Revising EPIRA

It has been 25 years since Congress enacted the Electric Power Industry Reform Act (EPIRA) of 2001. The landmark legislation was designed to address the power crisis that followed massive public fund losses incurred by the government while running the power plants.

It all started when the Cory administration junked the nuclear power plant without moving to cover the 620MW that it was supposed to have delivered. When business boomed following the People Power euphoria, the National Power Corp. lacked sufficient power supply, causing massive brownouts.

When FVR took over, the onus of fixing Cory’s power shortage was heavy on his shoulders. So, he signed take-or-pay contracts with private corporations that financed building the power plants.

The Asian financial crisis came and demand went down sharply. The dollar-denominated take-or-pay contracts caused massive financial losses, which we are still paying for in the Universal Charges portion of our monthly electricity bill.

Because Napocor so badly managed the power supply situation, privatizing power generation seemed logical. That’s how EPIRA became the basic legislation governing our power sector.

Through the past 25 years, we have experienced the ups and downs of the law’s implementation. The free market in power generation the law envisioned never happened. EPIRA merely created an oligopoly that invested in power plants.

Government regulation of the power industry was supposed to have provided safeguards for the consumers. But the DOE and ERC failed miserably.

The DOE was largely a passive observer and ERC missed several rate-setting milestones. The utilities were allowed to base their rates on old assumptions that caused overcharging of consumers.

The DOE was supposed to have been on top of energy planning, forecasting demand growth and making sure we have enough generation and transmission capacity to meet such demand. Beyond planning, the DOE should have assured things happened on the ground, but didn’t.

For example, the Leyte geothermal plants which can produce 770MW have been curtailing production for over a decade. The power shortage in the Cebu to Panay area could have been alleviated if the Leyte to Cebu submarine cable had been upgraded beyond its original 400MW capacity.

Same thing with the Sorsogon to Samar link which could also have helped but is still at the original 400MW since 1998. This link upgrade is scheduled for the 2036–2040 window yet.

The DOE must be faulted for failure to plan and execute these needed upgrades sooner.

As a result, our energy system has been grossly inadequate in meeting the demands of our growing economy.

On top of everything, our power rates were the second highest in ASEAN until we overtook Singapore for the top spot a few months ago. Our government tried to force-fit the operation of an electricity spot market that was simply not possible given limited participants and very thin supply availability.

As spot market rates surged, ERC kept setting caps. Power producers interested in providing power to cover peak demand were discouraged from investing because of the ERC caps.

The uncertainty of the regulatory environment also discouraged the private sector from investing in new power plants to replace the aging ones and meet new demand.

But the private sector can’t be blamed for hesitating. It took over five years to get a new power plant online given the multitude of permits needed from various government agencies including LGUs.

Then, banks stopped lending even to approved coal projects. The DOE also issued a moratorium on coal plants even though real alternatives for baseload power supply didn’t exist.

Then came the era of variable renewable energy. Some solar plants were built anywhere without coordinating with the power transmission grid operator. So, the electricity produced by many solar installations had nowhere to go.

Most of the solar projects didn’t have storage batteries. This crowded the grid in some areas, making it more difficult for the grid operator to synchronize everything.

That’s where we are today with EPIRA becoming irrelevant at best and an obstacle for the industry’s progress in today’s rapidly changing energy landscape.

Ronnie Aperocho, Meralco’s chief operating officer, observed that the question is not whether EPIRA is successful but rather whether EPIRA is still relevant to secure the Philippines’ energy future?

In an EPIRA 2.0 overhaul, reforms should shift from a passive, market-driven approach to an aggressive framework designed to make all the bits and pieces of a new era in the power industry come together under a more proactive DOE leadership.

The traditional distribution model when EPIRA was written was relatively simple: Electricity moved from large generating plants through the transmission and distribution system and into customers’ premises.

Aperocho: “Today, the distribution grid has evolved into a complex and dynamic platform where distributed energy resources such as rooftop solar, batteries, electric vehicles, smart devices and other energy innovations converge. Today, customers have also evolved into prosumers as they not only consume but also produce energy…”

EPIRA was not designed for the intermittent nature of solar and wind power. To prevent grid instability and frequent yellow/red alerts, the Grid Code must explicitly require heavy investments in automated grid-management software capable of dynamic load forecasting.

But all those investments require careful DOE planning and supervision.

The DOE cannot, for example, issue a press release calling for a Mindoro to Panay interconnection (originally targeted for 2040) and expect it to happen quickly. Large-scale inter-island grids of this magnitude routinely require seven to 10 years from conception to commercial operation.

Seasoned energy professionals are needed, not political lame ducks to run the energy department. Our margin of safety is razor-thin and incompetent regulation can collapse our grids.

Hopefully, our politicians in Congress can craft a new EPIRA that works for our current needs. Difficult to bet on that happening.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco