> REPLACE THIS LINE WITH YOUR PAPER IDENTIFICATION NUMBER (DOUBLE-CLICK HERE TO EDIT) <

Retail Competition and Open Access

(SEPTEMBER 2014)
First A. Author, Fellow, IEEE, Second B. Author, and Third C. Author, Jr., Member, IEEE

AbstractThe study has determined the progress of the

Retail Competition and Open Access in the energy sector. The
main objective is to make an assessment on the effectiveness
of this program. This study aims to show a clearer picture and
understanding on the said matter and will break the stigma
about the happenings in the industry. In addition, it has the
intention to inform the public, including the researchers, that
this program exists.
Index TermsEnter key words or phrases in alphabetical
order, separated by commas. For a list of suggested keywords,
send a blank e-mail to keywords@ieee.org or visit
http://www.ieee.org/organizations/pubs/ani_prod/keywrd98.txt

I.

INTRODUCTION

Electricity or electric power is one of the most

important things that man put into this planet. It is
now considered as one of the basic needs of
humanity. From the time of ancient civilizations
where it was first discovered up to the
improvements of it through several experiments
done by various modern scientists, electricity had
come a long way. It is responsible for turning the
fire-is-the-only-source-of-light world into more
complex and brighter surroundings. Electricity is
the biggest and, we could say, the most important
factor for every nations progression and of
different institutions and companies success. It had
turned every individuals life into an easier way.
Because of the fast advancement of science and
technology as the decades goes by, we tend to
improve our knowledge and maximize our natural
resources to provide a sufficient and reliable energy
that we would supply to these technologies and to
everyones needs.
In the Philippines, one of the main problems
being encountered is a high electricity rate. It is
considered as one of the highest in Asia. Back then,
generation and transmission are both operated by
only one institution which is owned by the
government the NAPOCOR or the National
Power Corporation. There is lack of competition in
the generation and consumers dont have a choice.
As time goes by, NAPOCOR cannot able to sustain
its operations financially. As a result, millions of
international debts had been acquired by the
institution which leads to not just high power rates
but also to power shortage. To give solution to these
problems, the lawmakers or the government itself
decided to privatized the NAPOCOR and Electric
Power Industry Reform Act (EPIRA) was
implemented. Through these actions, private
investors were allowed to participate in power

generation
and
transmission,
and
Retail
Competition and Open Access (RCOA) were born.
It is one of the main objectives of the said reform.
Because of RCOA, the end-users will have the
power to choose whom they want to be their
supplier of electricity. Through promoting this kind
of market where several players compete to win a
customer, there is a big possibility that the
electricity rate offers will be lower to attract their
prospects. It made the win-win situation to both
parties.
The researchers, a group of 5th year students of
class BSEE 5-3 whose currently taking up the
course Bachelor of Science in Electrical
Engineering at the Polytechnic University of the
Philippines Manila have decided to conduct a
technical study on the effectively of RCOA. In
order to fully understand this, they have done some
research conducted different interviews from the
Department of Energy (DOE) and from an
employee of the Wholesale Electricity Spot Market
(WESM). This technical study will benefit every
individual as they will be well-informed, including
the researchers. This study will show a clearer
picture and understanding on the said matter and
will break the stigma about the happenings in the
industry. The goal of this study is to make an
assessment whether ERCs Retail Competition and
Open Access (RCOA) is effective. The researchers
also want to evaluate if there is a hope for a better
future in terms of electricity price and services
through this.
Statement of the Problem
The study sought to answer the following:
1. What is the market structure of the
Philippine Electric Industry upon the
implementation of EPIRA 2001 one of the
ultimate
reforms
which
is
Retail
Competition and Open Access?
2. What is the market structure of the
Philippine
Electric
Industry
upon
implementation of the Retail Competition
and Open Access?
3. Do Retail Competition and Open Access
meet its goals in promoting a more
competitive electric industry to lower
electricity price in the country?
Research Hypothesis
There is a significant difference in the market
structure of the Philippine Electric Industry before
and upon the implementation of EPIRAs one of the
ultimate reforms, RCOA. Moreover, RCOA meets

