PAID!

People Against Immoral Debt

Official Publication of the Freedom from Debt Coalition
VOLUME 13 NO. 1 h t t p : / / w w w. f d c . p h November 2009

Dark
Power
Rising
The Philippine Power Industry
Nine Years Under EPIRA (RA 9136)
 FDC Officers 2008 - 2010
President: Walden Bello
Vice Presidents:
Lidy B. Nacpil
Loretta Ann P. Rosales
Fr. Juvenal A. Moraleda
Rebecca D.L. Malay
Edwin C. Chavez
Secretary General: Milo N. Tanchuling
Treasurer: Luzviminda A. Santos
Assistant Treasurer: Arze Glipo

PAID!
People Against Immoral Debt
Official Publication of the Freedom from Debt Coalition
VOLUME 13 NO. 1 http://www.fdc.ph November 2009

Edited by:
Maitet Diokno-Pascual and Wilson Fortaleza

Layout design:
Alvin Gallardo

Address: No. 11 Matimpiin Street, Barangay Pinyahan,

Quezon City, Philippines 1100
Phone: +63 2 924 6399
Telefax: +63 2 921 1985
Email: mail@fdc.ph
Website: http://www.fdc.ph/

2  PAID!  Dark Power Rising  November 2009

 Table of Contents
Dark Power Rising in the privatized
power industry 4

From state monopoly to de facto

electricity oligarchy 7

TRANSCO: The Filipino’s L a s t L i n e

o f D e fe n s e Against Privatization 28

The Undistributed Powers 33

Why WESM Won’t Work 43

ANNEXES
„„ 10 Reasons Why Electricity Bills Are High
„„ A Dozen Ways to Reduce Electricity Rates
„„ ADB privatization policy aggravates
55
climate crisis in the Philippines

November 2009  Dark Power Rising  PAID!  3

 Editorial
Dark Power Rising
i n the pr i v at i z ed power i ndustr y
On May 12, 2008, the Joint
Congressional Power Commission
(JCPC) or PowerCom conducted a
full blown public hearing on why
electricity rates are high. The hearing
was held in reaction to the 51.88
centavos per kWh spike in the price
of power distributed by the Manila
Electric Company (Meralco) in April
2008. It was also during that time an
electrifying power struggle took place
between the Lopezes and Government
Service Insurance System (GSIS)
President Winston Garcia.
The public hearing could have been
a very good opportunity for all the
stakeholders to assess the power
situation in the country seven years
after the passage of the Electric Power
Industry Reform Act or EPIRA and
to find appropriate remedies to the
pestering problem of high electricity
rates in the country, now one of
the most expensive in the world.
Unfortunately, what came into sight
after the hearing was not a clear
roadmap to get away from the crisis
of high power rates but images of dark
powers rising on the horizon – made
more pronounced by a hideous power
play between old and new players
fighting for control of the privatized
and restructured power industry. And
the story goes on.
During that hearing, the Freedom
from Debt Coalition submitted a
4  PAID!  Dark Power Rising  November 2009
position paper entitled, “10 Reasons
Why Electricity Bills are High”,
presenting a broad and comprehensive
analysis of the many factors that
contribute to the high cost of power in
the country. The paper tried to widen
the perspective in making an anatomy
of high electricity rates as it pointed to
many issues such as privatization and
the implementation of EPIRA, weak
regulatory environment, corporate
abuse and outright fraud, inefficiency,
bad governance and corruption,
among others – which the government
and other players tried to hide or skew
by singling out the Lopezes.
This was followed by another paper, “A
Dozen Ways to Reduce Electricity
Rates”, where the FDC called for a
complete overhaul of the EPIRA and a
decisive shift to clean and sustainable
power. These two papers bolstered the
Coalition’s efforts in bringing out and
popularizing its critique of the EPIRA
and the power privatization program
and in introducing alternatives for
a more democratic and sustainable
power.
EPIRA nonetheless is in a complete
mess, prompting PowerCom Chair
Senator Miriam Defensor-Santiago
to declare: “Pitong taon na ang ating
Epira na gumawa ng pagbabago sa ating
industriya ng kuryente, pero pagkatapos
ng pitong taon, hindi pa rin nakamit yung
tanging layunin na ibaba ang binabayad
sa kuryente. Ibig sabihin lahat kami ay
failure. EPIRA is a failure. The Senate is a
failure. The executive branch is a failure.”1
Aside from the unaddressed problem of
high electricity rates, EPIRA enhances
rather than destroys oligopoly2 in the
industry. In fact, the much-touted
wisdom of an electricity spot market
was tested to its limits after the
Wholesale Electricity Spot Market
(WESM) succumbed to manipulations
from traders who gamed the market
to earn more income, as admitted one
player. In a report to stockholders, the
Aboitiz group declared a 124% increase
in their income in 2007 due mainly
from their “strategy” of trading power
at the WESM during peak hours.3 This
issue will be presented in another
article, “Why WESM Won’t Work”.
These things, however, are not
unexpected since the privatization
of the National Power Corporation
(NPC) merely transferred the State’s
monopoly power to the private
oligarchs without the intended
benefits for the people. And in the case
where the State merely surrendered
the monopoly power of the NPC to
private player(s), that power shift did
not, in essence, alter the monopolistic
nature of the industry and therefore
the persistence of oligopoly.
This was clearly the case when the
franchise to operate the national
grid, which is a natural monopoly, The unfinished battle for control of political economy of private power
was transferred to the National Meralco between the Lopezes and comes into play, of course with
Grid Corporation of the Philippines Garcia was expected to erupt into a more attention given to the issue of
(NGCP), a private consortium with much bigger war when stockholders corporate control and high returns
reported close links to Malacañang. gathered again in May 2009 for their rather than to providing people
The sale of Transco allowed the annual meeting. But in a sudden turn with the most affordable, clean and
private concessionaire to operate the of events, prior to the meeting, Garcia efficient energy. Economically, the
national grid for up to 50 years. The assigned the task of a power grab to fight for corporate control is mainly
deal, however, was deemed by many Danding Cojuangco by selling the a battle for economic hegemony over
as gravely disadvantageous to the GSIS shares4 (most likely with the full the more than four million captive
government since it was a product blessings of Malacañang) to the San Meralco customers in Luzon who bring
of an insidious power play in the Miguel Corporation5. in over P4-B annual net income7 for
industry, with groups closely identified the company — a very lucrative and
with the First Family securing the bid To foil the power grab attempt, the cash-rich business, indeed. Politically,
under dubious circumstances. This will Lopezes sold some 20 percent of their having commanding control of Meralco
be discussed fully in a separate gives its owners economic
article, “Transco: The
Filipino’s last line of defense
This ugly power play in the country’s largest advantage over the other
players in the industry. And
against the onslaught of private distribution utility provides a picture of from that vast economic base
privatization in the electric
power industry.” how the nasty political economy of private power emerges an enormous political
power especially in this country
comes into play, of course with more attention where political influence is the
Undeniably, this right to best guarantee for this kind of
exercise monopoly power given to the issue of corporate control and high business to prosper.
over a captive market is the
biggest privilege the industry
returns rather than to providing people with the In the Visayas and Mindanao
has bestowed to old and new most affordable, clean and efficient energy. region, the Aboitiz family, a
players. The same is true even familiar name in the industry
for private distribution utilities has silently expanded its empire
whose monopoly control over their share to PLDT’s Manny Pangilinan6 over private distribution business. An
own respective franchise areas was reportedly to serve as counterbalance article, “The Undistributed Powers”,
left uncontested. Consequently, this to the Cojuangco-Arroyo bloc’s provides an analysis and baseline data
enormous opportunity to gain more planned take-over. on the current ownership structure
wealth and power from a guaranteed of the distribution sector all over the
and risk-free business gave rise to This ugly power play in the country’s country. It also includes information
the ongoing power plays among the largest private distribution utility on the areas covered by the electric
oligarchs. provides a picture of how the nasty cooperatives and updates on which

November 2009  Dark Power Rising  PAID!  5

Dark Power Rising in the Privatized Power Industry
option the ECs have preferred in their
response to the implementation of
EPIRA.
Furthermore, the competition
among the power oligarchs is not
only confined within the distribution
sector. The restructured power
industry under the EPIRA regime
pried open the whole industry for
private exploitation. The more players,
the better for the industry since it
was envisioned by the government
that private sector participation
will usher in competition which in
turn would bring efficiency into the
system, and “eventually” lower rates
to consumers. The government has
in fact provided many incentives and
undue compromises in the EPIRA just
to entice private sector participation.
One such incentive was the National
Government’s assumption of the
NPC’s P200-B debts8. Another is the
P1.03 tariff rate hike granted to NPC in
2004. Sovereign guarantees extended
to IPPs were also honored. Congress
also made sure that EPIRA allows
cross-ownership9 to attract investors
to venture into both the generation,
transmission and distribution sector.
The Asian Development Bank, World
Bank and other international financial
institutions (IFIs), on the other
hand, provided loan facilities to the
government and the private sector
to finance the country’s power sector
reform program.10
But only a few players came in. And
more obviously, they came from the
same group of oligarchs who, in one
way or another, have been in the
industry since the last century. In
Endnotes
1
On the Powercom hearing on Monday (12
May 2008), http://www.miriam.com.ph/
labels/Renewable%20Energy%20Bill.html
2
A market condition in which sellers are so
few that the actions of any one of them
will materially affect price and have a
measurable impact on competitors.
3
Aboitiz Power Financial Report, Annual
Stockholders Meeting 2008.
6  PAID!  Dark Power Rising  November 2009
the generation sector for instance,
the main contest is also between the
Lopezes and the Aboitizes. The Lopez
clan, aside from having their own big
IPPs, acquired many of the geothermal
and other NPC plants in Luzon and
Visayas. They are now also into
exploration after gaining control of
the Philippine National Oil Company-
Energy Development Corporation
(PNOC-EDC). Meanwhile, the Aboitiz
group, reported to be closer to the
First Family, got most of the hydro and
other NPC plants in Mindanao, some
in the Visayas and also some in Luzon.
And more buyouts and joint ventures
are expected as the rest of NPC assets,
including the NPC IPPs are lined up for
full privatization. A baseline data on
the current ownerships of generation
companies (GENCOS) is provided
in another article, “From state
monopoly to de facto electricity
oligarchy.”
There are other players who have
ventured into or have shown interests
in power. The Abayas of CEPALCO
is one. Davao’s Alcantara family
which owns the Alsons Consolidated
Resources, Inc., is also on power
generation and exploration. Some
new big names to mention are SM’s
Henry Sy, Metrobank’s George Ty, and
now San Miguel’s Danding Cojuangco.
Others in the periphery are industry
names like former Energy Secretary
Francisco Viray and businessman
Victor Del Rosario. Certainly, the only
chance for them to be able to catch up
with the well-entrenched oligarchs is
to follow the same route – through
rent-seeking which could only be
worse under the present regime.
4
GSIS shares to Meralco amounts to 295.50
million in 2008 representing 36.5 % of the
total share.
5
San Miguel Corporation is the country’s
largest food conglomerate. Lately it
diversified into infrastructure, heavy
industries, and now in power.
6
PDI 03/14/2009
To some extent, there are little
battles that complete the picture of
the ongoing power play in the entire
power industry. And that is happening
in the sector of electric cooperatives
(ECs) — between those who campaign
to remain under the National
Electrification Administration (NEA)
and those who prefer to register
under the Cooperative Development
Authority (CDA), notwithstanding
moves by politicians to keep hold of
or gain foothold of the ECs in their
respective areas. However, debates
in this area are still confined to the
matter of what advantage(s) an EC
can get from putting itself under the
supervision of the CDA or remaining
under the NEA, and not on how to
transform these ECs into genuine
cooperatives that contributes to local
economic development.
Clearly for the past seven years, a
battle line has been drawn between
the government and industry oligarchs
in the implementation of the power
sector reform program in the country
under the EPIRA. Sadly, however, it
was neither a battle to bring down the
power rates nor a war to provide clean
and sustainable energy to the people.
It was mainly a battle for control and
ownership of the privatized power.
This fight for control of the privatized
power does not only make the ongoing
power play so intense. The process has
also created an assembly of dark power
– a horde of new and recycled rent-
seekers who are out to extract more
wealth and political power by gaining
monopoly control of the most lucrative
business in the country today, at the
chronic expense of the consumers.
7
Meralco Annual Report 2007
8
EPIRA, Sec. 32
9
EPIRA, Sec. 45 (a)
10
Private Sector Development in the Electric
Power Sector: A Joint OED/OEG/OEU Review
of the World Bank Group’s Assistance in the
1990s, July 21, 2003
From State Monopoly to de facto
Electricity Oligarchy
A study of the development of privatization of NPC Assets
By Jerbert Briola

Executive Summary envisioned by the EPIRA have actually power monitoring and mitigation
resulted to the creation of an electricity measures considering the generation
Set forth in the Electric Power oligarchy. sector is characterized by relatively
Industry Reform Act of 2001 (EPIRA) few dominant power generation
or Republic Act No. 9136 are premises The success of reforms in the power companies. However, several studies
of a restructured power industry and a sector in fact rely on the degree of argue that “one of the prerequisites for
regime of fair and free competition in competition policies introduced in this model to succeed is the existence
the country’s power sector as means to the market and less on the coverage of a sufficient number of unaffiliated
achieve quality, reliable and affordable of privatization which is in contrary suppliers (Kessides, 2004)”. The
supply of electric power for the public. with the EPIRA’s provision on NPC EPIRA’s provision on cross-ownership
privatization (Patalinghug and Llanto, breaks this competition rule.
The EPIRA was designed primarily 2004). In particular, introducing and
to increase efficiency, enhance enforcing strong competition policies The EPIRA’s competitive provision
investment and encourage and framework might matter more depends on applying non-
competition in the power sector. The than the extent of ownership. The discriminatory access to existing
privatization of the National Power provision in the EPIRA on the cross- systems through the implementation
Corporation’s (NPC) assets is seen as ownership is weak. A total prohibitionof the WESM. This provision is inferior
a key to dismantling the monopoly in of one entity from one or more sub- to a situation where both divestment
the electricity industry and in bringing sectors of the electricity industry isand open access are demanded to
about competition de-monopolize
in the power sector
thus provides
Fundamentally, EPIRA has no effective solution to the problems the industry 1.
The potential of
greater efficiency besetting the power industry. It simply transfers the monopoly market abuse is
in the generation,
transmission and privileges from the State to private interests.
real which market
power abuses will
distribution of result in wealth
electricity. But doubts remain as to more superior to putting a limitation transfers from end-consumers
power industry restructuring under of 30% on a company or related group to power producers. Therefore in
the EPIRA will result to realization and to own, operate, or control of the curtailing the exercise of market
attainment of those benefits. installed generating capacity of a grid power abuse and anti-competitive
and/or 25% of the national installed behavior in the electricity industry,
By and large, the EPIRA’s provisions generating capacity. “more effective are structural remedies
are simply too forbidding to create than imposition of behavioral rules as
competition and to de-monopolize With the creation of the wholesale provided by the EPIRA (Abrenica and
the industry. EPIRA is actually electricity spot market (WESM) model Ables, 2001).”
creating a market which is headed for in which distribution utilities retain
greater concentration in the hands their exclusive service territories and Fundamentally, the EPIRA has no
of multinational corporations and buy power from competing generators, effective solution to the problems
primarily local elites. The reforms there is an urgency to expand market besetting the power industry. It simply

