Senate Bill No. 1653/ Committee Report No. 231
“AN ACT INSTITUTIONALIZING REFORMS IN THE PROCUREMENT BY DISTRIBUTION UTILITIES AND OTHER DISTRIBUTION ENTITIES OF SUPPLY FOR THE CAPTIVE MARKET”
January 22, 2018 at 3 o’clock in the afternoon
Session Hall, Senate of the Philippines, Pasay City
Delivered by HON. WIN GATCHALIAN, Senator of the Republic:
Mr. President, distinguished colleagues, good afternoon to you all. As a new year starts, it is my privilege to sponsor on the floor a bill one year in the making – the Electricity Procurement Act of 2018 – another measure that will lead to consumer savings for the Filipino people.
The largest component of our electricity bill is the generation charge, which accounts for almost half of it. For the longest time, this charge was a product of negotiated contracts between distribution utilities and generation companies. However, no one except the two parties know what goes on during the negotiation – whether the price arrived at is indeed the least cost price available, or whether the price has hidden costs which the consumer is not aware of. The lack of transparency during the negotiation process also gave rise to allegations of sweetheart deals between distribution utilities that contracted with affiliate generation companies, and raised concerns about how the price of these contracts unduly favor the generation companies at the expense of the consumers.
Recognizing these inherent problems of negotiated contracts, the Department of Energy issued a policy requiring a competitive selection process for distribution utilities to procure power. Following this, the Energy Regulatory Commission or the ERC allowed utilities to choose their preferred mode of competitive selection process. Yet, this has resulted in another set of difficulties.
For one, while large distribution utilities such as Meralco can acquire better contract terms, smaller ones, such as the electric cooperatives, have an inherent disadvantage. Owing to their limited demand for electricity and lack of resources to adequately review contracts given by generators, electric cooperatives end up entering into unfavorable contracts, which result to higher electricity prices and lower quality of service for their member consumers.
Furthermore, the lack of uniformity in the competitive selection processes of distribution utilities has served as a barrier to entry for new generators. These new players are hindered from participating because of their lack of knowledge on the timing and requirements for participating in the process. The Committee has encountered a company with a 1,000 MW power plant with a price of Php 3.20 per kilowatt hour whose first statement to us was “Yes, we want to participate, but where are the competitive selection processes?”
All these challenges have limited competition in power supply contracting, resulting in higher power prices. These prices are all passed on to the consumers. In the first half of 2017 alone, approximately 370 billion pesos worth of electricity was paid by the Filipinos.
Mr. President, Senate Bill No. 1653 under Committee Report No. 231 presents a solution to these problems. This bill proposes a Competitive Selection Process which is uniform across distribution utilities. To put it simply Mr. President, may isang sistema at proseso para sa lahat ng distribution utilities at generation companies para magbenta at bumili ng supply ng kuryente. Sa sistemang ito, maglalaban-laban yung mga generators na magpababaan ng presyo upang makakuha sila ng kontrata ng isang distribution utility. Our internal estimates show that Php 0.30 per kilowatt-hour can be saved with an effective competitive selection process. This translates to a Php 60 savings for a 200 kilowatt-hour household – equivalent to two kilograms of rice. This will result to economy wide savings of 13 billion pesos.
The Competitive Selection Process envisioned in the bill will provide an avenue to discover the real cost of electricity in order to get the lowest price for the benefit of the consumers. First, it will provide a maximum reserve price to be determined by ERC. Any bid higher than this reserve price will not be accepted. Second, it will require all bids to reflect a price per kilowatt-hour inclusive of all costs that will be passed on to consumers. This way, consumers are protected from fluctuating pass-on charges such as foreign exchange and fuel cost.
To address the problem of lack of uniformity in existing competitive selection processes, the bill streamlines the procedure – which includes the qualification of bidders, the actual bidding, and the award of the contract – and mandates that all these will be facilitated by a Third Party Auctioneer. This auctioneer shall initially be the Market Operator, who currently handles the electricity spot market of the country through an electronic platform. The choice of the Market Operator as the initial Third Party Auctioneer is apt because the actual bidding will be done through an electronic network-based platform.
It should be noted, however, that the volume of demand being procured and the frequency of the Competitive Selection Process will be determined by the distribution utility as stated in its Power Supply Procurement Plan. This Plan will ensure that utilities are able to properly forecast their demand to precisely determine how much supply to procure in the future.
Mr. President, to further simplify the process and to even the playing field for distribution utilities and generation companies, standardized contracts, forms, and documents shall be used. With standardized power supply contracts, ibig sabihin yung maliliit na mga kooperatiba ay ngayon protektado na sa mga mapagsamantalang kontrata na inihahain sa kanila ng ibang mga generation company.
This bill will also usher in a regime change insofar as the role of ERC is concerned. For all contracts that go through the Competitive Selection Process, the role of ERC will now be limited to reviewing whether or not the requirements and procedures have been complied with. This way, utilities and generators no longer have to wait for years before ERC approves with finality their respective contracts. Nevertheless, ERC’s rate-making power will still be called upon under exemplary circumstances which necessitate negotiated contracts. These exemplary circumstances include the occurrence of fortuitous and force majeure events or a failed bidding. Still, the bill indicates a maximum number of days for ERC to decide on these contracts under pain of penalty. Also, to ensure the speedy implementation of the measure and the protection of the entire process, administrative and criminal offenses and penalties are stipulated.
Lastly Mr. President, we started by saying that this measure is for the Filipino consumer. As such, consumer representation is mandated in every stage of the Competitive Selection Process. Additionally, an electronic portal serving as the primary source of information on the Competitive Selection Process will be open to the public. These will enhance transparency to an even greater extent.
Overall Mr. President, this is a revolutionary bill that will remove the veil of secrecy that has for so long covered power supply contracting – a veil that should not have been there in the first place, because it is the consumers who have been paying for every single centavo of what has been contracted. Ultimately, we hope to produce savings for the Filipino household as we move one step closer to achieving the 3S goals of the Senate Committee on Energy – Energy Stability, Sustainability, and most importantly, Consumer Savings.
Maraming salamat, Mr. President.