The document discusses the EPIRA (Electric Power Industry Reform Act) which was passed 20 years ago in the Philippines. It oversaw major reforms in the country's power industry including privatizing generation and transmission assets, creating a wholesale electricity spot market, introducing retail competition, and enforcing industry separation. The summary reviews the reform's achievements in establishing a competitive market, increasing power supply diversity and reducing carbon intensity over the past two decades since EPIRA was passed.

1. EPIRA Review
By; Chrysogonus F. Herrera
June 2021
1

2. It has been 2 decades….
It’s ripe for review
2

3. EPIRA Amendments
❑ Privatization of Malaya, Kalayaan,
Casecnan, Mindanao Hydro Plants
❑ Reserve Market in WESM
❑ RCOA: Contestability at household
level
❑ Conversion of Electric Cooperatives
❑ Privatization of NPC generation (with
Unfinished Business)
❑ Privatization of Transmission
❑ Creation of WESM (with Unfinished
Business)
❑ Deregulation and competition in
Generation sector
❑ Regulated Transmission and
Distribution sectors
❑ Power Rate unbundling (removal of
cross-subsidies)
❑ Structural and institutional reforms -
creation of ERC, TRANSCO, and
PSALM; mandating DOE supervision
of the power industry restructuring
❑ Retail Competition and Open Access
(with Unfinished Business)
❑ Vertical Industry Separation
• Separation of System Operator
from Transmission (NGCP): SO
function to Transco
• Hard Vertical Separation: Cross-
ownership between and among:
• Generation
• Transmission
• System Operation
• Distribution
• Limited Cross-ownership in RES:
• Generation and Distribution
companies may operate and
participate in Supply Sector
subject to ERC regulation and
licensing;
• Local RES (?)
❑ Removal of market share cap in
Generation and Supply Sectors
❑ Environmental Agenda
• Use of Social Cost of Carbon as
policy benchmark
Completed Reform
Agenda
Unfinished
Business
Policy Review &
Improvements
3

4. Reform Achievements
• Epochal Change: From Sellers Market to Buyers Market:
• Exit of government from state monopoly in generation and transmission (NAPOCOR)
into vertically separated Buyers Market where DUs and Contestable Customers are
ultimately responsible for securing their supply
• Wholesale Electricity Spot Market (in its 15th year)
• Market share is reward of low bid price; no mandated generation mix
• Spawned New Kinds of Players:
• IPP Administrators: Owns and markets generation capacity without plant ownership
• Retail Electricity Suppliers: Business in distribution retail without wires ownership
• Reform Safety Nets
• No Generators or Distributors in Transmission
• Capacity caps (30% in grids; 25% National) & Limits (50% Associated firm purchase
cap for DUs)
• ERC Regulation: DU Retail tariff, DU CSP for PSAs, WESM price caps (P 32/kwh
primary; secondary against prices “too high too long”)
• EPIRA at a clash with Renewable Energy Act
• EPIRA: Price → Market share; REA: Government RPS mandate → market share
4

5. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Energy Mix 1979 - 2020
Coal Natural Gas Geothermal Hydro Oil-Based VREs
0
20000
40000
60000
80000
100000
120000
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Energy Supply GWh, 1979 - 2020
Coal Natural Gas Geothermal Hydro Oil-Based VREs
Energy Generation
More diversity in meeting growth using natural gas, imported coal, and VREs
Annual Growth Rate
2001 – 2020
4.2%
Peak Share Year
Oil-Based 74.6% 1979
VREs 3.5% 2018
Hydro 31.1% 1986
Geothermal 26.4% 1985
Renewable 55.8% 1985
Natural Gas 32.2% 2008
Autarky 70.7% 2008
Coal 54.6% 2019
→ EPIRA
AGR 1991 – 2001
6.3%
AGR 1979 – 1991
5.2%
5

6. Energy Autarky and Renewable Energy
56%
Peak Renewable
21%
25%
64%
Semirara Coal
59%
Malampaya
71%
Peak Autarky
43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Autarky and Renewable Share, 1979 - 2019
Renewable Autarky
→ EPIRA
6

