|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.