EPIRA PRIMER

(Taken from the Department of Energy Website)

What is the ELECTRIC POWER INDUSTRY REFORM ACT of 2001 (R.A. 1!"#$ On June 8, 2001, President Gloria Macapagal-Arroyo signed into law Republic Act 1!", or t#e $lectric Power %ndustry Re&or' Act o& 2001( )#e said enact'ent was t#e cul'ination o& 'ore t#an se*en years o& public #earings and &loor deliberations on *arious *ersions o& t#e said 'easure in +ongress( A'ong ot#er bene&its, RA 1!" is designed to bring down electricity rates and to i'pro*e t#e deli*ery o& power supply to end-users by encouraging greater co'petition and e&&iciency in t#e electricity industry( )#e essence o& t#ese re&or's is gi*ing sta,e#olders a +-O%+$, speci&ically. 1. Consumer Empowerment. )#is can be ac#ie*ed by gi*ing consu'ers t#e power to c#oose t#eir source o& electricity &ro' a'ong a #ost o& generators and suppliers o& electricity( 2. Higher Efficiency. +onsu'ers will be assured o& ade/uate and reliable power supply at lower rates( 3. Open Access. )#ere will be open access to trans'ission and distribution networ,0 &acilities so t#at t#e bene&its o& co'petition in t#e generation0supply sector could really tric,le down to t#e consu'ers( 4. Industry Accountabi ity. )#ere will be #ig#er le*els o& en*iron'ental, #ealt# and sa&ety standards( 1on-co'plying co'panies will be sub2ect to appropriate &ines and penalties( )#ere will be #ig#er le*els o& en*iron'ental, #ealt# and sa&ety standards( 1on-co'plying co'panies will be sub2ect to appropriate &ines and penalties( !. Competition in "eneration and #upp y. )#ere will be co'petition between and a'ong generating co'panies w#ere prices will be 'ar,et-dri*en and co'petiti*e( )#ere will be longter' contracts and a spot 'ar,et w#ere t#e trading o& electricity between buyers and sellers will be underta,en( )#ere will be co'petition between and a'ong generating co'panies w#ere prices will be 'ar,et-dri*en and co'petiti*e( )#ere will be long-ter' contracts and a spot 'ar,et w#ere t#e trading o& electricity between buyers and sellers will be underta,en(

$. E ectricity %ariff &nbund ing. )#is includes t#e ite'i3ation and t#e segregation o& *arious co'ponents o& electricity tari&&s to 'a,e t#e rates 'ore transparent( 4it# rates unbundled, custo'ers will be able to ,now #ow 'uc# t#ey would be paying &or generation, trans'ission, distribution and ot#er bene&its or c#arges( )#ese re&or's are ai'ed at 'a,ing sure our country will #a*e reliable and co'petiti*ely priced electricity( )#e strategy is to put an end to 'onopolies t#at breed ine&&iciency, encourage t#e entry o& 'any 'ore industry players, and generate co'petition t#at will bene&it consu'ers in ter's o& better rates and ser*ices( %n ot#er countries, a restructured and co'petiti*e power sector #as pro*ided consu'ers wit# lower power rates( 4e loo, around us and &ind t#at t#e sa'e pattern can be seen in local industries t#at #a*e been de-'onopoli3ed and deregulated li,e teleco''unications and inter-island s#ipping( )#e pri*ati3ation or sale o& 1P+5s generating power plants to se*eral co'panies will trigger co'petition, on t#e generation side( %n addition, its pri*ati3ation will allow go*ern'ent to s#i&t t#e burden o& ensuring continuous &inancing &or t#e construction, operation and 'aintenance o& #ugely capital-intensi*e power generating plants to t#e pri*ate sector( 1!" is i& '(a)e* %hat +efo+,s %i(( -e i&stit.te/ i& the 'o%e+

No% that RA i&/.st+0$

)wo 'a2or re&or's are e'bodied in RA 1!", na'ely, t#e restructuring o& t#e electricity supply industry and t#e pri*ati3ation o& t#e 1ational Power +orporation 61P+7( )#e restructuring o& t#e electricity industry calls &or t#e separation o& t#e di&&erent co'ponents o& t#e power sector na'ely, generation, trans'ission, distribution and supply 6please see diagra' on page 27( On t#e ot#er #and, t#e pri*ati3ation o& t#e 1ational Power +orporation 61P+7 in*ol*es t#e sale o& t#e state-owned power &ir'5s generation and trans'ission assets 6e(g(, power plants and trans'ission &acilities7 to pri*ate in*estors( )#ese two re&or's are ai'ed at encouraging greater co'petition and at attracting 'ore pri*ate-sector in*est'ents in t#e power industry( A 'ore co'petiti*e power industry will in turn result in lower power rates and a 'ore e&&icient deli*ery o& electricity supply to end-users(