7. 0.60
“Peak Oil”
0.36
“Peak Renewable”
0.47
0.42
“Peak Gas,
Autarky”
0.60
“Peak Coal”
25%
56%
44%
21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Renewable
Share
in
Genration
Mix,
%
CO2e
Intensity,
kg/kWh
CO2e Intensity and % Renewable
CO2e Intensity, kg/kWh Renewable
Carbon Intensity in Generation
→ EPIRA
7

8. WESM already in its 15th year
-2500
2500
7500
12500
17500
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
Monthly WESM Prices
-10%
10%
30%
50%
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
Monthly WESM Exposure
• Price outliers mostly
triggered by Malampaya
maintenance, El Nino, lack of
reserves
• ERC reduced primary price
cap at PhP32/kWh (originally
PhP132/kwh). Note VoLL of
PhP222/kWh
• Secondary price cap to
prevent prices being too high
too long (PhP6.45/kWh if
rolling 120 hour average
reaches PhP9/kWh)
• The WESM suffers from
“Missing Money” problem,
exacerbated by FIT-subsidized
VREs
8

9. Monthly Herfindahl-Hirschman Index
measure of market concentration that is used to determine market competitiveness
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
Offers Dispatch
Highly Concentrated
Concentrated
Moderately Concentrated
Not Concentrated
Note:
1. HHI monitoring only covers Luzon.
2. Drop in 2011 onwards is the result of privatization of more than 90% of NPC generating assets and more than 60% of the NPC-IPP contracts
3. Increase of HHI in 2018 is due to AES’ inclusion in SMC group. 9

10. FID & COD during EPIRA: 7,885 MW
Confidence from NPC privatization and WESM; from FIT program too
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2000 2019
Small HEPs 7.3 MW
Masinloc 600 MW
Ambuklao 75 MW
Binga 100 MW
Sual 1000 MW
Pagbilao 700 MW
Tiwi-MakBan 748 MW
Calaca 600 MW
Palimpinon Tongonan 305 MW
Panay Bohol DP 168 MW
Amlan HEP 0.8 MW
Limay GT 620 MW
Naga GT 55 MW
Power Barges 200 MW
BacMan 150 MW
Bakun 75 MW
San Roque 345 MW
Ilijan 1200 MW
Naga 153 MW
Unified Leyte 200 MW
Mt Apo 92.5 MW
Angat 218 MW
Kalayaan 3&4 380 MW
CEPALCO Solar 0.8 MW
Bangui Wind 33 MW
Mindanao Coal 1&2 210 MW
APEC Coal 46 MW
Avon Diesel 11.3 MW
PSC WHRS 18.4 MW
Sevilla HEP 2.5 MW
1st Farmers 13 MW
VREs 7.5 MW
Enervantage DPP 8 MW CEDC 1&2 164 MW
PEDC1 83.7 MW
KSPC 1 103 MW
VREs 13.8 MW
CEDC3 82 MW
PEDC2 83.7 MW
KSPC 2 103 MW
Irisan HEP 3.3MW Minergy DPP 26 MW
Green Future 8 MW
Cabulig HEP 8.5 MW
KEGI DPP 3 MW GNP U1 316 MW
Petron RSFFB 50 MW
DPPs 291 MW
Pangea 1.2 MW
Anda 72 MW
SLPGC 280 MW
SLTEC 122 MW
PEDC3 150 MW
PCPC 135 MW
FDC 360 MW
Malita 130 MW
Therma South 130 MW
Sanrangani 105 MW
VREs 568 MW
DPPs 51.8 MW
Bangui WTG 18.9 MW
Burgos WTG 150 MW
Caparispisan 81 MW
TAREC WTG 54 MW
VREs 43 MW
Geo 68,5 MW
Petron RSFFB 50 MW
DPPs 62.3 MW
Pililia 81 MW
Palm 83 MW
SLTEC 121 MW
VREs 135.9 MW
DPPs 24.5 MW
Therma South 130 MW
SCPC 1&2 270 MW
Minergy 150 MW
SCPC 3 135 MW
Malita 2 135 MW
SBPL 455 MW
SCPC 4 135 MW
TVI 300 MW
Kauswagan 414 MW
Sarangani 1 105 MW
Pre-EPIRA FID Projects not shown in chart:
QPPL 450 MW
Casecanan 150 MW
Bakun 73.6 MW
San Roque 435 MW
Santa Rita 1000 MW
San Lorenzo 500 MW
Letter Color Codes
White - NPC Privatization
Yellow – Coal
Grey – Nat Gas/Oil
Green - Renewable
WESM
Luzon
WESM
Visayas RCOA
Pantabangan 112 MW
Magat 360 MW
Power Barges 96 MW
2020
SPTC 56.7 MW
10

