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Interview

Zenaida Cruz Ducut, Energy Regulatory Commission, Philippines

13.02.2014 / Energyboardroom

Zenaida Ducut, the incumbent Chairwoman and CEO of the Philippine’s Energy Regulator speaks out about the transformation of the country’s electric power industry. She talks about transition issues in the implementation of Open Access rules and explains new rate-setting methodologies to incentivize the electricity cooperatives. Other topics discussed include the evolution of the Feed-in Tariff (FiT), Mindanao’s interim energy market and how the ERC aspires to become a region-wide benchmark for excellence in energy supervision and regulation.

 

What is the vision behind the creation of ERC in the EPIRA act?

The EPIRA created the ERC to be an independent, quasi-judicial and quasi-legislative regulatory body and tasked it with five mandates: 1) to promote competition in the electricity markets; 2) to encourage market development; 3) to ensure customer choice; 4) to penalize abuse of market power; and 5) to handle consumer complaints and ensure the adequate promotion of consumer interests.

Describe the structure of ERC and evolution of the mission over the last 12 years in terms of  promoting competition, encouraging market development, ensuring customer choice, and penalizing abuse of market power.

The ERC is composed of a Chairperson and four Commissioners who are appointed by the President of the Philippines. All members of the Commission have a fixed term of seven years.

The ERC staff is headed by the Executive Director who oversees the Visayas Field Office (VFO), Mindanao Field Office (MFO), Internal Audit Unit (IAU), the functions of the Investigation and Enforcement Division (IED), and six Service units, comprised of the following: 1) Regulatory Operations Service (ROS); 2) Market Operations Service (MOS); 3) Consumer Affairs Service (CAS); 4) Finance and Administrative Service (FAS); (Legal Service (LS); and Planning and Information Service (PIS). The Office of the General Counsel and Secretariat (OGCS) to the Commission acts as secretariat to the Commission.

In 2002, the ERC came up with its first Vision Statement: “To be a strong, independent, and professional regulator working as a team to transform the electric industry and balance the interest of all stakeholders.” To realize that Vision, the ERC adopted this Mission Statement: “TheERC is committed to be the driving force in the transformation of the electric power industry with the end in view of promoting consumer interest and market competition by:  setting transparent and reasonable prices of electricity and ensuring that electricity industry participants provide and maintain sage, adequate, reliable, and efficient electric service.”

However, in 2005, to express the ERC’s aspiration to be a world-class regulator, the Vision was re-crafted to this statement: “To become Asia’s benchmark for excellence in power regulation.” The process in the re-crafting involved the acknowledgment that the exemplary regulation leads to the furtherance of socio-economic progress and thus the promotion of long-term consumer interest.  Correspondingly, our Mission Statement had to carry that emphasis and was thus reworded: “The Energy Regulatory Commission will promote and protect the long-term consumer interests in terms of quality, reliability, and reasonable pricing of a sustainable supply of electricity.”

What are the milestones of your mandate as Chairperson of ERC, from your appointment in 2008 until today?

I would say that there are five prominent milestones over five years: In 2008, the ERC approved the lowering of the system loss charge and the re-assessment of its components, the lifeline program of the various distribution utilities, and the different adjustment mechanisms that affect the electricity rates. The ERC reduced the System loss covering both technical and non-technical losses from 9.5 percent to 8.5 percent for private utilities and from 14 percent to 13 percent for electric cooperatives.  The ERC also ordered that actual company use or administrative loss should be treated as an expense. The ERC also directed MERALCO to adopt a new lifeline rate discount to marginalized end-users (0-20 kWh = 100 percent; 51-70 kWh = 35 percent, and 71-100 kWh = 20 percent).

In 2009, the ERC adopted a new rate-setting methodology for the electric cooperatives (ECs), which provides incentives to ECs to be more efficient in their operation and improve their performance.

Also in 2009, the ERC approved and adopted the Uniform Reportorial Requirement (URR) excel model with its output data that consolidated and simplified more than three reporting systems used by distribution utilities. The ERC is empowered to require monthly reports to monitor compliance to its rules and to validate, verify or balance various automatic rate adjustment mechanisms.

In 2010, the ERC approved the Feed-in Tariff (FIT) Rules pursuant to the Renewable Energy (RE) Act of 2008.  The Rules establish the FIT System which is one of the incentive mechanisms in the RE Act intended to accelerate the exploration and development of RE sources.

