Even with proposed implementation of accelerated open access (OA), supposedly a policy that would widen base of competition among power suppliers, Cagayan Electric Power and Light Company (Cepalco) chairman Ramon C. Abaya said this is not a formula that will bring down power rates unless conditions precedent are fully complied with.
Posed with the question on whether or not competition will result in lower rates, the Cepalco executive noted that this would only be possible "under certain conditions"; primarily those prescribed under the Electric Power Industry Reform Act.
It would be culled that the law has several requirements before open access could be introduced in the deregulated power industry.
Section 31 of EPIRA which prescribes retail competition and open access calls for preconditions; which are primarily the: a) establishment of the Wholesale Electricity Spot Market (WESM); b) approval of unbundled transmission and distribution wheeling charges; c) initial implementation of the cross subsidy removal; d) privati-zation of at least 70 percent of the total capacity of generating assets of National Power Corporation (NPC) in Luzon and Visayas; and e) transfer of the management and control of at least 70 percent of the total energy output of power plants under contract with NPC to the IPP administrators.
This early, however, the tinkering in the policy reforms in the Philippine power market have been rendering more failure in the industry’s deregulation; with privatization of the generation assets of NPC, which could have been one anchor in the introduction of widened industry competition, is suffering from snags and endless delays.
Citing the experience of countries which have both succeeded (United Kingdom and Pennsylvania New Jersey-Maryland) and failed (California) in the introduction of open access, Abaya noted that the Philippine policymakers should pay close attention to the factors that spelled the triumph of those electricity systems.
And the crucial lesson shared, he noted, is that "save retail competition for last."
Taking from the conclusions laid down by a World Bank Discussion Paper, Abaya relayed that the conditions to ensure genuine market competition via open access would include introduction of limited forms of competition to evolve to wholesale competition; such as cost-based spot markets with obligations for capacity and ancillary services.
The other prerequisite would be a move to a full-based market only once the necessary conditions are in place, such as: no pervasive market power; no serious bottleneck in the transmission system; retail tariffs are cost reflective, players can hedge through available forward markets (liquid and deep); and independent system operator, new capacity are readily available; demand response for large contestable loads; many sellers and multiple buyers and resolution of potential high stranded costs.
At the same time, Abaya noted that vesting contracts as insurance for distribution companies buying from the market should be allowed; including power purchase agreements with existing independent power producers (IPPs) especially for captive market.
In gist, he stressed that the starting points would matter a lot; and these included: enough capacity; full-costed prices or rates; electrification coverage and reliable, independent regulators.
Points are also raised on possible legal hurdles as based on the provisions of the EPIRA, as one that may hinder the scheduled operation of the Wholesale Electricity Spot Market (WESM) as targeted early next year; as electricity trading under a pool market would not be viable without first establishing competitive market through open access.