11. 4 Dominant Generation Companies
National Level: San Miguel (20%), FGen (15%), Aboitiz (16%), PSALM (8%)
11
9%, 1,450
3%, 448
3%, 455
2%, 280
1%, 186
3%, 409
4%, 632
4%, 625
6%, 950
7%, 1,095
17%, 2,638
16%, 2,518
27%, 4,289
30%, 4,792
- 2,000 4,000 6,000
Others
Alsons
FDC
Team
MGEN
Vivant
PHINMA
Ayala
GNPOWER
Pan Asia
GBPC
DMCI
PSALM
Aboitiz
FGEN
San Miguel
Market Share Cap
Luzon Grid
28%, 958
6%, 209
25%, 836
15%, 512
26%, 866
30%, 1,014
- 500 1,000 1,500
Others
Alsons
FDC
Team
MGEN
Vivant
PHINMA
Ayala
GNPOWER
Pan Asia
GBPC
DMCI
PSALM
Aboitiz
FGEN
San Miguel
Market Share Cap
Visayas Grid
18%, 728
8%, 332
10%, 405
4%, 165
15%, 606
20%, 799
16%, 631
2%, 100
7%, 300
30%,
1,220
- 500 1,000 1,500
Others
Alsons
FDC
Team
MGEN
Vivant
PHINMA
Ayala
GNPOWER
Pan Asia
GBPC
DMCI
PSALM
Aboitiz
FGEN
San Miguel
Market Share Cap
Mindanao Grid

12. Investment Triggers for Coal and VREs
Additions from 2015 to 2020: Coal = 3,923 MW; VREs = 1,184 MW
Coal Power Plants
• Opportunity to undercut high-priced
competitors (e.g., privatized NPC
plants, IPPs)
• Low Cost Generation from Coal:
• Use low CV coal (2/3 the CV but ½
the price vs High CV coal)
• Use better tech (Supercritical):
higher efficiency means 15% ~
20% lesser fuel
• Chinese EPC
• Modular design
Variable Renewable Energy
• Opportunity to enjoy highly subsidized
FIT
• FIT for Solar and Wind was about
195% to 255% of coal gen. cost.
• FIT has annual escalation adjustment
• High FIT equivalent to Social Cost of
Carbon of $ 96 to $ 155 per MT; “Cure
worse than the disease”
12

13. Power Rates went down, eventually
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
MERALCO Average Rates, Peso per kWh (real, 2012)
Residential Commercial Industrial Overall
0.00
50.00
100.00
150.00
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Commodities & Exchange Rates
Crude oil, Brent
$/bbl
Coal, Australian
$/MT
PhP-USD Exchange
Change since 2000
Residential 3%
Commercial (13%)
Industrial (15%)
Overall (8%)
. . . . despite the
volatility of
commodity prices
and exchange rate
→ EPIRA
13

14. Unfinished Business
14

15. Unfinished Business
• Privatization of Malaya, Kalayaan, Casecnan,
Mindanao Hydro Plants
• Reserve Market in WESM
• RCOA: Contestability at household level
15