> REPLACE THIS LINE WITH YOUR PAPER IDENTIFICATION NUMBER (DOUBLE-CLICK HERE TO EDIT) <

its goals in promoting a more competitive electric

industry to lower electricity price in the Philippines.
Significance of the Study
RESEARCHERS
The study will help the researchers to gain technical
knowledge regarding the standing of Retail
Competition and Open Access (RCOA) as of the
moment.
COLLEAGUES
This study will serve as a way of informing our
fellow Electrical Engineering Students or even
Registered Electrical Engineers in a more technical
and broader understanding regarding this matter.
PUBLIC
This will serve as a promotion of the said reform. It
will inform the public that such scheme exists.
Scope and Limitation
This study focused on the effectiveness of the
Retail Competition and Open Access (RCOA) and
is limited only on the policy implementation and
understanding extensively what is behind the
promulgation of this scheme.
Chapter II
DEFINITION OF TERMS
Energy Regulatory Commission (ERC) refers to
the regulatory agency created wherein.
Department of Energy (DOE) refers to the
government agency created pursuant to Republic
Act No. 7638 whose expanded functions are
provided then.
WESM (Wholesale Electricity Spot Market) - is the
venue for buyers and sellers engage in the trading of
electricity as a commodity.
Philippine Electricity Market Corporation (PEMC) was created to develop and operate the WESM.
EPIRA Law An act ordaining reforms in the
electric power industry, amending for the purpose
certain laws and for the other purposes.
Captive Market refers to electricity end-users who
do not have the choice of a supplier of electricity, as
may be determined by the Energy Regulatory
Commission (ERC) in accordance with the Epira
Law.
Contestable Market refers to electricity end-users
who have a choice of a supplier of electricity, as
may be determined by the Energy Regulatory
Commission (ERC) in accordance with the Epira
Law.
Distribution Utility refers to any electric
cooperative, private corporation, governmentowned utility or existing local government unit
which has an exclusive franchise to operate a
distribution system in accordance with the Epira
Law.
End-users refers to any person or entity requiring
the supply and delivery of electricity for its own
use.
Grid refers to high voltage backbone system of
interconnected transmission lines, substations and
related facilities.

Independent Power Producer (IPP) refers to an

existing power generating entity which is not owned
by the NPC.
National Power Corporation (NPC) refers to the
government corporation created under Republic Act
No. 6395.
Open Access refers to the system allowing any
qualified person the use of transmission, and/or
distribution system, and associated facilities subject
to the payment of transmission and/or distribution
retail wheeling rates duly approved by the ERC.
Retail rate refers to the total price paid by the endusers consisting of the charges for generation,
transmission and related ancillary services,
enhancing exposure of the industry to competitive
electric service.
Supplier - refers to any person or entity authorized
by the ERC to sell, broker, market or aggregate
electricity to the end-users.
Transmission Charge refers to the regulated cost
or charges for the use of a transmission system
which may include the availment of ancillary
services.
Generation Company refers to any person or
entity authorized by the ERC to operate facilities
used in the generation of electricity.
Lifeline Rate refers to the subsidized rate given to
low-income captive market end-users who cannot
afford to pay full cost
National Transmission Corporation (TRANSCo) is transmission provider, system operator, and
default Metering Service Provider (MSP)
Chapter III
PRESENTATION, ANALYSIS, AND
INTERPRETATION OF FINDINGS
This chapter presents the analysis and
interpretation of the data gathered from the related
literatures and interviews conducted from a DOE
representative, WESM employee and from the
WESM itself.
In the early 90s here in the Philippines, The
demand for electricity for the next ten years was
projected to increase by 90 % annually.
This can be considered to be due to the
unstoppable growing demand for power which is
not new for a developing country like Philippines.
But unfortunately, the source lacks to meet the
predicted needs. The country was currently facing
many issues that time. ---outrages over rising
electricity prices due to the budget deficit, the
government was unable to infused funds into
National Power Corporation, also there was an
Asian financial crisis during this time, the fiscal and
monetary disruption therefrom had an impact on the
IPP sector in the Philippines, making take-or-pay or
capacity payments in the power purchase contracts
unsustainable.
Considering this chain of events, the
lawmakers sought to restructure the whole electric
power industry for they think that its the only
remaining option to save the Philippines from the
massive distraction. To fulfill this, they made
amendments and the outcome of this is the Republic

> REPLACE THIS LINE WITH YOUR PAPER IDENTIFICATION NUMBER (DOUBLE-CLICK HERE TO EDIT) <

Act no. 9136 (Electric Power Industry Reform Act

of 2001).
Through the National Power Corporation,
the government used to hold the monopoly of
generation and transmission that made the law to
break the monopoly by breaking down the power
sector through privatization.