November 2009  Dark Power Rising  PAID!  7

From state monopoly to de facto electricity oligarchy

transfers the monopoly privileges from the state to private Table 1. List of NPC’s generation assets for privatization
interests and thus allowing the ‘gains’ to be kept as excess
Installed
profits by the privatized monopoly instead of being shared Fuel type Power plants capacity Location
with the consumers through lower electricity rates. (in MW)
Calaca* 600.00 Calaca, Batangas
Introduction Coal Masinloc* 600.00 Masinloc, Zambales
With the passage of the EPIRA in 2001, the country has Limay combined 620.00 Limay, Bataan
embarked on the process of power industry restructuring cycle*
and deregulation. From the vertically-integrated industry, Diesel Navotas I and II 310.00 Navotas, Metro
the power industry was unbundled into four sectors: Manila
generation, transmission, distribution and supply. The Panay I* 36.50 Tinocuan, Dingle,
primary objectives of the restructuring are to increase Iloilo
operational efficiency and reduce dependency on Iligan I and II 114.00 Mapalad, Iligan City
government funding by increasing competition and private Bohol* 22.00 Tagbilaran City
sector participation in power sector activity. Another major Diesel/Bunker Panay III 110.00 Dingle, Iloilo
reform embodied under the EPIRA is the privatization of
Geothermal MakBan* 410.00 Laguna and
the NPC’s generation assets (including the Independent Batangas
Power Producers contracts).
Tiwi* 275.00 Tiwi, Albay
BacMan 150.00 Albay and Sorsogon
The EPIRA was to set in motion the liberalization of the
power industry through the privatization of at least 70% Palinpinon* 192.50 Valencia, Negros
Oriental
of NPC’s assets. The Power Sector Assets and Liabilities
Management Corporation (PSALM) is created to manage Tongonan/Leyte* 112.50 Lim-ao, Kananga,
Leyte
the sale and privatization of NPC’s assets. Besides managing
the privatization of NPC’s assets, PSALM is also tasked to Hydro Magat* 360.00 Ramon, Isabela
renegotiate the IPP contracts based on the review of the Angat 246.00 Norzagaray, Bulacan
Inter-Agency Committee established for this purpose. Binga* 100.00 Itogon, Benguet
Unless it is extended by law, PSALM has a corporate life Pantabangan* 100.00 Pantabangan,
of 25 years from the effectivity date of the EPIRA. Nueva Ecija
Ambuklao* 75.00 Bokod, Benguet
The main aim of the EPIRA is to enable retail consumers to Masiway* 12.00 Pantabangan,
choose their electricity provider. EPIRA however states that Nueva Ecija
retail competition and open access2 in the electric industry Barit* 1.80 Buhi, Camarines Sur
can be declared only when all of the preconditions have
Cawayan* 0.40 Sorsogon City,
been fulfilled. These preconditions3 are: (i) privatization of Sorsogon
at least 70% of NPC’s generating assets, (ii) the transfer
Amlan* 0.80 Amlan, Negros
to IPP contract administrators (private entities) of the Oriental
management and control of at least 70% of the total
Agusan* 1.60 Manolo Fortich,
energy output of power plants under Independent Power Bukidnon
Producers (IPPs) contracts, (iii) initial removal of cross Loboc* 1.20 Loboc, Bohol
subsidies, (iv) unbundling of transmission and distribution
Talomo* 3.50 Tugbok, Davao City
charges, and (v) establishment of wholesale electricity spot
market. Then retail competition will begin wherein end- Generation assets that have been retired
users with an average peak demand of 1 MW will become Bataan Thermal 225.00 Limay, Bataan
contestable market4. Manila Thermal 200.00 Ermita, Manila
Sucat Thermal 850.00 Sucat, Muntinlupa
There are 31 generation assets (see Table 1) identified for City
privatization with an aggregate capacity of 5,914.1-MW Cebu II Diesel 54.00 Toledo City, Cebu
(including decommissioned or retired power plants). The Aplaya Diesel 108.00 Jasaan, Misamis
total installed capacity excluding decommissioned or retired Oriental
power plants is 4,454.8-MW. These do not include the Agus Decommissioned power plant
and Pulangui hydroelectric power plants in Mindanao which
General Santos 22.30 General Santos City
cannot be privatized earlier than 10 years as provided by Diesel
EPIRA5. The 70% privatization requirement for open access
TOTAL CAPACITY 5,914.10
and retail competition only covers the interconnected
Source: Power Sector Assets and Liabilities Management (PSALM)
grids of Luzon and Visayas. Hence, the Mindanao power Note: *privatized

8  PAID!  Dark Power Rising  November 2009


plants such as Agusan and Talomo
hydroelectric power facilities are not
included.
The 70% privatization target is seen
as a crucial condition needed for the
WESM to operate. The WESM is a main
component of the reforms in the power
industry to encourage competition in
the sector and bring down the costs
of electricity. It is a marketplace for
the trading of electricity and a venue
for generators/sellers to offer their
outputs and specify their bid prices to
buyers in 24 one-hour trading periods
only. It also serves as a mechanism
to encourage investors to participate
in the generation sector and attract
buyers of the NPC’s assets.
But it is widely seen that the delay in
the privatization of the NPC’s assets
has set back on the timetable for the
opening of WESM. According to the
EPIRA, WESM’s commercial operation
would be one year after the actual
commencement date of Open Access
and Retail Competition (OARC) in
the Luzon Grid. The WESM began
commercial operations on June 23,
2006 in Luzon and is already in its
34th month of commercial operations.
The Trial Operation Program (TOP)
of WESM in Visayas is now being
implemented. The first target of OARC
was 2004 as provided by the EPIRA6.
With the sale of what are considered
two big-ticket power plants in 2007,
the 600-MW Calaca coal-fired power
plant and 600-MW Masinloc coal-
fired power plant are widely touted
as the test case for the government’s
privatization blueprint. Masinloc was
sold for $930M to the Masinloc Power
Partners Co. Ltd.7 While Calaca fetched
$786.53M from the consortium of
Calaca Holdco Inc. now Emerald
Energy Consortium. The consortium
is wholly owned by Suez-Tractebel8
through its wholly-owned subsidiary
Belgelectric Finance B.V.
Before the 600-MW Masinloc power
plant was sold by the government,
it had been mired in controversy
in December 2004. The Calaca and
From state monopoly to de facto electricity oligarchy
Masinloc power plants were sold
in 2007 but not without a series of
failed biddings mainly because of the
absence of transition supply contracts9
assigned to the sale of these power
plants. Thus, the government has
attached a 287-MW power supply
contract to Calaca and another 265-
MW for Masinloc when the said two
power plants were finally sold. When
sold last October 2007, a transition
supply contract from Napocor was
attached to the Calaca power facility to
make it more palatable to the bidders.
However in January 2009, the winning
bidder of the 600-MW Calaca power
plant10, the Suez-Tractebel decided
to back out of the deal citing the
deterioration of the power plant
since its bidding date on October 16,
2007. It will be noted that one of the
conditions for the turnover of the
power plant to the winning bidder
is that it should be delivered “as is,
where is” to the new owner, or in the
same condition as it was during the
bidding date.
The problem resulted from the
unsuccessful sale of the Calaca power
facility will not only affect the revenue
flow for the PSALM but will also
directly affect the implementation of
OARC as provided under the EPIRA.
The sale of 600-MW Calaca power
facility was supposed to achieve the
70 percent privatization level of the
NPC’s assets which is required before
an open access is implemented. Under
the Energy Regulatory Commission
(ERC) guidelines, the interim open
access (IOA) will not start unless the
Calaca power facility sale has been
consummated.
Then in July of 2009, the Calaca power
facility was sold to DMCI Holdings Inc.
at $361.71M bested the only other
bidder, Banpu Power Ltd. of Thailand,
which submitted a $280-million bid.
The Calaca facility has been allocated
a 287-MW power supply contract, or
about 48 percent of the plant’s rated
capacity. MERALCO will take 169 MW
of the contracted energy.
November 2009  Dark Power Rising  PAID!  9
Between 2001 and 2009 (table 2),
twenty one power plants were sold.
The Lopez and Aboitiz groups acquired
the ownership of twelve of these
power generation facilities, while
nine power plants (Barit, Cawayan,
Loboc, Masinloc, Calaca, Panay-Bohol,
Amlan and Limay) have been sold to
other private entities (including one
electric cooperative). The 100-MW
Pantabangan and 12-MW Masiway
power plants were sold as one package11
in September 2006 to the Lopez-owned
First Gen Corporation. In December
2006, Aboitiz Power Corporation
acquired the 360-MW Magat power
plant. The 75-MW Ambuklao and 100-
MW Binga generation facilities were
sold as one package fetched $325 M
from SN Aboitiz Power Hydro Inc.
(SNAP Hydro) in 2007.
In 2008, the 747.53-MW Tiwi-MakBan
geothermal complex considered as big-
ticket item on the auction block was
the first geothermal power facility sold
by the government. PSALM attached
a total of 475-MW in power supply
contracts to the sale, thus providing
the new owner AP Renewables Inc.
with a ready market sale for its
electricity output. AP Renewables
Inc. bested that of Lopez-owned First
Luzon Geothermal Energy Corp. AP
Renewables is a domestic corporation
wholly owned by the Aboitiz Power
Corporation (APC). APC is 75.59%
owned by Aboitiz Equity Ventures.
On September 9, 2009, Green Core
Geothermal Inc., a wholly-owned
subsidiary of Energy Development
Corporation (EDC) of the Lopez
group bagged the 192.5-megawatt
Palinpinon and 112.5-MW Tongonan
geothermal power facilities package
for $220 million. It edged out the
$200 million tender posted by Therma
Power Visayas of the Aboitiz Group,
the only other bidder in the asset sale.
Taking into account the momentum
for the sale of NPC’s assets, the
privatization of the power industry
is moving at a slow pace. Nearly eight
years after the passage of the EPIRA,
the preconditions for open access and
From state monopoly to de facto electricity oligarchy

retail competition have not yet been
fulfilled. The Asian Development Bank
(ADB) noted the pace of power sector
reforms in the Philippines is similar to
that of other countries. The ADB in its
study said “(w)orldwide the experience
is that the risks of sector reforms
are usually underestimated and that
implementation takes longer than
anticipated.”12 A former NPC President
suggested that this is the prevailing
case because the government has
been following a flawed strategy of
privatizing before restructuring.13 The
sale of NPC’s assets14 will help bring
down the debt level, but every year of
delay in privatization according to the
ADB study means opportunity costs
running close to $1 billion. These are
in terms of foregone interest, a drop in
asset values due to wear and tear, and
continuing losses from the operation
of these assets.
The twenty one power plants that
have already been sold and privatized
translates to 3,897.33-MW generating
capacity or equivalent to about 87.48%
of the total 4,454.8-MW installed
generating capacity scheduled for
privatization in the Luzon and Visayas
grids. The total revenues earned from
the sale of these generation assets
have already reached $2,997.4B
(P145,733.58B at peso-dollar rate
P48.62=$1).
However, owing to the slow pace of
privatization, PSALM revised its target
for the sale of the remaining NPC’s
generation assets. PSALM’s indicative
privatization plan for the NPC’s
generation assets in Luzon and Visayas
shows a 50% target for 2007. Based on
the stage of the privatization of NPC’s
power plants, the government hopes
to achieve 70% privatization level by
2008 while the complete privatization
is by end of 2009.
PSALM reported that the delay in
the privatization is attributed to a
confluence of factors such as investors’
interest and plant-specific concerns
including operations and maintenance
agreements for multipurpose hydro
power facilities, fuel supply agreements
and land-related issues. The absence
of supply contract between power
producers and its prospective market
i.e. distribution utilities, electric
cooperatives etc. poses a major reason
for the delay.
Another cause of delay is the waiting
period of PSALM for the approval of
NPC’s creditors in the sale of power
plants before the completion of the
sale and transfer of NPC’s assets
to winning bidders. The transfer of
management control of at least 70%
of the total energy output of power
plants under NPC-IPP contracts also
had its share in the slow process of
privatization.
Supply and demand situation
The country’s electric grid with about
15,937.1-MW is divided into three:
Luzon grid accounts for about 76.3%
of the total installed capacity, Visayas
represents about 11.4% and Mindanao
accounts for about 12.1% (table 3).
The generation sector consists of
the following: (i) NPC owned and
operated generation facilities; (ii)
NPC-owned plants, which consist of
plants operated by Independent Power
Producers (IPPs), as well as IPP-owned

Table 2. List of privatized power plants as of September 2009

Capacity Price
Power Plant Year privatized Grid Winning Bidder
(in MW) (US$ M)
1.Talomo Hydroelectric March 25, 2004 3.50 Mindanao Hydro Electric Development Corp. 1.37
2. Agusan Hydroelectric June 4, 2004 1.60 Mindanao First Generation Holdings 1.53