16. Remaining NPC Plants for Privatization
Casecnan HEP, 150 MW
• 20-year BOT from April 5, 2002; then 40% NIA and 60%
NPC
• Currently operated by CalEnergy Phils.
Caliraya- Botocan-Kalayaan, 796 MW
• Kalayaan PS originally 2 x 177 MW at COD in 1982 (to use
PNPP off-peak)
• 25-year BROT in 1998, with additional 2 x 182 MW PS
• Includes Caliraya and Botocan HEP (pre-War II legacy
plants)
• Entry of cheaper competitor Battery Energy Storage
diminishes value of Pumped Storage HEP
Mindanao HEPs, 1001 MW
• Agus Complex, 746 MW; COD 1953 - 1985
• Pulangui IV HEP, 3 x 85 MW; COD 1986
• Currently operated by NAPOCOR; programmed for
privatization by PSALM
• Over-capacity of coal in Mindanao; hence, hydro not
critical to fill supply gap.
• A WESM in Mindanao will provide hydros with new role in
mid-merit and peaking
16

17. Remaining NPC Plants for Privatization
• Casecnan and CBK:
• End of BOT/BROT by 2022; hence, ripe for sale process by 2021
• Hydros are Indigenous energy; hence, sale limited to Filipino buyers
• While renewables, “old” Hydros do not generate RECs; hence, of no
use for RPS compliance
• Battery Energy Storage will outprice Pumped Storage Hydro Plants
• Mindanao Hydros:
• No longer critical for supply gap; fits new roles for peak and mid-
merit, as well as Ancillary Services
• WESM Mindanao enhances sale value
17

18. Remaining NPC Plants for Privatization
Malaya Thermal Plant, 630 MW
• Really very old; U1 in 1975 and U2 in 1979
• Was 20 years in service when 15-year BROT started in
1995
• “supply of last resort” subject to fuel inventory
• Fuel logistics – a challenge
• Third failure to sell, at P 2.2 Bn
Mindanao Coal Plant, 2 x 100 MW
• Operated by STEAG State Power Inc, under 25-year BOT
• Tariff includes Fuel supplied by Operator; Fuel Charges
escalates in steps
• COD: Sept 2006
• Capacity under PSALM
Other than the land and its key
location in the grid, plant no
value except as “scrap”
Mindanao has large surfeit of
supply ( 3,780 MW, of which
1,874 MW is coal) vs current
demand of only 2,013 MW
18

19. Reserve Market in WESM
• “Ancillary Services” are support services such as regulating reserve,
load following reserve, contingency (or spinning) reserve, dispatchable
(or replacement reserve), reactive power support, and black start
capability which are necessary maintaining power quality and the
reliability of the Grid.
• In other power industry jurisdictions (e.g., Singapore, Australia), AS or
reserves are traded and bought in the spot market; cost allocated to
market participants.
• In the Philippines, the NGCP as System Operator buys AS from certified
generators pursuant to an ERC-approved Ancillary Service Procurement
Plan (ASPP) and charged to load customers under an ERC-approved
Ancillary Service Cost Recovery Mechanism (ASCRM)
19

20. Reserve Requirement vs Subscription
NGCP is not buying enough!
99.1% 47.3% 70.3%
0.9% 52.7% 29.7%
0
1,000
2,000
3,000
4,000
5,000
6,000
Regulating Contingency Dispatchable
GWh
2019 Total Reserve Requirement and Supply
Reserve Supply Reserve Deficit
20
94.3% 49.4%
79.7%
5.7% 50.6% 20.3%
0
1,000
2,000
3,000
4,000
5,000
6,000
Regulating Contingency Dispatchable
GWh
2020 Total Reserve Requirement and Supply
Reserve Supply Reserve Deficit