Market (IMEM) for Mindanao. Through the

updated EPIRA law the independent energy
commission was established, the inter-grid, intragrid, and inter-class subsidies removed except for
the lifeline rate.
RCOA Roadmap
Part of the ultimate goals of the Electric
Power Industry Reform Act (EPIRA) of 2001 is
having RCOA and its benefits available to
everyone.
The picture below shows the legal
conditions that have been met. This served as the
way so that RCOA be commercially operated. In
the latter part of the picture, listed are the step-bystep target plan of the authority on how RCOA be
fully available to everyone.

Figure I. Before the implementation of Retail

Competition and Open Access (RCOA) (SOURCE:
WESM
Market Structure of the Philippine Industry
upon the implementation of EPIRA 2001 which
one of the ultimate reforms is Retail Competition
and Open Access.
When the Bataan Nuclear Power Plant was
scrapped in the mid-1980s when Corazon Aquino
became president that time and due to the
inadequate generation capacity, it resulted to a
severe power shortage in the early 1990s. The
government then contracted independent power
producers (IPP) to resolve the crisis. Then the
projected peak demand in 2004 did not match to the
actual peak demand and because of this the National
Power Corporation (NPC) incurred a heavy debt
burden, large debt service obligations and take-orpay contracts of IPPs, and NPCs long term debts
were about 30% of Governments contingent
liabilities in 2004.
With this entire problem the power sector
needed reforms and its components include the
unbundling and privatizing of the generation,
transmission, distribution, supply and metering
services. There would be an independent regulation
of technical and prices. The subsidies and cross
subsidies would be removed and there will be
wholesale and retail competition. Then all the debts
and costs of the NPC will be liquidated.
Before the EPIRA Law the power sector
structure is vertically integrated, IPPs are mostly
contracted by NPC, NPC owns portfolios of plants,
the tariffs are regulated, and cross subsidies
embedded in the rates.
With the implementation of the updated
EPIRA Law, the privatization of government owned
generation assets and transmission concession took
place and the Wholesale Electricity Spot Market
(WESM), which is one of the conditions so that
Retail Competition and Open Access be possible,
was established and became operational in Luzon
and Visayas while Interim Mindanao Energy

Power Plays
The picture below is the physical flow of
electricity upon RCOA implementation. This
clearly shows that RCOA does not affect the flow
of electricity it simply brought change only on how

> REPLACE THIS LINE WITH YOUR PAPER IDENTIFICATION NUMBER (DOUBLE-CLICK HERE TO EDIT) <

energy was traded.

Market Forces
Ordinary customers do not directly experience the
buying and selling of electricity on daily basis. That
is handled by their DU or Electric Cooperative
(EC), who provides them with a unified bill or all
related charges in bringing electricity to their
homes.
This changes with RCOA, because it allows
qualified customers, also known as Contestable
Customers, to buy their electricity supply from
various qualified and competing suppliers.
Trade can happen directly between buyers and
sellers in bi-lateral contracts, retail sales contracts,
or through the Wholesale Electricity Spot Market
(WESM), the integrated electricity market of the
Philippines.
End-consumers who do not qualify as
Contestable Customers remain as Captive (nonContestable) Customers. They will continue to be
served by their Distribution Utility at regulated
rates.
Bulk customers that are directly connected
to the Grid are not affected by the implementation
of RCOA.
Participants in the Power Industry
Department of Energy (DOE)
Supervise the restructuring of the electric power
industry; Formulate rules and regulations;
Undertake consumer education and awareness;
Exercise such other powers, as may be necessary or
incidental to attain the objectives of EPIRA.
Energy Regulatory Commission (ERC)
Promulgate/approve/enforce rules, regulations
and guidelines including issuances of permits and
licenses; Resolve cases (rates & other cases) and
disputes; Prevent anti-competitive behavior and
promote consumer protection.

Generation Companies
Private entities that compete to produce and sell
electricity in the WESM.
Distribution Utilities
Companies that are awarded franchise areas to
maintain and operate the electricity supply network
at the end-user level. Installs and maintain
electricity meters at consumers premises.

Local
Local Suppliers. DUs can create a business unit
called a Local Supplier that competes with other
Suppliers to sell electricity to Contestable
Customers within the DUs franchise area.
Suppliers
Also called as licensed Retail Electricity
Suppliers (RES), these are companies that buy
electricity in bulk from Generation companies
and/or the WESM. They compete with other
Suppliers and Local Suppliers to sell electricity
supply packages to Contestable Customers. They
assist in customer switching; reading meters;
managing meter data; and providing access to the
WESM to their clients.
Supplier of Last Resort (SOLR)
An entity that is designated by the ERC having
obligation of serving Contestable Customers in case
of last resort supply events. Qualified distribution
utilities are the default SOLR in their franchise area.
The market structure before and upon the
implementation of Retail Competition and Open
Access (RCOA) is describe in the figure below.