3. Barit Hydroelectric June 25, 2004 1.80 Luzon People’s Energy Services Inc. 0.48
4. Cawayan Hydroelectric Sept. 30, 2004 0.40 Luzon Sorsogon II Electric Cooperative, Inc. 0.41
5. Loboc Hydroelectric Nov. 10, 2004 1.20 Visayas Sta. Clara International Corp. 1.42
6-7. Pantabangan-Masiway Hydro Sept. 7, 2006 112.00 Luzon First Gen Hydropower Corp. 129.00
8. Magat Hydroelectric Dec. 14, 2006 360.00 Luzon SN Aboitiz Power Corporation 530.00
9. Masinloc Coal-Fired Thermal July 26, 2007 600.00 Luzon Masinloc Power Partners Co. Ltd. 930.00
10-11. Ambuklao-Binga Hydroelectric Nov. 28, 2007 175.00 Luzon SN Aboitiz Power Hydro Inc. 325.00
12-13. Tiwi-Makban July 30, 2008 747.53 Luzon AP Renewables Inc. 446.89
14.-15. Panay and Bohol Diesel Nov. 12, 2008 168.50 Visayas SPC Power Corporation 5.86
16. Amlan Hydroelectric Dec. 10, 2008 0.80 Visayas ICS Renewables Inc. 0.23
17. Calaca Coal-Fired Thermal July 8, 2009 600.00 Luzon DMCI Holdings Inc. 361.71
18. Power Barge 118 July 31, 2009 100.00 Mindanao Therma Marine Inc. 14.00
19. Power Barge 117 July 31, 2009 100.00 Mindanao Therma Marine Inc. 16.00
20. Limay Combined-Cycle Aug. 26, 2009 620.00 Luzon San Miguel Energy Corporation 13.50
21. Palinpinon-Tongonan Geothermal Sept. 2, 2009 305.00 Visayas Green Core Geothermal Inc. 220.00
$2,997.40
TOTAL 3,897.33
B
Source: PSALM

10  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

and operated plants, all of which supply electricity to NPC; 3,289-MW or 20.64%. Natural gas fired power plants in
and (iii) IPP-owned and operated plants that supply Luzon grid amounted to 2,834-MW or 17.78%; geothermal
electricity to customers other than NPC. power plants which are mostly located in Visayas grid
accounted for 1,958-MW or 12.29% to the total installed
As of 2008, the country has 107 power plants (operational) capacity. Other renewable energy such as wind and solar
i.e. NPC owned and operated, NPC-IPPs and non-NPC with accounted for only 0.16% of the capacity generation mix15.
a total installed generating capacity of 15,937-MW.
Power generation is undertaken by the NPC, by IPPs and
Based on DoE data in 2008, of the 15,937.1-MW total
by privately-owned generation facilities. Some utilities
installed generating capacity, 13,205-MW or 83% is said
and electric cooperatives also have their own generating
to be dependable capacity. Although no additional power
units, but the energy output of these are generally small.
plant went online in 2007, the increase was due to the
Gross power generation in 2008 (table 5) reached 60,821
reconciliation of data between DoE, NPC and PSALM.
gigawatt-hours (GWh), 2.03 percent higher than 59,612
Coal-fired power plants have the largest share in terms of
GWh in 2007. Natural gas fired power plants remain
installed capacity, contributing 4,213-MW or 26.44% of
the dominant source of fuel for power generation with
the mix. Majority of these coal plants are located in Luzon.
19,576 GWh or 32.19% of the total country’s generation.
Oil-based power plants accounted for 3,616-MW or 22.69%
This marks the fourth consecutive year in which natural
of the total capacity. Hydroelectric power plants, which is
gas-fired had the biggest share on gross generation since
the main source of electricity in Mindanao accounted for
replacing coal-fired in 2005 (DOE Power Statistics 2008).
Table 3. Indicative Privatization Targets for Generating Table 5.
Assets, 2008-2009 2008 Gross Power Generation by Utility (in GWh)
Rated Generation in GWh % share
Year Grid Plants Fuel type capacity
NPC 12,743.00 21.00
(MW)
NPC-SPUG 448.00 1.00
2008 Luzon Tiwi* Geothermal 289.00
NPC-IPP 27,972.00 46.00
Luzon Makban * Geothermal 458.53
Non-NPC 19,658.00 32.00
Mindanao Iligan I & II Diesel/ 114.00
Bunker Total generation 60,821.00 100.00
Visayas Panay* Diesel 146.50 2007 Gross Power Generation by Utility (in GWh)
Visayas Bohol* Diesel 22.00 Generation MWh % share
Visayas Amlan* Hydro 0.80 NPC 15,151,017.00 25.00
Sub-Total of Operating Capacities/Year 916.83 NPC-SPUG 437,372.00 1.00
(excluding Iligan I & II)
NPC-IPP 26,155,930.00 44.00
Sub-Total of Operating Capacities/Year 1,030.83
MERALCO IPP 14,413,361.00 24.00
2009 Luzon Angat Hydro 246.00
Non-NPC 3,454,109.00 6.00
Luzon Navotas I & II Diesel 310.00
Total generation 59,611,788.00 100.00
Visayas Palinpinon* Geothermal 192.50
2006 Gross Power Generation by Utility (in GWh)
Visayas Tongonan* Geothermal 112.50
Generation MWh % share
Luzon Bacman Geothermal 150.00
NPC 17,299,198.00 30.50
Sub-Total of Operating Capacities/Year 1,011.00
NPC-IPP 23,172,666.00 40.80
T O T A L (without Iligan I and II) 1,927.83
MERALCO IPP 14,308,642.00 25.20
TOTAL 2,041.83
RECs/other IPPs 2,003,624.00 3.50
Source: PSALM. *sold as of September 2009
Total generation 56,784,130.00 100.00
Table 4. 2005 Gross Power Generation by Utility (in GWh)
Power plants Installed capacity (in MW) Generation MWh % share
Luzon 55.00 12,172.02 NPC 15,780,230.00 27.90
NPC-IPP 24,716,762.00 43.70
Visayas 31.00 1,831.60
MERALCO IPP 13,985,901.00 24.70
Mindanao 21.00 1,933.40
RECs/other IPPs 2,084,846.00 3.70
National 107.00 15,937.10 Total generation 56,567,740.00 100.00
Source: Department of Energy, 2008 Source: Department of Energy

November 2009  Dark Power Rising  PAID!  11

From state monopoly to de facto electricity oligarchy

This was followed by coal at 28.24%. Meanwhile generation Table 6. Installed capacity as of April 2008 (in MW)
from hydro electric power plants fell by 13.84%, from
NPC owned
9,939 GWh in 2006 to 8,563 GWh in 2007. Likewise, NPC-IPP* Non-NPC TOTAL
and operated
generation from geothermal power plants decreased by
2.39% from 10,465 GWh in 2006 to 10,215 GWh in 2007 Luzon 1,867.18 5,973.45 4,330.64 12,172.02
due to outages experienced by Macban, Bacman and Tiwi Visayas 570.50 861.28 402.24 1,831.60
geothermal plants in Luzon.16 Mindanao 1,116.80 712.48 104.14 1,933.40
National 3,554.48 7,547.21 4,837.02 15,937.10
The share of NPC to the total generation by utilities fell by Source: Department of Energy
9.77 % contributing 15,588 GWh or 26.15% of the mix in *PNOC-EDC power plants are included in NPC-IPP power plants
2007. This was due to the transfer of Pantabangan-Masiway
hydropower plant complex to First Gen on November 18, Table 7. Peak demand (in MW)
2006 and Magat hydropower plant to SN Aboitiz on April Grid 2007 2006 % change
26, 2007. Contributions from NPC-IPPs accounted for Luzon 6,643.00 6,466.00 2.74
26,156 GWh or 43.88% of the total electricity generation
while from non-NPC power plants contributed 17,867 Visayas 1,102.00 1,066.00 3.38
GWh or 29.97% of the mix. Non-NPC power plants are Mindanao 1,241.00 1,228.00 1.06
those of Meralco IPPs and privately-owned generation TOTAL 8,986.00 8,760.00 2.58
facilities. Of the 17,867 GWh, the Meralco IPPs have a Source: Department of Energy
24 % share (14,413,361 GWh) of the total generation in
2007. DoE data shows the share of IPPs of Meralco in total Table 8. List of NPC owned and operated power plant in
power generation grew from 2% in 1997 to 24% in 2007. Luzon as of September 2009
In contrast, the share of NPC (including its IPPs) fell from Power plant Capacity (in MW) Location
97 percent to about 70 percent.
Navotas I and II diesel 133.38 Navotas, Metro Manila

Out of the total installed capacity of 15,937.1-MW (table Limay combined-cycle* 620.00 Limay, Bataan
4), the NPC owned and operated generation facilities MakBan geothermal* 442.80 Calauan, Laguna
accounted for 22% or 3,554.48-MW (includes Tiwi-MakBan
BacMan geothermal 150.00 Bacon, Sorsogon
geothermal power complex). The large portion of installed
capacity is under the operation of NPC-IPPs accounted for Tiwi geothermal* 275.69 Tiwi, Albay
47% or equivalent to 7,547.21-MW. And the non-NPC Angat hydroelectric 246.00 Norzagaray, Bulacan
power plants accounted for 30% or 4,837.02-MW.17
Total 529.38
Based on DoE data in 2008, in the sale of Tiwi-Makban Source: Department of Energy
note: *privatized
hydro facilities, NPC’s market share of its remaining
generating assets was reduced to 2.8 percent in the Luzon
Grid while for the national grid its share is 12.4 percent. Table 9. List of NPC-IPP in Luzon as of April 2008
Aboitiz Power Corporation market share in the Luzon Capacity
Power plant Location
grid grew to 9.0 percent with its acquisition of privatized (in MW)
power plants to include Magat hydro, Ambuklao-Binga Pagbilao I and II coal-fired* 728.00 Pagbilao, Quezon
hydro complex and Tiwi-Makban geothermal facilities. Sual I and II coal-fired* 1,294.00 Sual, Pangasinan
NPC-IPPs maintain the bulk of the share with 69.6 percent
San Antonio natural gas 3.00 Echague, Isabela
in the national grid.
Subic diesel 116.00 Subic, Zambales
Luzon accounted for about 74% of all energy demand, Bauang diesel 235.20 Bauang, La Union
which is 76% of the national installed generating capacity. Ilijan natural gas 1,271.00 Batangas City
Visayas, on the other hand, shared for roughly 12% of Hopewell gas turbine 310.00 Navotas, Metro Manila
demand, boasted of only 11.4% of total installed generating
San Roque multi-purpose 345.00 San Manuel, Pangasinan
capacity. Mindanao has about 14% of all energy demand
that translated to 12% of the country’s total installed Ampohaw-Bineng hydro 18.35.00 Sablan, Benguet
capacity. Caliraya-Botocan-Kalayaan (CBK) 755.50 Kalayaan, Laguna
Bakun hydroelectric 70.00 Alilem, Ilocos Sur
The generation capacities today far exceed consumption
levels. The country consumed 59,612 GWh18 in 2007. Casecnan hydroelectric 165.00 Pantabangan, Nueva Ecija
The demand for electricity at peak levels is only in the Northern Mini Hydro Corp. 12.40 Bakun, Benguet
range of 8,000-MW to 9,000-MW (table 5). The bulk of Malaya Thermal 650.00 Pililia, Rizal
installed capacity is in Luzon, 12,172.02-MW, where the TOTAL 5,973.45
peak demand reached 6,643-MW in 2007. Over the past Source: Department of Energy
five years, Visayas has watched peak demand increase from *privatized

12  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

903-MW in 2002 to 1,102-MW in 2007, while installed In Visayas, there are 31 power generation facilities of which
capacity reaches 1,831.6-MW. That same year, peak demand nine are NPC owned and operated (table 9) with a total
was at 1,241-MW in Mindanao compared to the installed installed generating capacity of 570.5-MW, 5 are NPC-IPPs
capacity of 1,933.4-MW. (table 10) with a combined installed generating capacity
of 861.28-MW, and 17 non-NPC power plants (table 11)
In Luzon, there are 55 power generation facilities. Six are have a total installed generating capacity of 402.24-MW.
NPC owned and operated generation facilities19. These
power plants have a total installed generating capacity of In Mindanao, there are 21 power generation facilities
1,867.18-MW while there are 13 NPC-IPPs with a combined the biggest of which is the 727-MW Agus hydroelectric
installed capacity of 5,973.45-MW. 36 non-NPC power power complex. While 4 power plants are NPC owned and
plants have a total generating capacity of 4,330.64-MW. operated (table 12) with a total installed generating capacity
of 1,116.8-MW, 6 are NPC-IPPs (table 13) with a total
Table 10. List of non-NPC power plant in Luzon as of April installed capacity of 712.48-MW. The 11 non-NPC power
2008 generation facilities have a combined installed capacity of
Capacity 104.14-MW (table 14).
Power plant Location
(in MW)
Calaca coal-fired* 600.00 Calaca, Batangas From government monopoly to private monopoly
Masinloc coal-fired 600.00 Masinloc, Zambales In economics, privatization turns over the control of an
Quezon Power 511.00 Mabalacat, Pampanga enterprise from government to the private sector. If the
Asia Pacific Energy Corp. 50.00 Bauang, La Union enterprise is run inefficiently by government (which is
Duracom III and IV 109.00 Navotas, Metro Manila mostly the case) then theoretically privatization is likely
Angeles diesel 30.00 Angeles City
to result in greater production efficiency and lower prices
Tarlac Electric 18.90 Capas, Tarlac Table 11. List of NPC owned and operated power plant
Trans Asia Power 52.00 La Union in Visayas as of April 2008
Magellan Cogen** 63.00 Rosario, Cavite Capacity
Power plant Location
Sta. Rita natural gas 1,060.00 Sta. Rita, Batangas (in MW)
San Lorenzo natural gas 500.00 Sta. Rita, Batangas Power Barge (PB) 103 32.00 Estancia, Iloilo
MakBan Ormat 15.73 Bay, Laguna Panay diesel power plant I 36.50 Dingle, Iloilo
Manito 1.50 Albay PB 101 32.00 Iloilo
Magat hydroelectric 360.00 Ramon, Isabela PB 102 32.00 Obrero, Iloilo
Pantabangan-Masiway 112.00 Pantabangan, Nueva Ecija Bohol diesel power plant* 22.00 Tagbilaran City
Ambuklao-Binga 175.00 Bokod, Benguet Panay diesel power plant III 110.20 Dingle, Iloilo
(Pinamucan)*
Cawayan hydroelectric 0.40 Guinlajon, Sorsogon
Palinpinon geothermal* 192.50 Valencia, Negros
Barit hydroelectric 1.80 Buhi, Camarines Sur
Oriental
NIA Baligatan 6.00 Benguet
Leyte geothermal* 112.50 Tongonan, Leyte
Aqua Grande 4.50 Pagudpod, Ilocos Norte
Amlan geothermal* 0.80 Amlan, Negros
Amburayan 0.20 Sudipen, La Union Oriental
Dawara 0.53 Suyo, Ilocos Sur TOTAL 570.50
Bachelor 0.75 Natividad, Pangasinan Source: Department of Energy
*privatized
Sal-angan 0.50 Itogon, Benguet
Club John Hay 0.50 Baguio City Table 12. List of NPC-IPP in Visayas as of April 2008
Magat A and B 2.52 Ramon, Isabela Capacity
Power plant Location
Tumauini 0.25 Tumauini, Isabela (in MW)
Dulangan 1.60 Oriental Mindoro Cebu thermal I and II 109.30 Naga, Cebu

