Power failure: 10 years of EPIRA

A people’s review on the impact of the Electric Power Industry Reform Act of 2001

Key findings

1. Rates have more than doubled

2. Only three groups now dominate the industry

3. NAPOCOR remained heavily indebted

4. Energy security remained precarious

1. Rates have more than doubled

COMPARATIVE RATES OF MERALCO (AVE. RESIDENTIAL RATES) & NAPOCOR (GENERATION CHARGE FOR LUZON GRID) BEFORE & AFTER EPIRA

COMPANY PRE-EPIRA (2000)

TODAY (2010) INCREASE

MERALCO P4.87 per kWh

P10.35 per kWh

112.5 percent

NAPOCOR P2.39 per kWh

P4.45 per kWh

85.9 percent

SOURCES: MERALCO, NAPOCOR

Factors behind the doubling of rates

EPIRA did not cancel the notorious PPA

EPIRA introduced new items that jacked up the rates, & it also removed the subsidies

EPIRA deregulated power rates thru the AGRA (automatic adjustment of generation rates and systems loss rates)

EPIRA introduced investor-biased method to adjust rates – Performance-Based Regulation (PBR)

2. Only 3 groups dominate the industry

SMC; 20%

Lopez; 17%

Aboitiz, 15%

PSALM, 19%

NAPOCOR; 11%

Others, 18%

Distribution of national generating capacity

(as of 2010)

SOURCE: PSALM

3 biggest distribution

utilities in the Phils.

Due to cross-ownership in distribution & generation…

Unbundling of rates has become meaningless

Spot market does not foster real competition venue for

speculation

3. NAPOCOR remained heavily indebted

NAPOCOR’S FINANCIAL OBLIGATIONS, 2001 & 2010

INDICATOR 2001 2010 CHANGE

IPP obligations

$10.42 billion $8.79 billion ($1.63 billion)

Debts $5.97 billion $7.02 billion $1.05 billion

TOTAL $16.39 billion $15.80 billion ($590 million)

SOURCE: PSALM

FROM 2001 TO 2010, NAPOCOR SHELLED OUT

$18 BILLION TO PAY FOR ITS FINANCIAL OBLIGATIONS

Reasons for NAPOCOR’s continuing financial woes

EPIRA legitimized the onerous supply contracts with the IPPs, consequently:

Privatization proceeds failed to cover NAPOCOR’s financial obligations

while delays in privatization forced NAPOCOR to continue operating the plants & managing the IPP contracts

aggravating its need to seek more debts

4. Energy security remained precarious

Rotating brownouts

In Luzon, despite excess capacity, due to uncoordinated shutdowns by privately-controlled power plants

In Mindanao, due to power supply shortage resulting from lack of additional capacity in the past decade

Causes of energy insecurity

Under EPIRA, government turned over its strategic role in planning, developing, and implementing power infrastructure to profit-oriented private sector

Small PH energy market is not very attractive to investors unless guarantees and sweetheart deals are offered

Thank you!