21. Reserve Requirement vs Subscription
NGCP is not buying enough!
YTD Diurnal Supply and Requirement
December 26, 2019 to December 25, 2020
21
278
268
258
252
250
249
255
279
300
316
333
329
331
342
339
328
310
307
318
318
317
314
303
291
0
50
100
150
200
250
300
350
400
1 2 3 4 5 6 7 8 9 101112131415161718192021222324
2020 Regulating Supply and
Requirement
Reserve Supply Reserve Requirement
201
202
202
199
199
200
198
200
246
328
344
346
345
340
342
321
331
332
361
350
243
200
200
201
0
100
200
300
400
500
600
1 2 3 4 5 6 7 8 9 101112131415161718192021222324
2020 Contingency Supply and
Requirement
Reserve Supply Reserve Requirement
384
380
373
374
378
382
377
382
381
416
425
420
420
425
422
418
405
401
418
415
381
366
369
367
0
100
200
300
400
500
600
1 2 3 4 5 6 7 8 9 101112131415161718192021222324
2020 YTD Dispatchable Supply and
Requirement
Reserve Supply Reserve Requirement

22. NGCP Total Charges by Grid (Jan2011-Dec2020)
in PhP/kWh at 65% LF
22
Regulated Services
(PDS/SO/MSP)
Excluded Services
(Ancillary Services)
Total
Luzon 0.64 0.28 0.92
Visayas 0.61 0.11 0.72
Mindanao 0.65 0.18 0.84
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Sep-18
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
NGCP Total Charges in Luzon, PhP/kWh
PDS+SO+FME Luzon AS
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Sep-18
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
NGCP Total Charges in Visayas, PhP/kWh
PDS+SO+FME Visayas AS
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
1.6000
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Sep-18
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
NGCP Total Charges in Mindanao, PhP/kWh
PDS+SO+FME Mindanao AS

23. Reserve Market in WESM
• Ancillary Services Procurement Plan: In the 2006 ASPP approved by
the ERC, the plan is to transition from AS being purchased by NGCP
under negotiated contracts to AS being traded/bought in the WESM
Reserve Market to be charged to market participants
• ERC Case No. 2007-004 RC: Start of “Reserve Market” by an application
on Jan 8, 2007 PEMC for WESM Price & Cost Recovery Mechanism
(WESM PCRM):
• ERC required a number of compliance of issues which took years to
resolve. PEMC re-filed with the ERC on Feb 26, 2013;
• With the amendments of the WESM Rules and the filing of the New
Price Determination Methodology application, the PCRM
application filed in 2007 was dismissed on 17 April 2018 having
become moot and academic.
23

24. Reserve Market in WESM
• ERC Case No. 2017-042RC: PEMC filed another application On 17 May
2017 of a New Price Determination Methodology (New PDM) for the
WESM pursuant to DOE Department Circular No. 2017-03-00012
Adopting Further Amendments to the Wholesale Electricity Spot
Market (WESM) Rules and Market Manuals for the Implementation of
Enhancements to WESM Design and Operations
• DOE DC 2019 -12-0018: Adopting A General Framework Governing The
Provision And Utilization Of Ancillary Services In The Grid
• Reserve Market in WESM will happen upon approval of the new
WESM PDM and substantial completion of the tasks of the DOE TWG
created under DOE DC 2019 -12-0018
24

25. Household Level RCOA
• EPIRA Sec 31 - Retail Competition and Open Access:
• “ . . . . Upon the initial implementation of open access, the ERC shall
allow all electricity endusers with a monthly average peak demand of
at least one megawatt (1 MW) for the preceding twelve (12) months
to be the contestable market . . .
• “. . . . Two (2) years thereafter, the threshold level for the contestable
market shall be reduced to seven hundred fifty kilowatts (750 kW). . .”
• “. . . . At this level, aggregators shall be allowed to supply electricity to
endusers whose aggregate demand within a contiguous area is at
least seven hundred fifty kilowatts (750 kW). . . .”
• “. . . . .Subsequently and every year thereafter, the ERC shall evaluate
the performance of the market. On the basis of such evaluation, it
shall gradually reduce threshold level until it reaches the household
demand level. . . .”
25

