Philippines: Consumer Protection in a Competitive Electricity Market with Open Access

Sovereign Project | 44091-012

Summary

The Philippine Department of Energy (DOE) requested the ADB to provide a policy and advisory technical assistance to assist the Government in managing consumer protection as the power sector moves toward open access and electricity market competition arrangement. This activity is part of the Government's ongoing effort in implementing power sector reforms that began in 2001 when the Electric Power Industry Reform Act (EPIRA) was approved. Some objectives of the reforms have been achieved by the EPIRA such as the establishment of the Wholesale Electricity Spot Market (WESM). With the impending shift to open access and the increasing price of electricity, additional measures that complement the EPIRA are needed to be implemented to ensure fair access to energy and consumer welfare. Discussions were held with the officials in the DOE, and an agreement was reached on the TA's impact, outcome, outputs, cost estimates and terms of reference

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Project Name Consumer Protection in a Competitive Electricity Market with Open Access
Project Number 44091-012
Country Philippines
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Sector / Subsector

Energy - Energy sector development and institutional reform

Gender Equity and Mainstreaming Some gender elements
Description The Philippine Department of Energy (DOE) requested the ADB to provide a policy and advisory technical assistance to assist the Government in managing consumer protection as the power sector moves toward open access and electricity market competition arrangement. This activity is part of the Government's ongoing effort in implementing power sector reforms that began in 2001 when the Electric Power Industry Reform Act (EPIRA) was approved. Some objectives of the reforms have been achieved by the EPIRA such as the establishment of the Wholesale Electricity Spot Market (WESM). With the impending shift to open access and the increasing price of electricity, additional measures that complement the EPIRA are needed to be implemented to ensure fair access to energy and consumer welfare. Discussions were held with the officials in the DOE, and an agreement was reached on the TA's impact, outcome, outputs, cost estimates and terms of reference
Project Rationale and Linkage to Country/Regional Strategy

Nine years after EPIRA passage, several objectives of the act have been achieved such as the unbundling of rates, removal of subsidies, and privatization of the transmission network through a management concession agreement with the National Grid Corporation of the Philippines. Wholesale electricity spot market operations since 2006 have resulted in wholesale competition in generation, the privatization of 91.8% of generation assets of the National Power Corporation as of April 2010, and the regulation of transmission and distribution by the Energy Regulatory Commission (ERC) since 2001. But much remains to be done to achieve the power sector reform objective of ensuring the sustainable supply of electricity at reasonable cost.

Open access and retail competition would complete the institution of competition through the entire cycle from generation to distribution. Only by implementing them can competitive pressure on power-generating companies be realized, bringing efficiency to the sector and ultimately reducing prices, the ultimate goal for consumers.

The government is set to implement open access, the next phase of reform of the Philippine power sector, by October 2012. This will introduce a new dimension to the Philippine electricity market, allowing consumers to select their electricity supplier. International experience shows that, with open access and consumers' general lack of understanding of reform issues, consumer complaints are likely to increase, which will further burden the ERC, which handles consumer complaints in addition to regulating the industry.

The ERC was established to promote and protect long-term consumer interests in terms of the quality, reliability, and pricing of sustainable electricity supply by overseeing network investment, retail reforms, and effective competition. Although significant reforms have been implemented since 2001, the sector still has high electricity prices and other problems, with consumers absorbing the burden of high rates. Consumers have not yet benefited from reform in terms of lower electricity prices. The main competitive element-open access-has not yet been implemented.

The shift to open access should be accompanied by measures to ensure consumer protection. EPIRA's objectives clearly include consumer protection, as does the ERC's mission. With open access, consumers will need ready access to information on tariffs, clear understanding of the operation of the wholesale market, and any changes that may be proposed to market rules. In addition, consumers need to understand the market structure, the competitive forces that may drive price volatility. With the broad understanding of the market dynamics, a contestable customer--customers who has right to shop for a supplier under the Open Access regime will be able to decide on the price and quality of service package suitable to that customer's need.

As gains from power sector reforms are measured in terms of consumer benefits, it is essential to ensure that competition and operational efficiencies translate into high-quality electricity supply at reasonable rates. Consumers should be protected from imperfections in the electricity industry and market. Consumer protection in the current system is under the ERC. The current mechanism for handling consumer complaints in the electricity industry is inadequate. In a deregulated environment that offers consumers more choices, the role of an ombudsman or an appointed official to receive and investigate complaints from individuals against electricity companies will be critical. Consumers' rights and obligations need to be clearly defined for prompt and effective dispute resolution. The staff responsible for receiving and investigating complaints must understand the rights and obligations of consumers in a deregulated industry and have the skills to resolve conflicts fairly. The ERC agrees with this view and will support establishing an ombudsman in the energy sector.

