Update on the Five Conditions Precedent to Retail Competition and Open Access

Section 31 of the Electric Power Industry Reform Act (EPIRA) mandates that retail competition and open access on distribution wires be implemented subject to five (5) conditions. Three (3) of these conditions have been substantially fulfilled: the establishment of the Wholesale Electricity Spot Market (WESM), unbundling of transmission and distribution wheeling charges and the initial implementation of the cross subsidy removal scheme.

The other two conditions yet to be completed are the privatization of at least 70% of the total capacity of generating assets of National Power Corporation (NPC) in Luzon and the Visayas, and the transfer of the management and control of at least 70% of the total energy output of power plants under contract with NPC to the Independent Power Producers (IPP) administrators.

The Power Sector Assets and Liabilities Management Corporation (PSALM), the agency tasked to lead the privatization efforts and the transfer of management of the generating assets to IPP administrators, submitted to the Energy Regulatory Commission (ERC) its privatization targets for the 4335.7 MW generating/operating capacity of NPC in Luzon and Visayas. 50% is to be privatized by the end of 2007, 70% by end of 2008 and 100% by end of 2009. As of December 2006, 11% of the total capacity of NPC’s generating assets in Luzon and Visayas has been privatized.

PSALM targets the appointment of IPP Administrators through a competitive and open bidding by the fourth (4th) quarter of 2007. The Department of Energy (DOE) – PSALM Technical Working Group is currently evaluating the proposals from the short listed prospective IPP Administrators (IPPA) advisors and will be appointing said advisor by the second (2nd) quarter of 2007. PSALM through DOE obtained a Technical Assistance grant from the World Bank to assist in developing an IPPA structure and approach for the appointment of IPPAs consistent with the EPIRA and the NPC Privatization Plan.

On the other hand, the Wholesale Electricity Spot Market was officially launched on June 23, 2006 and began commercial operations for Luzon a number of days thereafter. As of February 20, 2007, there have been 26 entities registered as WESM members and 6 pending applicants.

Unbundled rates have been approved by ERC for 137 out of 139 Distribution Utilities (98.56%). The two remaining DUs are Bauan Electric Light System (BELS) and Bohol Light Company, Inc. (BLCI). BELS filed its application in 2001 but failed to comply with the Uniform Filing Requirements. A Show Cause Order was already issued to it and BELS has yet to submit all the required documents. BLCI on the other hand was ordered to refile its application based on 2005 as test year for their unbundling application. Unbundling of transmission charges of the National Transmission Corp. (TRANSCO) was approved by ERC on September 6, 2002.

The ERC has already implemented a cross subsidy removal scheme. The inter-regional grid cross subsidy was fully phased out in June 2002. The intra-regional grid cross subsidy was completely removed in October 2005. As for the inter-class cross subsidy, 15 out of the 18 Private Utilities and 119 out of the 120 Electric Cooperatives (ECs) have started the process of removal. Sec. 43 (o) of the Electric Power Industry Reform Act (EPIRA) states that, “any existing subsidies shall be divided pro-rata among all retail suppliers”.

In addition to the conditions set by EPIRA, the ERC, through Resolution No. 3 Series of 2007 provided two additional vital requirements that must be in place prior to commencement of retail competition: the adequacy and establishment of all necessary infrastructures including, but not limited to: transmission networks, generation supply and the customer switching system, and the promulgation by ERC of all pertinent rules and regulations governing retail competition and open access.

May 10 , 2007