Electricity sector in the Philippines

La Electricista

La Electricista, founded in 1892, was very first electric company to provide electricity in Manila. It built the first electric generating plant in the country, the Central Power Plant, on Calle San Sebastian (now R. Hidalgo) in Manila City.

Meralco

Meralco was established as the Manila Electric Railroad and Light Company in 1903. It was created to provide light and an electric railway system to Manila.

During World War II the transportation infrastructure of Meralco was destroyed and instead of rebuilding the railway, the company focused its efforts onto its electric services.

During the 1960s a group of Filipino investors led by Eugenio Lopez Sr. bought Meralco from the American investors. Meralco proceeded to expand during this time period, it was also during this period that Meralco became the very first billion peso company in the Philippines.

During the 1970s the Philippine Government made it a state policy for the government to own all major generating facilities. Meralco sold all of its generating plants to the National Power Corporation (NPC) and, thus, electric distribution became its core business.

Power Generation

Power generation in the Philippines is not considered as a public utility operation, which means interested parties do not need to secure a congressional franchise to operate a power generation company. However, power generation is regulated by the Energy Regulation Commission (ERC) who must issue a certificate of compliance to interested parties to ensure that the standards set forth in the Electric Power Industry Reform Act of 2011 (EPIRA) are followed. The ERC is also responsible for determining any power abuse or anti-competitive behavior. Power generation is a value added tax zero-rated (i.e. not subject to 12% VAT) to ensure lower rates for end-users.

Electricity in the Philippines is produced from various sources such as coal, oil, natural gas, biomass, hydroelectric, solar, wind, and geothermal sources. The allocation of electricity production can be seen in the table below, according to data from the Department of Energy Power Statistics:

Table 1. Power generation by source as of 2014

Table 2. Number of operational power plants in the Philippines

Fossil Fuels

Coal, oil, and natural gas are the most abundant fossil fuels in the Philippines.

Coal

Coal has the largest reserve and is often the cheapest fossil fuel. There is therefore a high demand for coal around the globe. Throughout the years the demand for it has become steady despite the growing environmental concerns. Coal has the highest contribution to the power generation mix but the local demand for it is not limited to power generation. The Philippines has a vast potential for coal resources. According to Energy Global, there is potentially an approximate of 270 billion tons of coal resources.

Oil and natural gas

In June 2011, the Philippine Department of Energy (DOE) estimated a total of 27.9 billion cubic feet of oil and a total of 53.9 trillion cubic feet of gas. The estimated total oil production in June 2011 in the Philippines was 63 million barrels.

Renewable resources

The government has approved feed-in-tariff (FIT) rates for renewable energy in 2014 for wind, solar, hydroelectric and biomass energy at a rate lower than those asked for by renewable energy developers. Hydroelectric, geothermal, biomass, wind power and solar plants operate in the Philippines.

Geothermal power

Geothermal power is the dominant renewable energy resource in the Philippines. According to DOE, the Philippines is second largest geothermal power producer in the world behind the United States of America. DOE estimates a total potential of untapped geothermal resource is about 2,600 MW.

Hydroelectric power

Hydropower is the second dominant renewable energy resource in the Philippines. There are various hydropower plants spread out across the country. Large hydropower plants (more than 50 MW generating capacity) are connected directly to the main transmission grid whereas small (10-50 MW generating capacity) and mini (101 kW to 10 MW generating capacity) hydropower plants are connected to local distribution systems.

Biomass power

The Philippines has an abundant supply of biomass resources including agricultural crop residues, forest residues, animal wastes, agro-industrial wastes, municipal solid wastes and aquatic biomass. The most common agricultural wastes are rice hull, bagasse, coconut shell/husk and coconut coir.

According to DOE, based on the information from Department of Agriculture and the Department of Environment and Natural Resources, the Philippines could produce substantial volumes of residue which could be used as fuel.

Wind power

The Philippines being situated on the fringes of the Asia-Pacific monsoon belt, exhibits a promising potential for wind energy. Wind power plants are the third most operated renewable energy source in the country.

Power Transmission

Power transmission in the Philippines is a common carrier business (i.e. regulated by the government, serves its franchise area without discrimination, responsible for any losses incurred during delivery). It is regulated by the ERC who has rate-making powers and the final say in the valuation of transmission assets. Pursuant to the EPIRA and the Transmission Development Plan or TDP, maintenance and operations of the nationwide transmission system was subjected to competitive public bidding conducted by the Power Sector Assets and Liabilities Management (PSALM). The National Grid Corporation of the Philippines (NGCP) was the highest bidder. It assumed control of the national transmission system from the National Transmission Corporation (TRANSCO), whom assumed the same function from the now defunct National Power Corporation, by way of RA 9511 its congressional franchise of 25 years renewable for another 25 years for a total of 50 years. Assuming it secures a renewal, NGCP's franchise will end on December 1, 2058. Ownership of transmission assets such as poles, towers, cables, land, substations, etc. still belong to TRANSCO. TRANSCO is also responsible for making sure that NGCP complies with the standards set by its congressional franchise.

Power Distribution

The circulation of electricity to end-users is a controlled common carrier business requiring a national franchise. The power to grant national franchises is exclusively vested to the Congress of the Philippines. Distribution of electric power to all end-users or consumers of electricity may be handled by private distribution utilities, cooperatives, local government units presently undertaking this function and other duly authorized entities, under the regulation of the ERC.

A distribution utility has the task to provide distribution services and connections to its system for any end-user within its franchise area, as there are different distribution utilities available for different areas, consistent with the distribution code. They are required to provide open and non-discriminatory access to its distribution system to all users.