Balugbog 0.65 Nagcarlan, Laguna Cebu diesel 37.80 Toledo City, Cebu

Palapaquin 0.40 San Pablo City, Laguna Cebu Land-Based Gas Turbine I 55.00 Cebu City
and II
San Juan river 0.15 Kalayaan, Laguna
Yabo 0.20 Pili, Camarines Norte Tongonan geothermal II and III 610.18 Tongonan, Leyte
(Leyte A)
NorthWind Project 25.00 Bangui, Ilocos Norte
Northern Negros geothermal 49.00 Bago City
TOTAL 4,330.64
TOTAL 861.28
Source: Department of Energy *privatized last July 28, 2009
**Magellan Cogen: for confirmation on the operation of the power plant Source: Department of Energy

November 2009  Dark Power Rising  PAID!  13

From state monopoly to de facto electricity oligarchy

to consumers. The government enterprise activity will reliance on competition and market forces which are
first have to be de-monopolized and greater private sector expected to increase efficiency and enhance investment
participation is encouraged. Otherwise, the monopoly in the power industry. The EPIRA has specific provisions
privileges will simply be transferred to the private interest, dealing with monopoly such as policies on cross-ownership,
and any resulting efficiency gains will be kept as excess open access and wholesale electricity spot market but
profits by the privatized monopoly instead of being shared none on mergers. The EPIRA’s aims of retail competition
with the consumers through lower prices. and open access in the power industry are unlikely to be
realized since the provisions of the law on anti-competitive
Steve Thomas, an academic who has closely followed the behavior. Suffice it to say that it will make the system
electricity reforms throughout the world, observes the from once-government monopoly to private monopoly. It
tendency towards monopolization as a result of these also opened up the real possibility of excesses and market
reforms. “After initially unbundling electricity monopolies abuses by few dominant players thus further exacerbating
into several firms, many countries saw those companies the burden on consumers due to oppressive power rates.
vertically and horizontally reintegrated through mergers and
acquisitions. In many cases, therefore, power liberalization It is important to place strict limits on market share and
resulted in the creation of electricity oligarchies. These cross-ownership in the power industry to prevent market
tend to be dominated by powerful multinational and power abuse. But the risk of market power abuse in the
transnational corporations.”20 EPIRA is inherent because the cross-ownership provision in
the law is insufficient and weak. In fact, it does not forbid a
With the passage of the EPIRA, the power industry company or related group to own, operate, or control 30%
began its own process of power industry restructuring of the installed generating capacity of a grid and/or 25%
and deregulation. This restructuring characterizes greater share of the national grid. In 2008, the ERC has determined
the total installed generating capacity in each grid and has
Table 13. List of non-NPC power plant in Visayas as of set the market share limitations (see table 18).
April 2008
Capacity The leading private sector participant in the generation
Power plant Location
(in MW) industry is the Lopez-owned First Gen Power Corporation
Toledo Power Corporation (Sangi 88.80 Toledo City, Cebu and its affiliates with 19.8 percent share in the Luzon grid and
station) 15 percent of the national grid. Thus, outright disallowance
Panay Power Corporation 74.88 La Paz, Iloilo of cross-ownership is deemed superior to a stipulation on
Panay Electric Company 19.85 Iloilo City open access because the cross-ownership provision of the
EPIRA exposes the industry to more competitive risks and
Toledo Power (Carmen station) 45.8 Toledo City, Cebu
“opens the possibility for a distribution company to enter
Cebu Private Power 70.00 Cebu City
into supply contracts with its generation subsidiaries and
Janopol hydroelectric 5.00 Bohol create hidden profits for the conglomerate (Patalinghug
Loboc hydro 1.20 Loboc, Bohol and Llanto, 2004).”
Mantayupan 0.50 Barili, Cebu
Basak 0.50 Badian, Cebu The lessons from California’s power sector restructuring
experience can be cited to prove the potential for market
Matutinao 0.72 Badian, Cebu
power abuse in a deregulated power sector. It was
Ton-ok 1.08 Calbayog City, Samar
Henabian 0.81 St. Bernard, Southern Table 15. List of NPC-IPP in Mindanao as of April 2008
Leyte Capacity
Power plant Location
TOTAL 402.24 (in MW)
Source: Department of Energy Southern Philippines Power 59.00 Alabel, Sarangani
Corporation
Table 14. List of NPC owned and operated power plant in Power Barge 117* 100.00 Nasipit, Agusan del Sur
Mindanao as of April 2008 Power Barge 118* 100.00 Maco, Davao del Norte
Capacity Western Mindanao Power 113.00 Sangali, Zamboanga del
Power plant Location
(in MW) Corporation Norte
Power Barge (PB) 104 32.00 Brgy. Ilang, Davao City Mt. Apo geothermal I and II 108.48 Kidapawan, South
Iligan diesel I and II 102.70 Dalipuga, Iligan City Cotabato

Agus hydroelectric complex 727.10 Lanao del Sur/del Norte Mindanao coal-fired thermal 232.00 Villanueva, Misamis
Oriental
Pulangi hydroelectric 255.00 Maramag, Bukidnon
TOTAL 712.48
TOTAL 1,116.80
Source: Department of Energy
Source: Department of Energy *privatized

14  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

demonstrated most vividly by the California electricity it. A strong monitoring and prevention of market power
crisis at the onset of this century. The California crisis abuse is an important task of the power sector regulator—
revealed that competition and antitrust regulation in place that the ERC can and will live up to this task is in serious
at that time were not sufficient to impede or prevent the doubt. The competitive provision in the EPIRA relies
exercise of market power abuse by a number of generation on implementing non-discriminatory access to existing
companies. systems. This provision is inferior to a situation where
both divestment and open access are demanded to de-
From the lessons of California’s power sector restructuring,
market power abuse has been identified and is possible to monopolize the industry. Open access provision relies on
occur therefore it is necessary that mitigation measures effective monitoring and enforcement of regulatory rules
i.e. strong regulation and enforcement policies are in place which is unlikely given the performance of government
to prevent these power generation firms from causing regulatory agencies like the ERC which has a dismal track
harm to consumers. Given the constraints inherent in the record and also doubt remains as to their “independence”.
market, the market power abuse of private companies is Learning from the experience of California’s power
real possibility to happen. restructuring and other countries, it is more effective to
impose structural remedies in curtailing the exercise of
The generation sector has a number of large companies market power abuse and anti-competitive behavior in the
and distribution utilities such as Lopez-owned generation industry than just impose a set of behavioral rules.21
company First Gen has Meralco and Panay Electric
Table 17.
Company (PECO) as its distribution firms while Aboitiz-
owned distribution utilities are Visayan Electric Company Installed Installed
% Market share
Grid generating generating
(VECO), Davao and Cotabato Light and Power Companies, limitation
capacity (kW) capacity (kW)
have ever been thriving and more profitable under the Luzon 10,060,904.00 30.00% 3,018,271.20
transition to a privatized regime. These companies, either
deliberately or unwittingly, have the ability to price their Visayas 1,637,270.40 30.00% 491,181.10
output at higher than competitive prices. Looking at the Mindanao 1,703,348.00 30.00% 511,004.40
WESM indicators of market concentration you will get
the picture that the Lopez-controlled First Gen, and the National 13,401,522.40 25.00% 3,350,380.60

Aboitiz-owned power generation and distribution utilities Source: PSALM

dominate the power industry.

Market power abuses result in wealth transfers from Table 18. Installed Capacity and Share Per Grid
consumers to producers simply because the law allows Luzon Visayas Mindanao Philippines
Table 16. List of non-NPC power plant in Mindanao as of NPC* 282.32 438.32 440.32 1,661.44
April 2008 NPC-IPP** 6,217.57 785.46 668.48 7,671.51
Capacity TOTAL NPC and
Power plant Location 6,499.89 1,223.78 1,609.28 9,332.94
(in MW) NPC-IPP
Brgy. Tablon, Cagayan de First Gen 1,608.50 69.00 1.60 1,679.10
Mindanao Energy Systems 18.90
Oro City
Aboitiz 908.59 119.60 57.77 1,085.96
Cotabato Light and Power
10.00 Cotabato Other IPPs 1,043.92 224.89 34.70 1,303.51
Company
Sub-total IPPs 3.561.02 413.49 94.07 4,068.58
Davao Light and Power Co. 58.69 Davao City
TOTAL 10,060.90 1,637.27 1,703.35 13,401.52
Agusan mini-hydro 1.60 Manolo Fortich, Bukidnon
Share in percentage per grid
Bubunawan 7.00 Baungon, Bukidnon
NPC 2.81 % 26.77% 55.23% 12.40%
Brgy. Mintal, Talomo, Davao
Talomo 3.70
City NPC-IPP 61.80% 47.97% 39.25% 57.24%
Balactasan 0.27 Lamitan, Basilan TOTAL NPC and
64.61% 74.75% 94.48% 69.64%
NPC-IPP
Kumalarang 0.68 Lantawan, Basilan
First Gen 15.99% 4.21% 0.09% 12.53%
Mountain View 0.80 Valencia, Bukidnon
Aboitiz 9.03% 7.30% 3.39% 8.10%
Matling 1.50 Malabang, Lanao del Sur
Other IPPs 10.38% 13.74% 2.04% 9.73%
Brgy. Indahag, Cagayan de
Solar Photovoltaic 1.00
Oro City Sub-total IPPs 35.39% 25.25% 5.52% 30.36%
TOTAL 104.14 TOTAL 100% 100% 100% 100%
Source: Department of Energy Source: 13th EPIRA Implementation Status Report (May to October 2008)

November 2009  Dark Power Rising  PAID!  15

From state monopoly to de facto electricity oligarchy

In relation to this, Diokno-Pascual emphasized the Asian partner, Spalmare Holding BV, in the Philippine National
Development Bank (ADB) findings from a fact-finding Oil Company-Energy Development Corporation (PNOC-
mission it sent to the ERC, in preparation for a technical EDC). First Gen now owns a 60% stake in PNOC-EDC. First
assistance grant to the ERC. The main findings of this Gen and its subsidiaries owned or have controlling interests
mission are as follows:22 in 13 generation facilities nationwide with (see tables 19,
20 and 21) a total installed capacity of 3,515.66 MW. This
zz “employees are unable to undertake thorough analysis translates to about 23 percent share of the national grid.
due to lack of knowledge and skills in regulation and
rate setting methodologies” First Generation and its affiliates accounted
for 13% of the total generation facilities
zz “the document tracking and filing system is poor as
in Luzon with a total installed generating
business processes are not clearly defined”
capacity of 2,421.6 MW. It translates to 20 %
zz “staff are inexperienced in handling consumer share over the total Luzon installed capacity of 12,172.02
complaints and dispute resolution.” MW or 15% share in the country’s total grid.
The Philippine Institute for Development Studies (PIDS) Table 19.
argued the provision in the EPIRA on privatization of
Luzon Location in MW
NPC’s assets that has overlooked the probability that
the “success of reforms may hinge more on the degree of 1.Quezon Private Power Mauban, Quezon 511.00
competition introduced in the market and less on the extent 2.Bauang Diesel Bauang, La Union 235.60
of privatization”. PIDS further said Caves and Christensen 3.San Antonio natural gas Echague, Isabela 3.00
(1980) found no evidence of inferior performance by the 4. Sta. Rita natural gas Sta. Rita, Batangas 1,060.00
government-owned railroad compared to that of the 5. San Lorenzo natural gas Sta. Rita, Batangas 500.00
privately-owned railroad. Estache and Rossi (2002) showed
6-7. Pantabangan-Masiway Pantabangan,Nueva Ecija 112.00
that the efficiency is not significantly different in private hydro complex
water companies than in public ones. And Kwoka (1996)
TOTAL 2,421.60
“found that competitive pressures are more important than
ownership in explaining electric utilities’ performance in
In Visayas, First Gen and its subsidiaries have shares and
the US.” In the U.S. where state-owned and privately-owned
investments in three generation facilities with a combined
electric companies competed, there was little difference in
installed generating capacity of 984.03 MW. This account
performance. Similarly, in the U.S., where electricity supply
for 53% share of Visayas grid.
was provided by the state-owned monopoly, performance
was lower than in states where privately-owned monopoly Table 20.
supplied electricity.23 As if the Philippines had not had Visayas Location in MW
enough painful lessons from past privatization projects, 1. Panay Electric Company Iloilo City 19.85
private ownership does not automatically bring about a
2. Tongonan Geothermal Tongonan, Leyte 610.18
competitive situation that creates more efficiency and
higher consumer welfare. Bago City, Negros
3. Northern Negros Geothermal 49.00
Occidental

As of April 2008, the continuing sales of NPC’s assets had 4. Palinpinon Negros Oriental 305.00
increased private sector share (NPC-IPPs and non-NPC TOTAL 984.03
power generation facilities) in the generation sector with
While in Mindanao, First Gen has two generation facilities
90.5% combined share in Luzon total installed capacity and
with total installed generating capacity of 110 MW or 5.6
82.2 % share in the national grid. But even as the EPIRA’s
% share of Mindanao grid.
envisioned de-monopolization of the power industry has
come to fruition, the restructuring of the power industry Table 21.
is actually creating a market that is heading for greater Mindanao Location in MW
concentration among a handful of private players in the 1. Mt. Apo Geothermal plant I Kidapawan, North 108.40
industry. and II CotabatoPower
2. Agusan Hydroelectric Manolo Fortich, Bukidnon 1.60
Snapshot of power players in the industry TOTAL 110.00
Since the passage of EPIRA, the share of Lopez-owned
generation companies and Meralco’s IPPs in total power Meralco is the most dominant distribution
generation has increased significantly. This is largely utility in the Philippines. It has a franchise
due to the Lopez-owned natural gas plants which began area of 9,337 sq. km. serving 23 cities and
commercial operations around the same time EPIRA was 88 municipalities including Metro Manila,
passed. In 2007, First Gen bought out the shares of its Dutch the entire provinces of Bulacan, Rizal and