Philippine Electricity Market Corporation (PEMC)

As the Market Operator (MO) of WESM.
Establish, maintain, operate and govern an efficient,
competitive, transparent and reliable market for the
wholesale purchase of electricity and ancillary
services.
As the Central Registration Body (CRB) of
RCOA. Manage the system that will handle
customer switching and information exchange
among retail participants as well as settlement of
transactions.

Figure II. After the implementation of Retail

Competition and Open Access (RCOA)

National Grid Corporation of the Philippines

(NGCP)
Engages in the business of conveying or
transmitting electricity through high-voltage backbone systems of interconnected transmission lines
and related facilities.
As System Operator (SO). Dispatches electricity
from generation companies to bulk buyers
according to schedule set by the Market Operator,
where WESM is implemented.

Goals of RCOA
In accordance to the Republic Act no. 9136
purpose to ordain reforms in the Electric Power
Industry, RCOA was implemented. The said
schemes first part of the plan, aims to restructure
the part of the market operation where the
contestable customers with 1MW demand belongs.
Lawmakers insights that this system would be
the best way to improve electric power market,
leading both parties earn great benefits. Its goals are

> REPLACE THIS LINE WITH YOUR PAPER IDENTIFICATION NUMBER (DOUBLE-CLICK HERE TO EDIT) <

to persuade investors to start investing here in the

Philippines. Also it aims to lower the cost of power
and improve the level of service. Then give the
customers power to choose their preferred supplier.
Overall, RCOA seeks to change the market
structure of the power industry here in the
Philippines by empowering the end-user through the
means of promoting more competition.

Power System. DOE is looking forward on the

efficient supply and great operation in Mindanao
Power System.
The privatization of Luzon and Visayas is
one of the conditions for the implementation of
RCOA. Figure below is the comparison of the old
pricing regime and the new pricing regime which
the latter is the implementation of RCOA.

Comparison of the installed Capacity Share

Monitoring

Figure III. Pre-privatization of Generating Units

Figure IV. Privatization of the Generating Units

The figure above shows the difference in capacity
share of the generating units in Luzon, Visayas and
Mindanao Grids before and after the privatization
that have been done. It is obviously observed that
government owned NAPOCOR still has big shares
in Mindanao unlike the Luzon and Visayas
generating units that majority of government owned
generating units were divided and privatized. Even
one of the major problems of the government is the
Mindanao regions unstable supply, Mindanao
Power System is not yet included in the RCOA
scheme for there were bigger issues that should be
addressed first and Mindanao is not yet ready for
this kind of market, according to DOE. It is not yet
being prioritized this time but the government is
still considering establishing a market that has been
already operating in Luzon and Visayas. While
WESM is not yet operating in the said region,
Interim Mindanao Electricity Market (IMEM) was
established. It is a wholesale electricity market
operates the trading of electricity in the Mindanao

Figure V. Pricing Regime

How to register as a participant of the RCOA
regime
This article shows how to participate in the
market.
Contestable customers shall have
certification of contestability to the Central
Registration Body. First part also covers licensing
and authorization of suppliers, local suppliers of last
resort. Next is to the registration of membership for
contestable customers, suppliers and the distribution
utilities. Also follows registration of requirements
and its procedures. The third part of participation
procedures is the coverage of switching of suppliers
and its condition provided by ERC. And last, the
settlements and its process. This covers
determination of trading and settlement amounts for
spot
market
transaction
and
prudential
requirements. If the suppliers and customers fail to
these procedures, a Supplier of Last Resort will be
appointed by the WESM. As of now, there are
seven directly registered supplier while there are
two direct and three indirect registered bulk user
contestable customers. There are thirteen direct and
seventy indirect while having two ceased
registration of bulk users. For electric cooperatives
there are fifty-two direct while having four
suspended registration and nineteen registered
indirect participants. The private distribution utility
has ten direct and three indirect while generators
have seventy-five direct registered participants.
Problems encountered upon implementation of
RCOA
In accordance to the RCOA rules and
regulations (transitory rules) , the registration for
Contestable Customer (CC) was supposed to be
mandatory and the deadline to sign up for a supply
contract with either a new supplier or a local
supplier was 1 month before the RCOA
implementation date which was last June 26, 2013.
In case a CC fail to comply 30 days prior to the
Open Access date, it shall be served by the SOLR,
which is said to be giving higher rates than the
average offers given by the regular suppliers.
But on the contrary, instead of being
mandatory, it seemingly become voluntary and so