26. Household Level RCOA
2011 2012 2013 2014 2016 2019 2020
Original Target Start
Of RCOA, Dec 2011
ERC approves
Voluntary
Participation In
RCOA, Jul 26, 2013
DOE DC 2015-06-10
Mandatory migration to CREM
for 1MW before June 2016
Jun 19, 2015
SC TRO on DOE/ERC: no mandatory
migration to CREM, no new RES licenses
or renewals & no ban Local RES
Feb 21, 2017
ERC Res 10,s.2016
Revised Rules for Contestability
ERC Res 11, s.2016
Restrictions on DU in CREM
ERC Res 28, s. 2016
Revised Timeframe for
Mandator Contestability
CREM ≥ 1000 kW
Dec 26, 2016
CREM ≥ 750 kW
Jun 26, 2016
2015 2017
CREM ≥ 500 kW
Jun 26, 2018
2018
DOE DC 2017-12-13
Dated Nov 29, 2017
Voluntary Participation in CREM
CC ≥ 750 kW, upon effectivity of DC
CC ≥ 500 kW, Jun 26, 2018
Note: ERC Res 03, s. 2007: 750 kW (2nd phase)
after 2 years of initial implementation;
Gradual reduction such that 7 years after 2nd
phase the Contestable Market covers end-
users at the household level
Houesehold ≥ (?) kW
20 (??)
RCOA Start
26

27. 4,262
9,031
4,262
1,323
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Luzon Visayas Demand Contestable Customers
Luzon-Visayas, 2020
Contestable Market Captive Market Switched CC Not Switched CC
68%
32%
76%
24%
Competitive Retail Electricity Market
• CREM accounts for 32% of the Luzon-
Visayas market
• 1,521 customers (78% of CREM)
switched from DU to RES
• Voluntary switching allowed for ≥500
kW only
• ERC plans more voluntary switching in
a draft pending resolution
• ≥100 kW by Jan 26, 2022 (Phase
IV)
• ≥10 kW by Jan 26, 2023 (Phase V)
• Phase VII, household end-user?
Note: 10 KW user consumes at least 12X
more than a typical 200 kWh Meralco end-
user
27

28. Policy Review
28

29. Policy Review
• Industry Structure: Vertical Industry Separation
• Market Share cap in Generation and Supply Sectors
• Promoting an Environmental Agenda
29

30. Vertical Separation of the Industry
• Hard (?) Vertical Separation:
• Cross-ownership between and
among: Generation, Transmission,
Distribution, System Operation,
Market Operation
• Limited Cross-ownership in RES:
• Generation and Distribution
companies may operate and
participate in Supply Sector
subject to ERC regulation and
licensing;
• Local RES (?)
• Separation of System Operator
from Transmission (NGCP):
• SO function is not “wires”; power
quality and reliability
• SO function to Transco (?)
GENERATION
TRANSMISSION
DISTRIBUTION
SUPPLY
MARKET
OPERATOR
Allowed Cross Ownership
Vertical Structural Separation
?
?
?
SYSTEM
OPERATOR ?
30
?
?
?

31. Market Share Cap
• By Law under EPIRA:
• Sec 45 (a): “No company or related group
can control . . . . 30% of installed generating
capacity in a grid and 25% of national
installed generating capacity.”
• Sec 45 (b): “DU shall not be allowed to
source . . . More than 50% of its total
demand from an associated firm . . . .”
• By Regulation:
• Sec 3. Res No 11, s.2016: “No RES shall be
allowed to supply more than thirty percent
(30%) of the total average monthly peak
demand of all contestable customers in the
CREM.
• Art II, Sec 5 e, Res 22, s 2013: A RES may
only sell up to 50% of its total capacity to all
of its end-user affiliates
Arguments for Market Share Cap
• Prevents anti-competitive behavior or abuse of
market power
Arguments against Market Share Cap
• Market cap prevents a dominant cheap producer
from reaching more customers; not attuned to
the new regime of CSP and RCOA
• Market Share caps are based on kW capacity;
not as appropriate as kWh metric in an energy
market
31