16  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

Cavite; parts of the provinces of Laguna, Quezon and the total Mindanao grid. Nationwide, Aboitiz owned or
Batangas; and 17 barangays in Pampanga. The franchise have controlling interests in 20 generation facilities with a
area covers around 19 million people, almost a quarter of combined installed capacity of 2,288.87 MW or 14 percent
the entire Philippine population of 80 M which accounts share of the national grid.
for approximately 50% of the gross domestic product Table 23.
(GDP), 31% from Metro Manila alone. MERALCO’s total Mindanao Location in MW
energy sales grew 1.1% from 24,806.2M kWh in 2005 to
1. Cotabato Light and Power
25,077.5M kWh in 2006. The number of customers likewise Company
Cotabato 10.00
rose by 1.6% from 4,317,064 in 2005 to 4,388,086 in 2006, 2. Davao Light and Power Davao City 58.69
88% of which are residential customers.24
3. Southern Philippines Power
Alabel, Sarangani 59.00
Table 22. Corporation

Estimated 4. Western Mindanao Power

Area Covered Sangali, Zamboanga City 113.00
Cities Municipalities Population Corporation
(sq.km)
(millions) 5. Talomo Hydro Talomo, Davao City 3.70
Metro Manila 13 4 636.00 10.99 PHIVIDEC Industrial Estate,
6. Mindanao Coal-fired Thermal
Villanueva, Misamis 232.00
Rizal 1 13 1,309.00 1.51 I and II
Oriental
Bulacan 2 22 2,625.00 2.08
7. Power Barge 118 Compostela Valley 100.00
Cavite 3 20 1,297.00 1.91
8. Power Barge 117 Agusan del Norte 100.00
Laguna 2 17 1,281.00 1.68
TOTAL 676.39
Quezon 1 10 1,780.00 0.79
Batangas 1 2 409.00 0.36 Table 24.
Pampanga - - - 0.06 Luzon Location in MW
Total 23 88 9,337 19.38 1. Duracom Unit 3 and 4 Navotas,Metro Manila 109.00
Source: MERALCO Annual Report 2006 2. Ampohaw-Bineng Hydroelectric Sablan, Benguet 18.35
3. Magat hydroelectric Ramon, Isabela 360.00
Meralco’s supply contracts with its IPPs e.g. Lopez-owned
Sta. Rita and San Lorenzo power plants are singled out as 4-5. Ambuklao-Binga Itogon, Benguet 175.00
classic cases of the disadvantageous nature of the cross- 6. Bakun hydro Alilem, Ilocos Sur 70.00
ownership provision of EPIRA. Meralco had a 10-year 7. Northern Mini Hydro Bakun, Banguet 12.40
contract for the supply of electricity (CSE) from NPC 8. Sal-anga (Philex) Itogon, Benguet 0.50
beginning January 1, 1995. But in 2002 it opted to buy 9. Tiwi-MakBan geothermal Albay, Laguna and 747.53
some of its electricity from its IPPs instead of from NPC. complex Batangas
And Meralco has been accused of buying power from TOTAL 1492.78
its affiliated IPPs at higher prices compared to the price
charged by NPC. Aboitiz and its subsidiaries owned or have controlling
interests in 10 generation facilities in Luzon which are
The Meralco-NPC dispute continued through 2003, equivalent to 12.3 percent of Luzon grid.
when, after mediation talks in the first half of the year, a
settlement was reached on July 15, 2003. The Agreement While in Visayas, it has two generation facilities with 119.7
was brought to the ERC, for its approval on April 15, 2005. MW or 6.53% share of the total Visayas grid.
In a joint filing to the ERC on January 20, 2006, NPC and Table 25.
Meralco showed that the net settlement amount payable
Visayas Location in MW
to NPC and for collection from customers once approved
by the ERC has been reduced from P20.05B to P14.32B. 1. Cebu Private Power Corp. Cebu City 70.70
As of March 26, 2006, hearings on the joint application 2. East Asia Utilities Corp. Cebu City 49.70
have already been completed and the case is still pending TOTAL 119.70
resolution by the ERC. (MERALCO Annual Report 2006).
Aboitiz also owns interests in various electricity distribution
In Mindanao, the utilities that distributed 3,498 GWh of electricity to
dominant private power approximately 616,261 customers in the Philippines. The
generation company Visayan Electric Company or VECO is the second largest
is the Aboitiz Power power distribution utility serving Metropolitan Cebu (Cebu
Corporation. Aboitiz City, Mandaue City, Talisay City, Naga City including the
and its subsidiaries have six power plants with a total municipalities of Consolacion, Liloan, Minglanilla and
installed capacity of 676.39 MW or 35 percent share of San Fernando. Next on the list, the Davao Light and

November 2009  Dark Power Rising  PAID!  17

From state monopoly to de facto electricity oligarchy
Power Company is the third largest distribution utility
in the Philippines. Its franchise area covers Davao City,
and Panabo City and the municipalties of Carmen, Santo
Tomas and Dujali in Davao del Norte. Also in Mindanao,
Aboitiz owned the Cotabato Light and Power Company
serving the area of Cotabato City (including municipality
of Dina-ig and parts of Sultan Kudarat province.
Aboitiz first power distribution utility in Luzon is the
San Fernando Electric Light and Power Company which
is considered the country’s seventh largest distribution
utility serving San Fernando, Pampanga. The newest
power distribution owned by Aboitiz is the Subic
Enerzone Corporation which manages the whole power
distribution system within the Subic Bay Freeport Zone.
Mactan Enerzone Corporation of Aboitiz manages the
Mactan Export Processing Zones (MEZ 2) while the power
distribution system within the West Cebu Industrial
Park is managed by Aboitiz-owned Balamban Enerzone
Corporation.
The Global Business Power Corporation,
a subsidiary of The Metrobank Group
and the Global Formosa consortium is
also a major player in Visayas with its
six generation facilities with a combined
installed capacity of 249.48 MW. It controls 13.6% share
of Visayas grid, next to First Gen’s 37% share.
Table 26.
Luzon Location in MW
1. Sangi Power Plant Toledo City, Cebu 88.80
2. Panay Power Corp. La Paz, Iloilo 74.88
3. Carmen diesel Toledo City, Cebu 45.80
4. 20-MW bunker fuel La Paz, Iloilo 20.00
5. 15-MW bunker fuel Nabas, Aklan 15.00
6. 5-MW bunker fuel New Washington, Aklan 5.00
TOTAL 249.48
Trans-Asia Power Generation Corporation
of Executive-Vice President Victor Del
Rosario. Trans-Asia Power is a subsidiary
of Philippine Investment Management, Inc.
(PHINMA). DOE former Secretary Francisco
Viray is the current president. Trans-Asia
18  PAID!  Dark Power Rising  November 2009
power has two power generation facilities, one in La Union
(52 MW) and another in Guimaras province (3.40 MW)
with a total installed capacity of 55.4 MW.
The Abaya-owned
Cagayan Electric Power
and Light Company
(CEPALCO) have three
generation facilities and a distribution utility which covers
the City of Cagayan de Oro and the municipalities of
Tagoloan, Villanueva and Jasaan all in Misamis Oriental
including the 3,000-hectare PHIVIDEC Industrial Estate.
CEPALCO’s three generation facilities with a combined
installed capacity of 26.9 MW have 1.4% share in Mindanao
grid.
Table 27.
Location in MW
1. Mindanao Energy Systems
Brgy. Tablon, Cagayan de
18.90
Oro City
2. Bubunawan hydro Baungon, Bukidnon 7.00
3. Solar photovoltaic
Brgy. Indahag, Cagayan
1.00
de oro City
TOTAL 26.90
In terms of power generation by NPC-
IPPs, three power generation facilities are
under Mirant (TeaM Energy) with a total
installed capacity of 2,332 MW. These
are the 728-MW Pagbilao coal-fired in
Pagbilao, Quezon, 1,294-MW Sual coal-
fired in Sual, Pangasinan and the 310-MW
Hopewell power plant in Navotas. Mirant’s share in Luzon
grid is 19 percent.
Under the Korea Electric Power Company
(KEPCO) are the 1,271-MW Ilijan
natural gas power plant and 650-MW
Malaya thermal power plant. It also
has controlling interest in SPC Power
Corporation (former Salcon Power
Corporation) which owns the 109.3 MW-Naga Power Plant
I and II in Naga City, Cebu, and 168.5 MW Panay and Bohol
Diesel Power Plants. KEPCO power generation facilities
have a combined installed capacity of 2,030.3 MW. Its two
power generation facilities in Luzon i.e. Ilijan and Malaya
have 15.7% share in Luzon grid.
 From state monopoly to de facto electricity oligarchy

Endnotes References:
1
Patalinghug, Epictetus and Gilbert M Llanto, “Competition Policy and 12th and 13th EPIRA Implementation Status Reports, Department of
Regulation in Power and Telecommunications”, Philippine Institute
for Development Studies, Discussion Paper Series No. 2005. Energy.
2
Open access refers to the system of allowing any qualified person Asian Development Bank, Proposed Loan and Political Risk Guarantee,
the use of transmission, and/or distribution system, and associated
Republic of the Philippines: Privatization and Refurbishment of the
facilities in which electricity end-users are free to choose where to
get their supply of electricity. Calaca Coal-Fired Thermal Power Plant Project, Project Number 41958,
3
EPIRA, Section 31. April 2008.
4
Contestable market refers to the electricity end-users who have a
choice of a supplier of electricity. Aboitiz Power Corporation website, www.aboitiz.com
5
EPIRA, Section 47-i.
Department of Energy website, www.doe.gov.ph
6
Retail competition and open access should have started not later
than three years after the law was passed. First Philippine Holdings Corporation Annual Report 2007.
7
It was established as a special purpose company through which
Singapore-based AES Transpower Pte. Ltd. would bid for and hold Freedom from Debt Coalition website, www.fdc.ph
the Masinloc power plant.
National Power Corporation Annual Report 2007.
8
Suez-Tractebel is a Belgium-based utility company and one of the
world’s top independent power producers. MERALCO Annual Report 2006.
9
A transition supply contract is a power supply agreement offered
to NPC customers which state-owned generation facilities are still Occasional Paper No. 5, Congressional Planning and Budget
undergoing privatization. Department, House of Representatives, February 2007.
10
Calaca coal-fired thermal power plant was sold to DMCI Holdings
Inc. last July 8, 2009 in the amount of $361.71M. Patalinghug, Epictetus and Gilbert M Llanto, “Competition Policy and
11
EPIRA, Chapter V, Section 47 (g) Regulation in Power and Telecommunications”, Philippine Institute for
12
ADB Operations Evaluation Department, “Sector Assistance Program Development Studies, Discussion Paper Series No. 2005.
Evaluation of Asian Development Bank Assistance to Philippines
Power Sector,” September 2005, SAP:PHI 2005-09, p. 36 Pascual-Diokno, Maitet, (unpublished) “The Third Way: Shifting to
13
Congressional Planning and Budget Department, House of People Power”, December 2005.
Representatives, Occasional Paper No. 5, Feb. 2007.
14
As of April 2009, the proceeds of the privatization of generation Philippine Power Fact Sheet, Freedom from Debt Coalition (FDC),
assets made NPC’s debts to $5B from $7B. Quezon City.
15
The generation mix refers to the proportion of the different fuel
types used by NPC in the production of electricity. Power Sector Assets and Liabilities Management website, www.psalm.
16
Ibid. gov.ph
17
Ibid.
18
Ibid. Power Statistics 2007, Department of Energy.
19
Includes Tiwi-MakBan geothermal plant complex
20
Maitet Diokno-Pascual, “The Third Way: Shifting to People Power”, “Praymer sa Presyo ng Kuryente”, Freedom from Debt Coalition (FDC),
unpublished, December 2005 June 2, 2008, Quezon City.
21
Epictetus Patalinghug and Gilbert M. Llanto, “Competition Policy and
Rimban, Luz and Shiela Samonte-Pesayco, “Trail of Power Mess Leads
Regulation in Power and Telecommunications”, Philippine Institute
for Development Studies, Discussion Paper Series No. 2005-18. to Ramos”,
22
Asian Development Bank (ADB), “Proposed Technical Assistance to
the Republic of the Philippines for Institutional Strengthening of Philippine Center for Investigative Journalism (PCIJ), August 2002,
Energy Regulatory Commission and Privatization of National Power Quezon City.
Corporation,” December 2004, TAR:PHI37752-01, p. 1.
23
Epictetus Patalinghug and Gilbert M. Llanto, “Competition Policy and Rules and Regulations to Implement Republic Act No. 9136 entitled
Regulation in Power and Telecommunications”, Philippine Institute
Electric Power Industry Reform Act of 2001, February 27, 2002.
for Development Studies, Discussion Paper Series No. 2005-18.
24
MERALCO Annual Report 2006. Wholesale Electricity Spot Market website, www.wesm.ph

November 2009  Dark Power Rising  PAID!  19

From state monopoly to de facto electricity oligarchy

Annex A: List of IPP Plants in Luzon Grid for Transfer to IPP Administrators
IPP NAME INSTALLED CAPACITY, MW IPP SPONSOR LOCATION
Ilijan Natural Gas Combined Cycle 1271.00 Kepco Ilijan Corp. Ilijan, Batangas
Sual Coal Units 1& 2* 1294.00 Mirant Power Corp. Sual, Pangasinan
Pagbilao Coal 1&2* 728.00 Mirant Power Corp. Pagbilao, Quezon
Bauang Diesel Power Plant 235.00 Bauang Private Power Bauang, La Union
Subic Diesel Power Plant 116.00 Enron Power Corp. Subic, Zambales
Casecnan Multi Purpose Hydro 165.00 National Irrigation Administration Casecnan, Nueva Ecija
San Roque Multi Purpose Hydro 345.00 Marubeni/Sithe San Manuel, Pangasinan
Bakun Hydro 100.75 AEV-NMHC-others Alilem, Ilocos Sur and Benguet

Leyte B Geothermal 610.18 PNOC-EDC Tongonan, Leyte

TOTAL = 10 4,864.93
*privatized

Annex B. LIST OF EXISTING POWER PLANTS

Luzon (as of September 2009)
Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
Coal 3,783.00 3,055.70
Pagbilao, Therma-
Pagbilao Unit 1 364.00 364.00 TeaM Energy BOT-ECA 3/7/1996
Quezon Luzon
Pagbilao, Therma-
Pagbilao Unit 2 364.00 364.00 TeaM Energy BOT-ECA 5/26/1996
Quezon Luzon
Calaca, Privatized
Calaca 1 300.00 142.93 DMCI Holdings Inc. NON-NPC 9/5/1984
Batangas July 8, 2009
Calaca, Privatized
Calaca 2 300.00 160.71 DMCI Holdings Inc. NON-NPC 6/5/1995
Batangas July 8, 2009
Masinloc, AES Transpower Pte. Privatized
Masinloc I 300.00 203.81 NON-NPC 6/18/1998
Zambales Ltd July 26, 2007
Masinloc, AES Transpower Pte. Privatized
Masinloc 2 300.00 165.37 NON-NPC 12/1/1998
Zambales Ltd July 26, 2007
San Miguel
Sual,
Sual I 647.00 590.87 TeaM Energy Energy BOT-ECA 10/23/1999
Pangasinan
Corporation
San Miguel
Sual,
Sual 2 647.00 562.01 TeaM Energy Energy BOT-ECA 10/5/1999
Pangasinan
Corporation
Quezon Private Power Mauban, Quezon Private Power
511.00 460.00 NON-NPC 5/1/2000
Limited Quezon Ltd. Philippines
Mabalacat, Asia Pacific Energy
Asia Pacific Energy Corp. 50.00 42.00 NON-NPC 7/1/2006
Pampanga Corp. (APEC)
Diesel 783.08 678.09
Olongapo, Enron Power
Enron Subic 2 116.00 114.46 NPC-IPP BOT-ECA 2/22/1994
Zambales Corporation (USA)
Navotas, Metro
Duracom Unit 1 and 2 133.38 113.00 NPC PSALM NPC 9/1/1995
Manila
East Asia Diesel Navotas, Metro
109.00 109.00 East Asia Utilities NON-NPC 9/1/1995
(Duracom Unit 3 and 4) Manila
Note:
Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data.
Assuming the privatization of Calaca and Masinloc,Ambuklao-Binga.
Dependable capacity of NPC/NPC-IPP based on 2007 Average Dependable Capacity.
Magellan Cogen: for confirmation on the operation of the power plant.

