the Malampaya field.

Loopholes in the EPIRA have resulted in some unscrupulous practices in which conflicts of interest and collisions are present.

EPIRA should have stronger check and balance provisions to ensure that indeed electricity users are getting of electricity supply at the least cost possible.