32. We have the lowest CO2e Intensity in GDP!
Others reached higher GDP per capita at the price of higher CO2e
Data source: databank.worldbank.org
1980 - 2014
Philippines, 0.42
Indonesia, 0.49
Malaysia,0.77
Thailand, 0.83
China, 1.24
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
0 2,000 4,000 6,000 8,000 10,000 12,000
CO2e
Per
Capita,
Tons
GDP PER CAPITA (CONSTANT 2010 US$)
Bubble~CO2e/GDP (kg/US$)
Philippines
Indonesia
Malaysia
Thailand
China
32

33. Promoting Environmental Agenda
• Measure of Economic Damages: The SC-CO2 is an estimate of the
economic damages associated with a small increase in carbon dioxide
(CO2) emissions, conventionally one metric ton, in a given year.
• Regulatory and Rule-making Benchmark: In the US and other
jurisdictions, the SC-CO2 is used to estimate the climate benefits of
regulations and rulemakings.
• “No Cure Worse Than Disease”: The higher the SC-CO2, the more
stringent the regulatory standards. Only regulations that cost less than
SC-CO2 to implement would be deemed worthwhile; Else, the “cure” is
worse than the “disease”
• Requires Deep and Rigorous Study: Integrated assessment models
attempt to include all the important physical, ecological, and economic
impacts of climate change given current information and science
• No RP SC-CO2 yet: The Philippines has yet to come up with its own
estimate on the SC-CO2
33

34. Case Study: Solar FIT
• ERC Approved Solar FIT: PhP 8.69/kW (2015 COD)
• Coal LCOE: PhP 3.80/kWh
• “Business-As-Usual” coal emits 1,000 tons per Million kWh
• Paid solar more under FIT PhP 4.89 Million per Million kWh
• Effectively, to avoid 1000 tons of CO2 in coal
• Equivalent SCC = PhP 4,890/MT (US$ 97.8/MT)
• SCC for USA: US$ 51/MT
• 2020 Solar FIT: PhP 10.1226/kWh, equivalent to US$ 126.45/MT SCC
34

35. Case Study: DOE Clean Energy Scenario
DOE Philippine Energy Plan
2020 - 2040
Build Cost
(US$ Billion)
GHG Emission
(MTCO2e)
Business As Usual”/Reference Scenario 102.25 4,277.59
Clean Energy Scenario 121.13 3,751.99
Difference 18.88 525.60
US$ 18.88 Billion ∕ 525.60 MTCO2e = US$ 35.93 per ton of SCC
Also means willingness to pay PhP 1.80/kWh MORE than coal
35

36. Establishing Social Cost of Carbon
• Recognize wide ranging impact:
• Consider Inter-Agency committee (DENR, DOE, DoTr, DoH, NEDA)
• Transparency of process
• Credibility of methods
• Mechanism for timely review and reset
36

37. Thank you!
37

38. Not Covered in this Study
• PSALM (EPIRA Chapter VI)
• Rural Electrification (Chapter VII)
• Missionary Electrification (Sec 70)
38

39. Understanding Ancillary Services
39
• What are Ancillary Services (AS)?
Support services such as regulating reserve, load following reserve, contingency (or spinning) reserve, dispatchable (or
replacement reserve), reactive power support, and black start capability which are necessary maintaining power quality
and the reliability of the Grid.
• Who benefits from AS?
• Those injecting power to the grid require power quality and reliability so that frequency and voltage are maintained
to keep generators safely synchronized to supply
• Those withdrawing power from the grid require power quality and reliability to keep their equipment operating
safely and their supply continuously available and adequate
• Who can cause the need for AS (or who can cause deviation of power quality and reliability)?
• Generators:
• Deviation from market dispatch (inability to keep set points because of ambient conditions)
• Forced outages
• Intermittency (VRE)
• Users:
• Realtime demand variation
• Outages and disconnection
• Transmission Service Provider
• outage of line or equipment