20  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

Luzon (as of September 2009)

Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
Angeles Electric
Angeles PI DPP 30.00 30.00 Angeles City NON-NPC 12/5/1994
Corporation
Bauang Diesel Power Bauang, La First Private Power
235.20 225.33 NPC-IPP BOT-ECA 8/30/1994
Plant Union Corp.
Cabanatuan Electric
FCVC DPP 25.60 23.70 Cabanatuan City NON-NPC 1/15/1996
Corporation
Tarlac Electric 18.90 12.60 Capas, Tarlac Tarlac Electric Inc. NON-NPC 6/17/1905
Trans Asia Power
Trans Asia Power 52.00 50.00 La Union Generation NON-NPC
Corporation
(ceased
Magellan Cogen Magellan Cogen operation
63.00 0.00 Rosario, Cavite NON-NPC 7/1/1995 - 1/1/1997
(CEPZA) Utilities by June 30,
2003)
Natural Gas 2,834.00 2,565.42
San Antonio 3.00 3.00 Echague, Isabela PNOC-EDC NPC-IPP 7/1/1994
Sta. Rita combined-
Sta. Rita,
cycle natural gas-fired 1,060.00 1,000.00 First Gas Power Corp. NON-NPC 6/2000 10/2001
Batangas
Power Plant
KEPCO Ilijan Natural Gas Brgy. Ilijan, BOT-ECA/
1,271.00 1,062.42 KEPCO (Ilijan) NPC-IPP 6/5/2002
Power Plant Batangas City GSPA
San Lorenzo natural Sta. Rita,
500.00 500.00 First Gas Power Corp. NON-NPC 9/1/2002
gas-fired Power Plant Batangas
Gas Turbine 930.00 600.73
Hopewell Gas Turbine Navotas, Metro 8/16/1990
310.00 0.00 Mirant (Navotas) Corp. NPC -IPP BOT-ECA
Power Plant Manila 3/18/1993
Limay combined-cycle San Miguel Energy 5/14/1993
620.00 600.73 Limay, Bataan NON-NPC BTO-OMR
gas turbine Power Plant Corporation 12/10/1994
Geothermal 885.72 439.43
Makiling-Banahaw
Privatized in
(MakBan) Geothermal 63.20 58.13 Calauan, Laguna AP Renewables Inc. NON-NPC 4/26/1979
July 30, 2008
Power Plant 1
Privatized in
MakBan 2 63.20 43.84 Calauan, Laguna AP Renewables Inc. NON-NPC 7/25/1979
July 30, 2008
Privatized in
MakBan 3 63.20 56.10 Calauan, Laguna AP Renewables Inc. NON-NPC 4/22/1980
July 30, 2008
Privatized in
MakBan 4 63.20 58.39 Calauan, Laguna AP Renewables Inc. NON-NPC 6/25/1980
July 30, 2008
Privatized in
MakBan 5 55.00 14.87 Calauan, Laguna AP Renewables Inc. NON-NPC 6/5/1984
July 30, 2008
Privatized in
MakBan 6 55.00 0.00 Calauan, Laguna AP Renewables Inc. NON-NPC 9/10/1984
July 30, 2008
Privatized in
MakBan 7(D) 20.00 18.25 Calauan, Laguna AP Renewables Inc. NON-NPC 10/16/1995
July 30, 2008
Privatized in
MakBan 8(D) 20.00 12.56 Calauan, Laguna AP Renewables Inc. NON-NPC 11/12/1995
July 30, 2008
Privatized in
MakBan 9(E) 20.00 17.10 Calauan, Laguna AP Renewables Inc. NON-NPC 5/22/1996
July 30, 2008
Note:
Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data.
Assuming the privatization of Calaca and Masinloc,Ambuklao-Binga.
Dependable capacity of NPC/NPC-IPP based on 2007 Average Dependable Capacity.
Magellan Cogen: for confirmation on the operation of the power plant.

November 2009  Dark Power Rising  PAID!  21

From state monopoly to de facto electricity oligarchy

Luzon (as of September 2009)

Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
Privatized in
Makban 10(E) 20.00 12.54 Calauan, Laguna AP Renewables Inc. NON-NPC 5/27/1996
July 30, 2008
Bacon-Manito (BacMan)
Bacon, NPC PSALM
Geothermal Power 55.00 23.24 NPC 9/10/1993
Sorsogon
Plant I-1
Bacon,
Bac Man I-2 55.00 0.00 NPC PSALM NPC 12/12/993
Sorsogon
Bacon,
Bac Man II-1 20.00 0.00 NPC PSALM NPC 3/15/1994
Sorsogon
Bacon,
Bac Man II (Botong) 20.00 10.34 NPC PSALM NPC 3/17/1998
Sorsogon
Tiwi Geothermal Power Privatized in
59.00 13.53 Tiwi, Albay AP Renewables Inc. NON-NPC 1/11/1979
Plant 1 July 30, 2008
Privatized in
Tiwi 2 59.00 26.36 Tiwi, Albay AP Renewables Inc. NON-NPC 5/25/1979
July 30, 2008
Privatized in
Tiwi 3 43.69 0.00 Tiwi, Albay AP Renewables Inc. NON-NPC 1/8/1980
July 30, 2008
Privatized in
Tiwi 4 0.00 0.00 Tiwi, Albay AP Renewables Inc. NON-NPC 4/1/1980
July 30, 2008
Privatized in
Tiwi 5 57.00 43.66 Tiwi, Albay AP Renewables Inc. NON-NPC 12/20/1981
July 30, 2008
Privatized in
Tiwi 6 57.00 29.03 Tiwi, Albay AP Renewables Inc. NON-NPC 3/16/1984
July 30, 2008
MakBan Ormat 15.73 0.00 Bay, Laguna Ormat Inc. USA NON-NPC BTO 2/28/1994
Manito 1.50 1.50 Albay NON-NPC 10/1/1998
Hydro 2,281.22 2,034.86
Large Hydroelectric
2,246.85 2,005.55
Plants
San Roque Multi- San Manuel, San Roque Power
345.00 345.00 NPC-IPP BOT-PPA 5/1/2003
purpose Project Pangasinan Corporation (SRPC)
Hydro Electric
Ampohaw and Bineng Banengbeng,
18.35 8.98 Development Corp. NPC-IPP BOO-EPSA 1/1/1993
Plants Sablan, Benguet
(Phils.)
Kalayaan Pumped-up
Kalayaan, Electric Power 8/13/1982
Hydroelectric Power 354.00 354.00 NPC-IPP BROT-PPA
Laguna Development Co., Ltd. 4/25/1982
Plant 1 & 2
Kalayaan, Electric Power
Kalayaan 3 & 4 355.00 355.00 NPC-IPP BROT-PPA 5/1/2004
Laguna Development Co., Ltd.
Magat Hydroelectric Privatized 8/14/1983
360.00 317.00 Ramon, Isabela SN Aboitiz Power, Inc. NON-NPC
Power Plant Dec. 14, 2006 10/24/1983
Caliraya Hydroelectric Lumban, Electric Power
23.50 23.50 NPC-IPP BROT-PPA 1942 / 1947 / 1950
Power Plant Laguna Development Co., Ltd.
Botocan Hydroelectric Majayjay, Electric Power
23.00 21.94 NPC-IPP BROT-PPA 1946-48
Power Plant Laguna Development Co., Ltd.
Angat Hydroelectric Norzagaray, 10/16/1967
246.00 205.24 NPC PSALM NPC
Power Plant Bulacan 6/16/1986
Pantabangan-Masiway
Pantabangan, First Gen Hydro Power Privatized 4/1/1977 5/1/1977,
Hydroelectric Power 112.00 111.00 NON-NPC
Nueva Ecija Corp. Sept. 7, 2006 2/27/1981
Plant
Note:
Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data.
Assuming the privatization of Calaca and Masinloc,Ambuklao-Binga.
Dependable capacity of NPC/NPC-IPP based on 2007 Average Dependable Capacity.
Magellan Cogen: for confirmation on the operation of the power plant.

22  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

Luzon (as of September 2009)

Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
Ambuklao Hydroelectric Privatized
75.00 0.00 Bokud, Benguet SN Aboitiz Power, Inc. NON-NPC 12/23/1956
Power Plant Nov. 28, 2007
Binga Hydroelectric Privatized
100.00 78.82 Itogon, Benguet SN Aboitiz Power, Inc. NON-NPC 1/19/1960
Power Plant Nov. 28, 2007
Bakun AC Hydroelectric Alilem, Ilocos Luzon Hydro 2/6/2001
70.00 35.06 NPC-IPP BOT-PPA
Power Plant Sur Corporation 10/10/2000
CE Casecnan Water
and Energy Company,
Inc. a subsidiary of the
Casecnan Hydroelectric Pantabangan, U.S. firm MidAmerican
165.00 150.00 NPC-IPP BOT-PPA 4/5/2002
Power Plant Nueva Ecija Energy Holdings
Company (formerly
known as California
Energy).
Small Hydroelectric 34.37 29.31
Sorsogon Electric Privatized
Cawayan Hydroelectric Guinlajon,
0.40 0.40 Cooperative (SORECO) NON-NPC September 6/1/2002
Power Plant Sorsogon
II 30, 2004
Privatized
Barit Hydroelectric Buhi, Camarines People’s Energy
1.80 1.80 NON-NPC June 25, 9/1/1957
Power Plant Sur Services Inc.
2004
NIA-Baligatan 6.00 6.00 Benguet NON-NPC NON-NPC 1979
Northern Mini Hydro Northern Mini Hydro
12.40 7.34 Bakun, Benguet NPC-IPP BOO-EPSA 1/1/1993
Corporation Corporation (NMHC)
Pagudpod, Ilocos Norte Electric
Aqua Grande 4.50 4.50 Non-NPC 1983
Ilocos Norte Cooperative (INECO)
Supiden, La La Union Electric
Amburayan 0.20 0.20 Non-NPC 1991
Union Cooperative (LUELCO)
Ilocos Sur Electric
Dawara 0.53 0.53 Suyo, Ilocos Sur Non-NPC 1981
Cooperative (ISECO)
Natividad, Pangasinan Electric
Bachelor 0.75 0.75 Non-NPC 1983
Pangasinan Cooperative (PANELCO)
Sal-angan Plant 0.50 0.50 Itogon, Benguet Philex Mining Corp. Non-NPC 1988
Club John Hay 0.56 0.56 Baguio City Non-NPC
Isabela Electric
Magat A&B 2.52 2.52 Ramon, Isabela Non-NPC 1984, 1985
Cooperative (ISELCO) I
Tumauini, Isabela Electric
Tumauini 0.25 0.25 Non-NPC 1992
Isabela Cooperative (ISELCO) II
Oriental Oriental Mindoro
Dulangan 1.60 1.60 Non-NPC 1990
Mindoro Cooperation (ORMECO)
Nagcarlan,
Balugbog 0.65 0.65 Phil. Power Dev. Co. Non-NPC 1930
Laguna
San Pablo,
Palapaquin 0.40 0.40 Phil. Power Dev. Co. Non-NPC 1930
Laguna
Kalayaan,
San Juan River 0.15 0.15 Kalayaan Ice Plant Non-NPC
Laguna
Naga, Bicol Hydropower
Inarihan 0.96 0.96 Non-NPC 1998
Camarines Sur Corp.
Pili, Camarines
Yabo 0.20 0.20 PROSAMAPI Coop. Non-NPC
Sur
Note:
Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data.
Assuming the privatization of Calaca and Masinloc,Ambuklao-Binga.
Dependable capacity of NPC/NPC-IPP based on 2007 Average Dependable Capacity.
Magellan Cogen: for confirmation on the operation of the power plant.

November 2009  Dark Power Rising  PAID!  23

From state monopoly to de facto electricity oligarchy

Luzon (as of September 2009)

Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
Oil Thermal 650.00 645.83
Malaya Thermal Power
300.00 300.00 Pililla, Rizal KEPCO NPC-IPP ROM-ECA 9/15/1995
Plant 1
Malaya Thermal Power
350.00 345.83 Pililla, Rizal KEPCO NPC-IPP ROM-ECA 9/15/1995
Plant 2
Wind
Bangui Bay, NorthWind Power
NorthWind Power 25.00 8.75 NON-NPC June 2005
Ilocos Norte Development Corp.
LUZON 12,172.02 10,028.80
PHILIPPINES 15,937.10 13,204.80
Note:
Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data.
Assuming the privatization of Calaca and Masinloc,Ambuklao-Binga.
Dependable capacity of NPC/NPC-IPP based on 2007 Average Dependable Capacity.
Magellan Cogen: for confirmation on the operation of the power plant.