In 2012, the ERC adopted amendments to the Rules for Prepaid Retail Electric service (PRES), which were first issued in 2009. The amendments included the expansion of the coverage of the PRES to include all customer classifications and approved the use of all available types of technologies in the PRES implementation. The Rules included the use of post-paid retail rate current at the particular month the credited load was consumed as the applicable prepaid rate.

What hurdles do you face in regulating electric power service in the Philippines?

A major hurdle is the huge volume of and the very complex technical work involved. There are only a little over 200 people composing the ERC with only about 20 specialists handing the rate and capital expenditure applications of 140 distribution utilities and the National Grid Corporation of the Philippines (NGCP). You also have to consider the fact that the public hearings and consultation involve weekly long distance travel throughout the Philippines.

Recent developments in the electric power industry have posed some unprecedented challenges for the ERC.  The ERC needs to: 1) deal with transition issues in the implementation of Open Access and Retail Competition (OARC); 2) provide regulatory support for the Interim Market for Energy in Mindanao (IMEM); and 3) finalize the remaining rules and guidelines that will complement the Feed-In-Tariff (FIT) Rules that it issued in July 2012.

With respect Retail Competition and Open Access (RCOA), how is the ERC ensuring the smooth transition to a retail competition regime?

The ERC promulgated Resolution No. 5, s. of 2013 (A Resolution on Disclosures of Capacity and Energy Allocations by Distribution Utilities in the Luzon and Visayas Grids and Retail Electricity Suppliers); and Resolution No. 11, s. of 2013 (A Resolution Adopting the Supplemental Rules to the Transitory Rules for the Initial Implementation of Open Access and Retail Competition). These Resolutions are intended to help smoothen the negotiation proceedings between Contestable Customers and Retail Electricity Suppliers (RES). The ERC is studying to set in 2014 the implementation of a definitive timeline to address various issues raised by the stakeholders.

The Philippines’ power prices are still the highest in ASEAN, which deters many international businesses but simultaneously attracts power producers. In that light, what are your expectations on how RCOA will foster competition and thereby lower prices?

I am cautiously optimistic. With the RCOA regime slowly unfolding, the impetus for foreign and local investors to invest in the electric power industry will only get stronger. This means that more power plants will be built and supply of power will increase. Eventually, a stronger supply and demand equilibrium position will be reached, and electricity prices will become truly competitive.

Regarding the launch of the IMEM, has the creation of a market driven environment in Mindanao been effectively addressing supply shortfalls?

The IMEM is an innovative government measure to address the power shortage situation in Mindanao. Power generators and other entities are given the opportunity to sell their excess generation capacities based on the resulting market prices to optimize the use of available generated power in Mindanao. The ERC is optimistic that IMEM will help to address the supply shortfall in Mindanao.

What is the ERC’s role in addressing Electric Cooperatives financial obligations to the NPC?

The rates of the ECs set by ERC are sufficient for them to operate efficiently, bring down system losses, and improve collection efficiency.

Can you describe ERC’s relationship with the electric power industry stakeholders?

The ERC listens to the stakeholders and promulgates the appropriate regulations to guide their actions.

What is the ERC’s role in reducing dependency on imported fossil fuels or the feasibility of the country being energy self-sufficient?

We have specific mandates under the Renewable Energy Act, particularly: 1) to formulate and promulgate the Feed-in Tariff (FIT) system rules; and 2) to establish net-metering interconnection standards, pricing methodology, and other commercial arrangements. We have to perform these mandates.

How can the ERC, in its role of the electric power industry regulation, help in the sustainable growth of the Philippines in the next five to ten years, while electricity demand continues rising?

Our strategic plan involves work in four major fronts: 1) Enhanced regulation seeks to instill efficiency systems in the regulated utilities operations through performance based regulation; 2) Enhanced market competition measures seek a level playing field and constant vigilance against market power abuse, carterlization and anti-competitive behavior; 3) Effective monitoring involves strict audit activities to verify compliance to the regulations of the ERC; and 4) Promotion of consumer interest seeks to make customers informed, educated and participative partners of a strong and independent regulator

What is the outlook for the future of the Philippines’s power sector?

The ERC will continually provide a stable regulatory environment where there is a level playing field for all electric power industry stakeholders. The ERC will work hand in hand with the concerned national and local government agencies so that the EPIRA’s objectives of: 1) ensuring transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market; and 2) enhancing the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors are achieved. We will enhance our capacity building program (both local and foreign training) especially in monitoring, review, and improvement of existing rate-fixing framework.

 

To read more interviews and articles on the Philippines, and to download the latest free report on the country, click here.  

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