Consumer protection is an energy policy priority of the government, which has undertaken initiatives like improving energy self-sufficiency using cheaper indigenous energy resources to reduce dependence on imported oil, while avoiding increased generation cost. Enabling customers to choose electricity suppliers will make the power sector more efficient.

In parallel with government strategies, ADB's current country partnership strategy supports medium-term policy reforms pertaining to power distribution. It has consistently supported the government's restructuring of the power sector, which started with the approval of the $300 million Power Sector Restructuring Program on 16 December 1998. In December 2002, ADB supplemented this loan with a partial credit guarantee to help finance additional adjustment costs associated with restructuring. Further, the Power Sector Development Program was approved in December 2006. ADB has provided technical assistance grants to the energy sector on tariff and pricing studies, regulation, and consumer impact assessment to support reform since 2001.

Impact Effective and efficient electricity market
Project Outcome
Description of Outcome Consumers are aware of open access, electricity competition issues and their rights
Progress Toward Outcome Consumer awareness and advocacy/capacity building programs have been conducted among various sectors of society.
Implementation Progress
Description of Project Outputs

Enhanced capacity of stakeholders: consumers, the government, the electricity industry, and NGOs

Consumer Consultative Group established

Effective dispute-resolution scheme for consumer complaints

Status of Implementation Progress (Outputs, Activities, and Issues)

Initial consultation meetings with stakeholders involving Department of Energy, Energy Regulatory Commission, NGOs, religious groups and other consumer groups including World Youth Alliance, Alliance for Consumer Empowerment, LAPOCOF, CSOFP, Mindanao Commission on Women, Mindanao Coalition of Power Consumers, Archdiocese of Manila, Don Bosco Tondo, Religious of the Good Shepherd, Franciscan Movement for Justice, Peace and Integrity of Creation, Diocese of Cavite, ALU-TUCP, Empower Consumers, NAGRASA, Alliance of Progressive Labor, All Pinoy, Young Women's Christian Association, Nationwide Association of Consumers, Inc., Philippine Center for Environmental Protection and Sustainable Development, Inc., Alliance for Consumer Empowerment, Philippine Electric Cooperative, etc. have been conducted in January, July, November and December 2013 to develop a comprehensive integrated advocacy campaign to educate consumers about the key features of the power sector, policy mechanisms and evolving developments that may impact on consumers.

As an offshoot of these meetings, a consumer consultative group consisting of nine persons from various sectors of society was established to develop outreach and educational strategies to meet existing issues relevant to Philippine consumers and to develop future strategies to educate consumers about structural changes and reform in the Philippine energy market; organize and strengthen consumer groups and their networks; improve community understanding of basic energy issues among others. Following formation of the group, they have been meeting almost on a weekly basis to organize themselves into subgroups and agree/plan on the next activities to meet their objectives.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Wide-range consultations with the government, the electricity industry, and consumers were completed during the project design stage.
During Project Implementation The implementation consultants and project team has been working closely with the stakeholders, including existing consumer groups, during project implementation through the various workshops being conducted. The TA has three components: (i) stakeholder capacity building, (ii) establishing a consumer consultation group, and (iii) establishing a dispute-resolution scheme for consumer complaints.
Business Opportunities
Consulting Services

The proposed Asian Development Bank (ADB) technical assistance (TA) will support the Department of Energy on the consumer protection aspect of the Philippines power sector reforms. It will help provide for measures that will address consumer concerns arising from power sector reform attribute such as electricity market competition, open access and customer switching system, and those that will be implemented in the future. International and national experts will be engaged to introduce international best practices and provide domestic expertise in undertaking the following activities among other things for the (i) empowerment of electricity consumers and capacity building for Government (ii) institutionalization of electricity consumer consultations and (iii) putting up of protection mechanism for electricity consumers.

The following consultants will be recruited, among others: Consumer Protection Specialist, Electricity Market Specialist, Advocacy Specialist

Responsible ADB Officer Rehan Kausar
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Energy Division, SERD
Executing Agencies
Department of EnergyPNPC Complex
Merritt Road, Fort Bonifacio
Makati, Metro Manila
Timetable
Concept Clearance 26 Jan 2012
Fact Finding 30 Jan 2012 to 03 Feb 2012
MRM -
Approval 16 Apr 2012
Last Review Mission -
Last PDS Update 25 Mar 2014

TA 8073-PHI

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
16 Apr 2012 17 May 2012 17 May 2012 30 Apr 2014 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 0.00 0.00 0.00 0.00 0.00 0.00 16 Apr 2012 90,042.78

Safeguard Documents

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Evaluation Documents

See also: Independent Evaluation

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