Retail rates charged by distribution utilities are subject to regulation of the ERC under the principle of full recovery. Under full recovery, distribution utilities subdivide their retail rate into two distinct categories, namely pass through charges and wheeling charges. Pass through charge follows the principle of full economic recovery where a distribution utility may pass on all the charges it incurred in the distribution of power such as the price of the power, transmission charge, systems loss charge, etc. to its customers. The wheeling charge is an additional premium charged to the customer akin to a mark-up on the cost of power acquired by the distribution utility. The wheeling charge follows the principle of reasonable return on base (RORB) which allows the distribution utility to operate viably as determined by the ERC.

According to the National Electrification Administration (NEA), the distribution sector is composed of 119 electric cooperatives, 16 privately owned utilities and six local government-owned utilities as of 2009. These distribution utilities may acquire electricity from generation companies or the WESM, when certified as the distribution of electricity requires a national franchise, for distribution to residential, commercial, industrial and other users. NEA, the government agency in charge of implementing programs to reinforce the technical capability and financial viability of rural electric cooperatives, may act as guarantor for purchases of electricity in the WESM by any electric cooperative or small distribution utility to support their credit standing.

Currently, Meralco is the Philippines' largest distribution utility with a franchise area of 9,337 square kilometers covering Metro Manila, the entire provinces of Bulacan, Rizal and Cavite, parts of the provinces of Laguna, Quezon and Batangas, and 17 barangays in Pampanga. The franchise area is home to 23 million people, roughly a quarter of the entire Philippine population of 89 million.

Power distribution outside the Metro Manila area is handled by private distribution utilities and electric cooperatives.

Private Distribution Utilities (PDUs)

Private Distribution Utilities are electric distribution companies that are owned by private entities. As of 2012, there are 19 private-investor owned electric distribution companies in the Philippines.

Electric Cooperatives (ECs)

Electric Cooperatives (ECs) are entities owned by the end-users within the vicinity covered by the said entity. They are controlled by a board of directors, who were elected by the end-users. As of 2012, there are 120 coops recognized by the ERC.

Table 3. List of Electric Cooperatives in the Philippines.

Municipal Utility (MU)

MUs are entities that are owned by the local government. The local government officials, who are elected by the end-users within the municipality, regulates, controls, and manages the utilities. As of 2012, only one municipal utility is recognised by the ERC: Olongapo City.

Supply Sector

The supply sector are suppliers of electricity to the contestable market. Pursuant to EPIRA, the implementation of retail competition and open access allows for the establishment of a contestable market. The contestable market can be serviced by any interested party even without a national franchise. However, they must be licensed by the ERC. As the supply sector is not considered a public utility activity, the ERC does not regulate rate-making. However, the ERC still monitors and determines anti-competitive behavior.

The contestable market are end-users with an average monthly peak demand of 750 kilowatts. The ERC plans to reduce this level until it reaches average household demand.

Power Supply Shortage 2014-2015

According to several articles and news sites, the Philippines faced a power supply shortage leading to rolling blackouts across the country during the years 2014-2015. In late 2014, President Aquino requested the Congress to pass a resolution giving him emergency power to allow the government to provide additional supply and prevent a power shortage in 2015. However, the passing of the resolution was delayed and Aquino admitted that his original plan was no longer feasible. His proposal was tweaked and the Interruptible Load Program (ILP) was recommended for use in the Luzon power grid instead. The ILP essentially enrolls large establishments, including government owned and controlled corporations, with their own generators to voluntarily disconnect from the main grid and switch to their generators instead when a power outage was predicted. Their rationale was that a power outage would cause these establishments to run on generators anyway so it is more beneficial for them to run their generators in an organized fashion.

Malampaya Shortage

According to several articles such as from Rappler, the Malampaya gas facility shortage is responsible for 40-45 percent of Luzon's grid in terms of electricity consumption. Glitches and pipe leaks play a big role in the shortage of electricity as it affects the gas flow restriction for safe operations in the deep water gas-to-power project. The restrictions placed in the Malampaya gas supply greatly impacts the power reserves and the power consumption of the end-users or the households in the Philippines. Although the facility can be restored to normal operations, there never is an assurance of the incident not happening again. There is no guarantee that the Malampaya gas facility will operate perfectly which is why it is advised to practice energy efficiency and conservation mainly because of power shortage and rate hikes.

National Power Corporation

According to several articles, EPIRA introduced reforms, including the restructuring of the power sector leaving a heavy dent on the states budget because of the high cost of maintenance. Menandro Abanes, a researcher on Southeast Asian issues, said, “To meet the predicted demand, 5,000 megawatts was needed, translating to necessary government infusion of approximately P38 billion annually into the development of the power industry to curb the shortfall, without which another power crisis reminiscent of the 1980s and 1990s was expected." The government, however, was unable to infuse funds into because of a budget deficit that hit P145 billion at the time. Furthermore, by December 2000, NPC has accumulated a debt of 900 billion pesos, which at that time was nearly half the government's total debt of 2.179 trillion pesos. To resolve this issue, the government had no choice but to rely on the option of privatization of the power industry.

One of the solutions implemented by the government is the inclusion of the universal charge in the end consumer's bill. The universal charge is used to pay part of the stranded costs of the NPC. Stranded costs are incurred when the selling price of a good is less than the cost to produce it, this usually results in a net loss to the company. The universal charge is also used to pay part of the NPC's long term debt obligations.