LIST OF EXISTING POWER PLANTS Visayas (as of April 2009)

Capacity MW Type of
Plants Location Proponent Owner Year Commissioned
Installed Dependable contract
Coal 198.10 155.37
Toledo City, Global Business Power
Sangi Power Plant 88.80 55.00 NON-NPC 1993
Cebu Corporation
Salcon Power
Naga Power Plant 1 52.50 48.58 Naga, Cebu NPC-IPP ROMM-ECA September 1981
Corporation
Salcon Power
Naga Power Plant 2 56.80 51.79 Naga, Cebu NPC-IPP ROMM-ECA December 1986
Corporation
Diesel 603.73 419.08
Ingore, La Paz, Global Business Power
Panay Power Corp. 74.88 69.00 NON-NPC 1999
Iloilo City Corporation
Panay Electric Panay Electric Company
19.85 0.00 Iloilo City NON-NPC 1969
Coompany (PECO)
Carmen Diesel Toledo City, Global Business Power
45.80 37.40 NON-NPC BOO 1993
Power Plant Cebu Corporation
Cebu Private Power Cebu Private Power
70.00 61.72 Cebu City NON-NPC 1997
Corp. Corp.
East Asia Utilities
49.70 42.00 Cebu City East Asia Utilities NON-NPC 1998
(MEPZA)
Power Barge (PB)
32.00 19.06 Estancia, Iloilo NPC PSALM NPC April 1981
103
Panay Diesel Power Tinocuan, May 1981/Aug
36.50 19.78 NPC PSALM NPC
Plant 1 Dingle, Iloilo 1983/1993
PB 101 32.00 22.80 Iloilo NPC PSALM NPC 1978 / 1986 / 1989
PB 102 32.00 23.09 Obrero, Iloilo NPC PSALM NPC April 1981
Privatized
Bohol Diesel Power
22.00 18.00 Tagbilaran City SPC Power Corporation NON-NPC December 1978
Plant
2008
Global Business Power
20 MW Bunker Fuel 20.00 18.00 La Paz, Iloilo NON-NPC
Corporation
Global Business Power
15 MW Bunker Fuel 12.60 7.60 Nabas, Aklan NON-NPC
Corporation
Note: Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data. Dependable capacity of NPC/NPC-IPP based on 2007 Average
Dependable Capacity

24  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

LIST OF EXISTING POWER PLANTS Visayas (as of April 2009)

Capacity MW Type of
Plants Location Proponent Owner Year Commissioned
Installed Dependable contract
New
Global Business Power
5 MW Bunker Fuel 5.00 5.00 Washington, NON-NPC
Corporation
Aklan
Guimaras Bunker San Miguel,
Trans Asia Power
C oil-fired Power 3.40 3.40 Jordan, NON-NPC
Generation Corporation
Project Guimaras
Panay Diesel Privatized
Power Plant III 110.20 42.08 Dingle, Iloilo SPC Power Corporation NON-NPC November transferred March 2005
(Pinamucan) 2008
Cebu Diesel Power
37.80 30.15 Naga, Cebu SPC Power Corporation NPC-IPP ROMM-ECA 1978 - 1989
Plant 1
Gas Turbine 55.00 48.17
Cebu Land-based
27.50 24.75 Naga, Cebu NPC-IPP ROMM-ECA
GT 1
Cebu Land-based
27.50 23.42 Naga, Cebu NPC-IPP ROMM-ECA
GT 2
Geothermal 964.18 860.83
Palinpinon
Valencia, Green Core Geothermal Privatized Sept.
Geothermal Power 112.50 105.40 NON-NPC May / July / Aug 1983
Negros Oriental Inc. 2, 2009
Plant 1
Palinpinon
Valencia, Green Core Geothermal Privatized Sept.
Geothermal Power 80.00 78.21 NON-NPC 1/1/1994 5/5/1995
Negros Oriental Inc. 2, 2009
Plant 2
Leyte Geothermal Lim-ao,
112.50 80.94 NPC PSALM NPC 3/10/1983 6/18/1983
Power Plant Kananga, Leyte
Tongonan
Tongonan,
Geothermal Power 610.18 584.29 PNOC Philippines NON-NPC BOO-PPA July 1996 / 1997
Leyte
Plant
Northern Negros Bago City,
Geothermal Power 49.00 12.00 Negros PNOC Philippines NPC-IPP
Plant Occidental
Hydro 10.61 10.49
Janopol
Bohol Electric
Hydroelectric 5.00 5.00 Bohol NON-NPC May 1992
Cooperative (BOHECO)
Power Plant
Amlan Privatized
Amlan, Negros
Hydroelectric Power 0.80 0.77 ICS Renewables Inc. NON-NPC December May 1961
Oriental
Plant 2008
Loboc Hydroelectric Privatized Nov.
1.20 1.11 Loboc, Bohol Sta. Clara Intl Corp. NON-NPC
Power Plant 10, 2004
Cebu Electric
Mantayupan 0.50 0.50 Barili, Cebu Cooperative Inc. NON-NPC 1985
(CEBECO)
Basak 0.50 0.50 Badian, Cebu CEBECO NON-NPC 1986
Matutinao 0.72 0.72 Badian, Cebu CEBECO NON-NPC 1990
Lawaan, Eastern Samar Electric
Amanjuray 0.00 0.00 NON-NPC 1991
Eastern Samar Coop (ESAMELCO)
Calbayog, Samar Electric Coop
Ton-ok 1.08 1.08 NON-NPC 1983
Western Samar (SAMELCO)
St. Bernard, Southern Leyte Electric
Henabian 0.81 0.81 NON-NPC 1982
Southern Leyte Cooperative (SOLECO)
TOTAL VISAYAS 1,831.60 1,493.90
PHILIPPINES 15,937.10 13,204.80
Note: Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data. Dependable capacity of NPC/NPC-IPP based on 2007 Average
Dependable Capacity

November 2009  Dark Power Rising  PAID!  25

From state monopoly to de facto electricity oligarchy

LIST OF EXISTING POWER PLANTS Mindanao (as of April 2009)

Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
Diesel 594.29 477.94
Mindanao Energy Brgy. Tablon, Cagayan de Mindanao Energy
18.90 18.90 NON-NPC 8/25/1995
Systems Oro City Systems
Cotabato Light and
10.00 7.50 Cotabato Cotabato Light NON-NPC
Power Company
Davao Light and Power
58.69 42.00 Davao City Davao Light NON-NPC 6/5/1995
Company
Southern Philippines Alsons/Tomen
59.00 55.35 Alabel, Sarangani NPC-IPP BOO-ECA 3/26/1998
Power Corporation (Phil/Japan)
Power Barge 104 32.00 23.92 Brgy. Ilang, Davao City NPC NPC
Therma Marine
Power Barge 117 100.00 99.76 Nasipit, Agusan del Norte NON-NPC BTO-ESOM 2/26/1994
Inc.
Therma Marine
Power Barge 118 100.00 90.69 Maco, Davao del Norte NON-NPC BTO-ESOM 7/20/1994
Inc.
Western Mindanao Alsons/Tomen
113.00 100.00 Sangali, Zamboanga City NPC-IPP BOO-ECA 12/121997
Power Corp. (Phil/Japan)
Iligan Diesel Power
62.70 39.82 Dalipuga, Iligan City NPC PSALM NPC 3/22/1992
Plant I
BOT(Turned
Iligan Diesel Power
40.00 0.00 Dalipuga, Iligan City NPC PSALM NPC Over last 7/11/1993
Plant II
Sept. 2006)
Geothermal 108.48 99.50
Kidapawan, North
Mindanao I (Mt. Apo) 54.24 49.75 PNOC Philippines NPC-IPP BOO-PPA 12/15/1996
Cotabato
Kidapawan, North
Mindanao II (Mt. Apo) 54.24 49.75 PNOC Philippines NPC-IPP BOO-PPA 6/17/1999
Cotabato
Hydro 997.65 902.39
Large Hydroelectric
982.10 889.39
Plants
Agus River
Hydroelectric Power 40.00 37.69 Marawi City, Lanao Del Sur NPC PSALM NPC 6/23/1992
Plant Unit 1
Agus 1 Unit 2 40.00 33.63 Marawi City, Lanao Del Sur NPC PSALM NPC 3/30/1994
6/6/1979
Agus 2 180.00 162.71 Saguiaran, Lanao Del Sur NPC PSALM NPC
11/27/1979
3/16/1985
Agus 4 158.10 149.73 Baloi, Lanao del Norte NPC PSALM NPC
4/16/1985
2/9/1985
Agus 5 55.00 52.32 Buru-un, Iligan City NPC PSALM NPC
3/8/1985
7/1/1953
Agus 6 200.00 178.12 Buru-un, Iligan City NPC PSALM NPC
4/28/1971
Note: Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data. Dependable capacity of NPC/NPC-IPP based on 2007 Average
Dependable Capacity.
ROM-ECA (Rehabilitate-Operate-Maintain/Energy Conversion Agreement)
ROMM-ECA (Rehabilitation-Operation-Maintenance and Management Agreement/Energy Conversion Agreement)
BROT-PPA (Build-Rehabilitate-Operate-Transfer/Power Purchase Agreement)
BTO-ESOM (Build-Transfer-Operate/Electricity Supply, Operation and Maintenance Agreement)
BTO-OM (Build-Transfer-Operate/Operation and Maintenance Agreement
BTO-OMR (Build-Transfer-Operate/Operation-Maintenance-Repair Agreement)
BOO-ECA (Build-Operate-Own/Energy Conversion Agreement)
BOO-EPSA (Build-Operate-Own/Electric Power Supply Agreement)
BOO-PPA (Build-Operate-Own/Power Purchase Agreement)
BOT-ECA (Build-Operate-Transfer/Energy Conversion Agreement)
BOT-ECA, GSPA (Build-Operate-Transfer/Energy Conversion Agreement/Gas Sale and Purchase Agreement)
BOT-PPA (Build-Operate-Transfer/Power Purchase Agreement)
BROT-PPA (Build-Rehabilitate-Operate-Transfer/Power Purchase Agreement)

26  PAID!  Dark Power Rising  November 2009

 From state monopoly to de facto electricity oligarchy

LIST OF EXISTING POWER PLANTS Mindanao (as of April 2009)

Capacity MW Type of Year
Plants Location Proponent Owner
Installed Dependable contract Commissioned
3/5/1983
Agus 7 54.00 49.42 Buru-un, Iligan City NPC PSALM NPC
12/17/1983
Pulangi Hydroelectric 12/21/1985
255.00 225.77 Maramag, Bukidnon NPC PSALM NPC
Power Plant 4 6/21/1986
Small Hydroelectric
15.55 13.00
Plants
Agusan Mini-
FG Bukidnon Privatized as
hydroelectric Power 1.60 1.60 Manolo Fortich, Bukidnon NON-NPC 12/28/1957
Power Corp. of June 2004
Plant
Bubunawan Mini-
Bubunawan Power
hydroelectric Power 7.00 4.89 Baungon, Bukidnon NON-NPC 9/22/2001
Company Inc.
Plant
Privatized
Talomo Hydroelectric Brgy. Mintal, Talomo,
3.70 3.26 HEDCOR NON-NPC as of March 10/1/1998
Power Plant Davao City
2004
Basilan Electric
Balactasan 0.27 0.27 Lamitan, Basilan Cooperative NON-NPC 1983
(BASELCO)
Kumalarang 0.68 0.68 Lantawan, Basilan BASELCO NON-NPC 1989
Mountain View 0.80 0.80 Valencia, Bukidnon NON-NPC 1982
Matling Industrial
Matling 1.50 1.50 Malabang, Lanao del Sur NON-NPC
Corp.
Solar 1.00 1.00
Sitio Lomboy, Brgy. Cagayan Electric
Solar Photovoltaic
1.00 1.00 Indahag, Power and Light NON-NPC October 2004
Power Plant
Cagayan de Oro City Co.
Coal Thermal 232.00 201.25
PHIVIDEC Industrial
Mindanao Coal-fired Estate,
116.00 105.00 STEAG NPC-IPP BOT-PPA Sept.16, 2006
Thermal Power Plant I Villanueva, Misamis
Oriental
PHIVIDEC Industrial
Mindanao Coal-fired Estate,
116.00 96.00 STEAG NPC-IPP BOT-PPA Nov. 15, 2006
Thermal Power Plant II Villanueva, Misamis
Oriental
TOTAL MINDANAO 1,933.40 1,682.10
PHILIPPINES 15,937.10 13,204.80
Note: Installed Capacity for NPC/NPC-IPP as per NPC Power Economics Dept. data. Dependable capacity of NPC/NPC-IPP based on 2007 Average
Dependable Capacity.
ROM-ECA (Rehabilitate-Operate-Maintain/Energy Conversion Agreement)
ROMM-ECA (Rehabilitation-Operation-Maintenance and Management Agreement/Energy Conversion Agreement)
BROT-PPA (Build-Rehabilitate-Operate-Transfer/Power Purchase Agreement)
BTO-ESOM (Build-Transfer-Operate/Electricity Supply, Operation and Maintenance Agreement)
BTO-OM (Build-Transfer-Operate/Operation and Maintenance Agreement
BTO-OMR (Build-Transfer-Operate/Operation-Maintenance-Repair Agreement)
BOO-ECA (Build-Operate-Own/Energy Conversion Agreement)
BOO-EPSA (Build-Operate-Own/Electric Power Supply Agreement)
BOO-PPA (Build-Operate-Own/Power Purchase Agreement)
BOT-ECA (Build-Operate-Transfer/Energy Conversion Agreement)
BOT-ECA, GSPA (Build-Operate-Transfer/Energy Conversion Agreement/Gas Sale and Purchase Agreement)
BOT-PPA (Build-Operate-Transfer/Power Purchase Agreement)
BROT-PPA (Build-Rehabilitate-Operate-Transfer/Power Purchase Agreement)

November 2009  Dark Power Rising  PAID!  27

TRANSCO
The Filipino’s
Last Line of
Defense Against
P r i vat i z at i o n
An appeal to stop the granting of a
National Franchise to the National
Grid Corporation of the Philippines
By James Matthew Miraflor and Job Bordamonte
29 September 2008
The National Transmission Corporation (TransCo) is a
Philippine government corporation currently operating
the country’s critical power transmission grid created
in 2001 by the Electric Power Industry Reform Act
(EPIRA).Previously an integral part of the state-owned
National Power Corporation (NPC or Napocor), the
TransCo assumed all of Napocor’s substation and
transmission assets since March 1, 2003.