With +est+.)t.+i&1* %i(( the 'o%e+ i&/.st+0 -e f.((0 /e+e1.(ate/$ 2o% )a& 1o3e+&,e&t e&s.+e that )o&s.,e+s %i(( -e '+ote)te/ f+o, .&/.e a&/ f+e4.e&t i&)+eases i& 'o%e+ +ates$ 1o, only generation and supply will be deregulated( 8istribution and trans'ission will continue to be regulated by t#e $nergy Regulatory +o''ission 6$R+7( 9nder RA 1!", go*ern'ent will create an independent, /uasi-2udicial regulatory body called t#e $nergy Regulatory +o''ission 6$R+7 to replace t#e $nergy Regulatory :oard( )#e +o''ission will be 'ade up o& a +#air'an and &our

+o''issioners, all o& w#o' will be appointed by t#e President o& t#e P#ilippines( )#e $R+ will be tas,ed to pro'ote co'petition in t#e power sector, encourage 'ar,et de*elop'ent and ensure custo'er c#oice( +o'pared to its predecessor, t#e $R+ will #a*e stronger and broader powers in t#e sense t#at it will be aut#ori3ed not only to correct but to pre*ent and penali3e anti-co'petiti*e practices( %t will also be gi*en certain rate-setting &unctions( A+e the+e a&0 safe1.a+/s i& the (a% to '+e3e&t )e+tai& -.si&ess 1+o.'s o+ -(o)s f+o, /o,i&ati&1 the +est+.)t.+e/ 'o%e+ i&/.st+0$ )o pro'ote true co'petition and pre*ent 'onopolistic practices, RA 1!" pro*ides &or e;plicit caps or li'its on t#e *olu'e o& electricity t#at a distribution utility can buy &ro' an a&&iliated co'pany t#at is engaged in power generation( <i,ewise, t#e law also pro*ides t#at =no co'pany or related group can own, operate or control 'ore t#an !0 percent o& t#e installed capacity o& a grid and0or 2> percent o& t#e national installed generating capacity=( 2o% s.+e a+e %e that 'o%e+ +ates %i(( i&/ee/ 1o /o%&$ A+e the+e a&0 '+o5'oo+ '+o3isio&s i& RA 1!"$ 9nder RA 1!", 1P+ is 'andated to reduce its rates &or residential consu'ers by !0 centa*os per ,ilowatt-#our i''ediately upon t#e e&&ecti*ity o& t#e said law( %t also pro*ides &or a subsidi3ed =li&eline= rate &or 'arginali3ed or low-inco'e electricity consu'ers( )#is will ensure t#at suc# consu'ers will not #a*e to contend wit# #ig#er power rates e*en w#en t#e cross-subsidies on electricity tari&&s are re'o*ed wit# t#e restructuring o& t#e power sector( ?inally, t#e bill 'andates 1P+ to carry on wit# its 'issionary &unction o& pro*iding electricity to non-*iable, &ar-&lung areas in t#e countryside e*en a&ter its pri*ati3ation( 2o% %i(( the '+i3ati6atio& of NPC -e )a++ie/ o.t$ 9nder RA 1!", 1P+5s generation and trans'ission &acilities, real estate properties and ot#er disposable assets, as well as its e;isting power supply contracts wit# independent power producers 6%PPs7, s#all be pri*ati3ed( )#e e;act 'anner and 'ode by w#ic# t#ese assets will be sold will be deter'ined by t#e Power @ector Assets and <iabilities Manage'ent 6P@A<M7 +orporation, a go*ern'ent-owned and Acontrolled corporation t#at will ta,e o*er t#e owners#ip o& all o& 1P+5s assets( P@A<M will also be tas,ed to 'anage t#e orderly sale, disposition and pri*ati3ation o& 1P+, wit# t#e ob2ecti*e o& li/uidating all o& 1P+5s &inancial obligations and stranded contract costs in an opti'al 'anner( 2o% )a& 1o3e+&,e&t e&s.+e that the '+o)ee/s f+o, the sa(e of NPC assets %i(( -e o'ti,i6e/$ A set o& criteria in t#e grouping o& 1P+ assets will be considered( )#ese criteria include &inancial *iability, e&&iciency o& operations, and 'anage'ent and operational synergy( ?urt#er'ore, all assets o& 1P+ s#all be sold in a open and transparent 'anner t#roug# public bidding( Wi(( NPC 'o%e+ '(a&ts that +.& o& h0/+o a&/ stea, -e '+i3ati6e/ a(so$

%nitially, 1P+5s Agus and Pulangui #ydroelectric power co'ple;es, bot# located in Mindanao, s#all be e;cluded &ro' t#e pri*ati3ation progra'( %ts pri*ati3ation will be le&t to t#e discretion o& t#e P@A<M +orp(, in consultation wit# +ongress( RA 1!" &urt#er speci&ies t#at t#e two #ydro plants 'ay not be pri*ati3ed earlier t#an 10 years &ro' t#e e&&ecti*ity o& t#e said law( As &or 1P+5s geot#er'al &acilities 6e(g(, )iwi-Ma,ban, <eyte A and : 6)ongonan7, Palinpinon and Mt( Apo7, RA 1!" states t#at t#e stea'&ield assets and t#e power plants o& eac# o& t#e said co'ple;es s#all not be sold separately( Rat#er, t#ey s#all be co'bined and eac# co'ple; will be sold as one pac,age t#roug# a public bidding(