> REPLACE THIS LINE WITH YOUR PAPER IDENTIFICATION NUMBER (DOUBLE-CLICK HERE TO EDIT) <

the other consequences for failing to abide and

fulfill the obligations affiliated were all set aside.
After 15 months upon the start of commercial
operation, only 400 out of approximately 900
contestable customers were able to officially be
registered and included in the cycle of RCOA
market. Moreover, there are twenty-three (23)
contestable customers applications are still on the
process of evaluation.
Most contestable customers preferred not to
participate and chose to stay in their respective local
DUs because they will be charged of higher rates
contrary to the goals of RCOA.
The reason behind these is all about the
load factor. Load factor is defined as the average
load divided by the peak load in a specified time
period [Wikipedia, accessed 24 July 2014]. Through
the formula below, the efficiency can be calculated.

In the process of finding for a prospective

supplier, it is a must that a CC allows their
prospective supplier to have an access to their
account information. This is to give the supplier a
chance and time to review or evaluate the
consumption behavior of the said CC for the
purpose of providing an offer that addresses your
specific electricity needs wherein both of parties
will benefit.
According to the DOE, CCs having low
load factor was unable to look for a new supplier
because it is very risky on the side of the latter in
terms of profit. Low load factor means very
unpredictable consumption behavior and because of
this it is difficult for the supplier to give a fix rate
because there is a big probability of deficit than
profit. For example, the supplier bought bulk energy
to a generating company. He invested 2 million
Php. He gave a fix rate of 2.5 Php per kilowatt hour
to a CC with a low load factor. He expected that the
said CC will consume at least 1MW and so his
prospected profit will not be less 2M Php. But
unfortunately, according to the meter reading the
CC only consumed half of your assume/expected
consumption. Based on the RCOA retail rules, the
CC cannot be billed for services that are not
included in the RSC therefore there is no chance for
a supplier to pass this losses to his customers.
What is stated above is the ideal concept of
the RCOA regime. Ideally speaking, all the
generating companies should offer their price to the
WESM before they can supply to their customers.
But unfortunately, according to DOE, there were
some instances wherein several generating
companies dont undergo in this process for the
breach contracts. In addition, there were some
instances that they fail to offer to WESM because
they use it as auxiliary, voltage support, and
additional energy in case of shortages.

V.
SUMMARY,
CONCLUSION
RECOMMENDATION

AND

CONCLUSION
This study sustained knowledge and built
path, making information about this matter bold and
clear. The RCOA would be the governments great
solution for the progress of Electric Power Industry
in the country. As of now, based on the analysis on
its effectiveness, the schemes efficiency cant be
deliberated because of its young operation. The
researches gained fruitful results as reward to their
dedication. They are expecting related studies that
can show the effectiveness of this scheme for the
years to come.
RECOMMENDATION
RCOA is still on its process, halfway of the
road to being steady and reliable. After almost 2
years upon implementation of RCOA, the
researchers made this paper to fish out more
information, for us to understand it deeper and
answer the questions that keep on running to our
minds. But thats not only the sole purpose of this
study. This is also for future reference of others who
also find this program interesting and something
worth investing time to make a further study. We
can say that this is only the beginning of a more
extensive study, because as what researchers said
earlier, it is on its first year process. Some
information that the researchers are trying to show
needs precise time to make it complete. This study
doesnt meet its limit, Phase 1 probably. This study
recommends interested researchers to pursue
earning of feedbacks from the suppliers and
customers about this scheme, in form of survey or
data gathering from the authority like DOE because
as of now this lacks in the information from the
consumers and suppliers.
References
[1]https://www.doe.gov.ph/doe_files/pdf/01_Energ
y_Situationer/RCOA%20Rules_Public%20Consulta
tion_PEMC.pdf
[2]https://www.iea.org/media/training/bangkoknov1
3/Session_3_ADB_Philippines_Electricity_Reform.
pdf
[3]Department of Energy. Your Guide to Retail
Competition and Open Access in the Philippine
Electricity Market.
[4]Department of Energy. Republic Act. 9136.
Electric Power Industry Reform Act of 2001 and its
Implementing Rules and Regulation.
[5]http://www.wesm.ph/inner.php/the_market/retail
/retail_market_registration
[6]The Philippine Star (2014, January 14).Special
report: Whats wrong with EPIRA? Retrieved from:
http://www.philstar.com