40. Understanding Ancillary Services
• What are the consequences of not having enough AS?
• Insufficient AS plainly means unreliable system. Sadly, it also gives a false signal to consumers that keeping the
system reliable is cheaper than it should.
• Cheap AS cost also means no investment incentive, and the system will not have enough capacity for energy and
reserve requirements;
• WESM prices will be higher
• Replacement Power cost more expensive
• With inadequate reserves, power quality and reliability suffers
• Generators automatically disconnect to protect against equipment damage from undue frequency or
voltage deviations
• SO operator will be at liberty to designate Must Run Units (MRUs) to supplement inadequacy of reserves;
generators designated as MRU not assured of fair or full recovery of costs
• Who should pay for AS?
• DOE/ERC: Causers pay; Benefit has a price
40

41. Comparative Industry Structure, Provision & Charging of AS
Industry Structure Generation Sector Provision of AS AS Charges
• Vertically Integrated Utility
• State monopoly
• Ex. Indonesia (PLN)
• Integrated in utility
• Private Sector Participation In
Power Generation (PSPPG)
• Responsibility of VIU • Integrated in End-user Retail
Tariff
• Vertically Integrated Utility
• State monopoly
• Ex. Malaysia (TNB)
• Single Buyer Model by VIU
• PSPPG
• Responsibility of VIU • Integrated in End-user Retail
Tariff
• Vertically Separated
• Generation & Transmission
(EGAT)
• Distribution: MEA & PEA
• Ex. Thailand
• Enhanced Single Buyer Model
(EGAT)
• PSPPG to SBM
• Responsibility of ESBM who
is also Transmission Provider
• Included in ESBM charges:
Capacity, Energy, AS)
• Charged to Distribution
• Vertically separated
• Ex Vietnam
• Single Buyer Model (EPTC) • Designated AS Providers
• Sell to EPTC
• Included in EPTC’s charges to
Power Companies
(Distribution)
• Vertically Separated
• With Retail Competition in
addition to G, T, D
• Ex. Philippines
• Competitive Generation
• Wholesale Electricity Spot
Market
• Currently, energy only
• Later Energy, AS, RECs
• In transition
• Now with NGCP under ERC
approved 2011 ASPA
• WESM, upon operation of
Reserve Market
• In transition
• NGCP; To loads under
legacy 2006 ASCRM
• WESM Market Participants
• Vertically Separated
• With Retail Competition in
addition to G, T, D
• Ex. Singapore, Australia
• Competitive Generation
• WESM for energy and AS
• Traded in WESM
• As required by SO/MO
• Allocated to Market
Participants (Generators,
Loads)
• Causers Pay; Runway model
41

42. Retail Competition & Open Access
• Under RCOA, the Contestable Customer is solely responsible to secure
its own supply
• Nobody is obliged to supply a Contestable Customer except the
SOLR
• The DU is responsible for securing the power supply for its
Captive Customers only
• A Contestable Customer has the right to choose its supplier:
• Many providers: 40 licensed RES; 25 Local RES
• the Local RES (subject to ERC approval of business separation
and unbundling plan of the DU)
• The Retail Supply Contract (RSC) does not require ERC approval to be
implemented
• Under Distribution Services and Open Access Rules (DSOAR), DUs
provide non-discriminatory “wires” services
• The RES secures the Distribution Wheeling Service Agreement
(DWSA) with the DU in behalf of the Contestable Customer
(covering wires services, energy for system loss, line rentals,
imbalances, etc).
• The Contestable Customer enters into a Connection Agreement
with the DU (covering connection assets, access, operating
procedures, maintenance, safety and emergency, etc)
• The DU is responsible for metering and meter reading
• The DU secures transmission service and connection to the grid,
including ancillary services
• A Contestable Customer may purchase its requirements from the
WESM thru its RES
• The ERC has adopted a “Single Billing” Policy
• The Contestable Customer will receive a single bill from the
RES containing unbundled charges for Generation, Supply,
Transmission, Distribution, Universal Charges and taxes
• ERC will set and regulate the Transmission, Distribution and
Universal Charges
• Generation and Supply Charges will be deregulated and in a
competitive regime
• The RES may require Security Deposit but must place it in an
escrow account
42