The grid, which needs about $850 million

over the next five years for upgrades and
expansion, was valued at P138 billion
($3.3 billion) in 2006 – a “crown jewel”
indeed. TransCo’s assets include
approximately 21,319 circuit-
kilometers of transmission lines
including a submarine cable system,
93 substations, and approximately
24,310 million volt amperes
substation capacity, and a
broadband-ready fiber optics
network.

But the value of TransCo goes

beyond simply its monetary
value. With EPIRA already

28  PAID!  Dark Power Rising  November 2009

 TRANSCO: The Filipino’s Last Line of Defense Against Privatization

facilitating the privatization of the
three major sectors of the power
industry – generation, distribution,
and supply – the government’s direct
ownership, management and control
to TRANSCO is the last line of defense
for the Filipino people against the
specter of privatization haunting the
power industry.
Affirming the national importance of
electricity, the Freedom from Debt
Coalition (FDC) firmly opposes the
privatization of TransCo. We believe
that electricity as a critical element
of national development and social
progress should not be treated as a
purely private arena confined to a
few powerful groups. Privatizing
transmission is the jugular that
will once and for all put an end to
the government ever being able to
play a crucial developmental and
balancing role in a sector that, since
the passage of EPIRA, has shown its
monopolistic nature more often, and
more audaciously, than the promised
competition.
FDC believes that as a natural
monopoly – the sole vital link among
major sub-sectors in the power
industry –TransCo properly belongs
to the state and must remain under its
control. Transmission is an essential
service that requires huge capital
investments that must be spread over
the economic life of the wires in order
for it to be affordable to consumers. As
the California market manipulation
experience has shown us, control over
transmission can be abused to unduly
and unreasonably raise prices at the
expense of consumers and favored
suppliers. Strong regulation and a
public-service oriented transmission,
rather than a private-profit-oriented
transmission, are needed in order
to ensure the availability, reliability
and affordability of electricity. Cost-
effective production and a reasonable
return on capital should hold sway
over the price of electricity rather
than market forces that, given the
concentration in the sector, can
be so easily abused and influenced.
TransCo’s privatization will simply
pass on state ownership of a monopoly
to a private entity. It does not remove
or alter the monopolistic nature of
transmission, which, in the pursuit
of private profits, can be abused to
unjustly raise electricity prices to the
detriment of consumers.
I. Why Privatization of Transco is
Wrong.
“So why are governments around the
world ignoring public opinion? How
have governments been persuaded that
electricity is just a commodity that should
TransCo’s privatization will simply pass on state ownership of a monopoly
to a private entity. It does not remove or alter the monopolistic nature
of transmission, which, in the pursuit of private profits, can be abused
to unjustly raise electricity prices to the detriment of consumers.
be traded in the market place like pork
bellies, rather than an essential service
that needs to be controlled and supplied
by governments to ensure its availability,
reliability and affordability?”
- Prof Sharon Beder, recipient of the
World Technology Award for Ethics
(2001) and one of Australia’s most
influential engineers
The TransCo privatization is not only
wrong in principle. The sale of the
country’s electrical industry backbones
has serious practical repercussions and
ominous developmental and security
ramifications. Let us take stock of
these one by one:
Losses to the Government
The government could potentially lose
revenues of some P123 billion to P249
billion if it relinquishes the operation
of TransCo to the private sector. As
a monopoly and with operations
covering the entire country, TransCo
surely rakes in handsome revenues
for the government. It can earn P375
billion for 25 years with its annual
income of P15 billion while it will
only earn P126 billion ($1=P42) if
the concession contract is bidded at
$3 billion or P252 billion if bidded at
$6 billion.
A related issue to this is who would
pay for TransCo’s liabilities. Of
course, the winning consortium, the
National Grid Corporation of the
Philippines (NGCP), can conveniently
tap the combined ADB-World Bank
$500 million guarantee to their rate
application. At any rate, Napocor was
planning to pay about P5.29 billion
pesos in TransCo-related debts this
year and officials said they might have
to borrow up to $777 million to be able
to do so. Both PSALM and Napocor
officials said the proceeds from the sale
of their assets would not be enough to
cover Napocor’s debts, which would
make it necessary to consider other
options such as swaps and options,
resulting to more indebtedness
for Napocor and ultimately, for the
government and taxpayers.
Consumer Woes
At the receiving end are the consumers.
Philippine electricity rates continue to
be one of the highest in Asia, second
to Japan. Electricity rates are also
expected to rise as a consequence of
privatization as investors would try to
recover their investments the soonest
time possible. Economist Maitet
Diokno-Pascual of the FDC said that
high electricity prices are being used
to lure in investors. She said that the
situation is due as well to the overpriced
excess capacity from the contracts
with independent power producers
(IPPs) that the Ramos administration
entered into during the energy crisis
in the early 1990s. Professors from
the University of the Philippines also
observe a contradiction between the

November 2009  Dark Power Rising  PAID!  29

TRANSCO: The Filipino’s Last Line of Defense Against Privatization
government’s mandate in the EPIRA
to make electricity affordable, with
the intention to maximize non-tax
revenues through privatization.
Placing priority on the latter will result
in higher electricity prices, when the
goal of affordable electricity must take
precedence over the latter.
There is also the lurking danger that
consumers are bound to shoulder a
large part of TransCo’s $1.5 billion
liabilities. Using the Performance Rate
Based Methodology (PBR), the NGCP
can actually recover its 25-year $3.95
billion investments within a short 7
to 10 years time PBR means that the
NGCP can collect their investments in
advance from consumers.
Already burdened by generation and
distribution tariffs, consumers would
also have to bear the additional burden
of pass-on charges from TransCo
congestions. TransCo’s congestion
problems also translate to pass-on
charges to consumer. For example,
Energy Secretary Reyes revealed early
September 2008 that Transco’s San
Jose, Bulacan substation has made
WESM prices volatile for the past
months.
Workers’ Bane
There is the labor issue, where the
job security of 6,000 employees are
imperilled. Discussed in a coordination
meeting between Transco’s workers
union, Mintrea, and the NGCP last
22 July 2008 in Davao City, are the
following:
1. “Date of NGCP start of operation
is November 3, 2008”
2. “NGCP has no existing Table of
Organization”
3. “employees will start working
under NGCP but their positions
and salaries will stay as it were
until the end of
4. the 165 -day transition period”
5. and “at the start of the 166th day,
employees are considered NGCP
personnel and will undergo
30  PAID!  Dark Power Rising  November 2009
6-month provisionary period.
Hiring plan is based on what
NGCP needs”. [underscoring
supplied]
Mintrea employees also said:
“MINTREA is currently negotiating
the employment terms of all TransCo
employees… The present workforce,
if deprived of continuing serving
TransCo and replaced by others whose
roots were not planted and foots not
set on the same ground TransCo where
are now would be bad for TransCo,
worse for the economy and even worst
for the entire Filipino people.”
II. Questionable Transactions,
Controversial Auction
The TransCo bidding would go down in
history as one of the most questionable
business transactions. Business and
political leaders still gape in awe at the
magnitude of the scandal surrounding
its privatization. The $3.95 billion
Transco privatization deal raises more
questions than the $329 million ZTE,
P728 million fertilizers and P2 billion
swine scam.
The tale of power-play and rent-
seeking that surrounded the TransCo
sale was preceded by a tumultuous
attempt to conduct a bidding. It was
the Power Sector Assets and Liabilities
Management (PSALM) Corporation
that was tasked to dispose TransCo.
PSALM is the government-owned and
controlled corporation created the
EPIRA that was to manage the orderly
sale, disposition and privatization
of Napocor, with the objective of
liquidating all of Napocor’’s financial
obligations and stranded contract
costs.
It is only after three failed bidding
attempts had there been a successful
TransCo bid. In the December 12, 2007
auction conducted by the PSALM, the
consortium of the State Grid Corp.
of China, Monte Oro Grid Resources
Corporation (MOGRC) and Calaca
High Power offered $3.95 billion and
won the bid to operate the country’s
electric distribution system for 25
years.
State Grid Corp., owned by the People’s
Republic of China, is China’s largest
electricity provider. It ranks 29th in the
Fortune Global 500 list of the world’s
largest companies by revenue this
year. MOGRC is 100-percent owned
by Monte Oro Resources and Energy
Inc., wherein A. Brown Company Inc.
(ABCI) has an 18.47-percent interest.
Monte Oro has been associated with
businessman Ricky Razon, who runs
key ports in Manila and abroad and is a
key supporter of President Macapagal-
Arroyo.
The controversy-marred auction was
the biggest Philippine privatization on
record, more than twice the $1.6 billion
price for the former military camp in
Fort Bonifacio. Non-transparency and
bias marred the bidding of TransCo.
A petition was filed to the Supreme
Court by some bidders who were
barred from bidding despite being
qualified enough.
Outbidded by a “scant” $45 million is
the consortium comprising San Miguel
Energy Corp., TPG Aurora BV of the
Netherlands and TNB Prai Sdn Bhd
of Malaysia, which offered $3.905
billion. Two Rivers Pacific Holdings
Corporation and its partner Terna-
Rete Electtrica Nazionale S.P.A. did not
participate in the final bidding while
the consortium of Citadel Holdings
Inc. and Power Grid Corp of India Ltd.
backed out.
The Monte Oro-led winning
consortium incorporated into the
National Grid Corporation of the
Philippines (NGCP) and applied for
a franchise with Congress. The NGCP
is 60 percent owned by Filipinos and
40 percent by Chinese investors. It
has an authorized capital stock of
P2 billion and a paid-up capital of
P500 million. The President and CEO
of NGCP is Walter Brown. Its Chief
Technical Officer is Mr. Qiantu Ruan.
Walter Brown has close ties with
Diosdado “Buboy” Macapagal Arroyo,
the brother of Pres. Gloria Macapagal-
Arroyo. The consortium is required to
pay 25 percent of the winning bid 30
days after securing the congressional

franchise with the balance to be spread
in 20 years. The amount will be used
by the government to cover portions
of Napocor’s $7.2-billion debt. The
TransCo workers’ union, Mintrea, fact
sheet said that TransCo’s sale was “a
sweetheart deal” for NGCP because it
stands “to earn between P18 billion
and P20 billion in net profits annually.”
Curiously, PSALM’s current president
is Jose C Ibazeta, a close business
associate of Enriquez Razon Jr. and
Disosdado “Buboy” Macapagal. It can
be remembered that Razon acted as the
treasurer of President Arroyo’s TEAM
Unity senatorial slate in elections last
May, while Macapagal, an investment
banker, is Pres. Arroyo’s brother.
In the Senate, Senator Jamby Madrigal
explained last year (December 2007)
that if the Monte Oro consortium wins
the bid for TransCo, the transmission
and distribution of energy resources
would be monopolized by the Aboitiz
Group, which is already involved in
power distribution and generation.
She said that “[a]s early as Oct. 27,
2006, this bidding was already tainted
when Mrs. Gloria Arroyo met with
the president of State Grid of China
– Mr. Liu Zhenya. At that time, State
Grid of China already made known
its interest in bidding for TransCo
and Malacañang named Monte Oro
Grid Resources as its partner… This
bid should not even start because it’s
highly anomalous.”
III. Security concern: TransCo as
a national digital broadband
backbone
Worse, with TransCo privatization,
it is not just simply transferring the
monopoly/control of this strategic
utility from the government to private.
Placing the 21,319 circuit kilometers
transmission lines nationwide with
broadband capacity under a private
operator is a national security
concern. As one lawmaker quipped:
“It is important that whoever controls
Transco must be loyal to the Nation.”
The problem is not just that the 21,319
TRANSCO: The Filipino’s Last Line of Defense Against Privatization
circuit kilometers transmission lines
nationwide will be run by private sector
— but that a foreign government,
China, will practically co-manage it.
It virtually transfers the control of
the switchboard from the Philippine
government to the foreign government
via a foreign company – the State Grid
Corporation of China, which is owned
by the People’s Republic of China. Cong.
TG Guingona asserted in his privilege
speech last January 2008 that TransCo
was worth more than $3 billion.
According to the lawmaker, La Costa
vice-chairman Bobby de Ocampo,
stated that La Costa was intent on
bidding at a minimum of $6 billion
had it been allowed to participate.
He said that the TransCo bidding is
the “purchase of two government
assets for the price of one electric
power transmission and a national
broadband backbone”, because “the
same electricity transmission grid
has fiber optics that is being used
as a communications backbone,” he
explained.
The broadband capability of TransCo
is confirmed by economist and ADB
consultant on power, Emmanuel
“Noel” de Dios, regarding the
National Broadband Network (NBN)
controversy:
“It is important to note that there are
in fact, already two such functioning
backbones (As a matter of fact, there
are already two other backbones under
government control, but which are
unused, the French protocol backbone
under the office of the press secretary,
and that of the National Transmission
Company (Transco). This only
underscores the redundancy of the NBN
project).” [underscoring supplied]
Incidentally, the aborted NBN project
was also transacted between a Chinese
corporation and the Philippine
government. The $329 million NBN
project funded by the Chinese Export
Import (CEXIM) Bank is supposed to
be implemented by the Department of
Transportation and Communication
(DOTC) with the Chinese firm Zhong
Xing Telecommunication Equipment
November 2009  Dark Power Rising  PAID!  31
(ZTE) Company as the contractor.
Attached with the NBN project, is
another aborted project, the P26.48-
billion Cyber Education Project (CEP)
also funded by the CEXIM Bank.
With these two mega-projects at
the forefront, the extent of Chinese
interest on investing on strategic and
backbone infrastructures then became
a matter of investigation for some
news investigators, notably Ricky
Carandang who linked the sudden
spurt of Chinese Official Development
Assistance (ODA) and loans to the
Joint Marine Seismic Undertaking
accord between the Philippine and
Chinese governments. The so-called
“Spratly Deal” reportedly threatens to
relax our claim to the oil and natural
gas-rich islands.
IV. TransCo, Global Privatization
Mania, and the Predatory Regime
At present, the full-scale privatization
of electricity in the Philippines is now
nearing completion. Majority of the
NPC power plants are already being
sold while the establishment of so-
called “market competition” in Luzon
are now moving towards the islands
of Vizayas and later on in Mindanao.
Where did the Philippine power
privatization frenzy come from?
In order to answer this, we have to
understand that privatization is not
just a local phenomenon. There is such
a term called “Washington Consensus”,
coined in 1989 by John Williamson,
which basic policy prescriptions
involved government spending cuts,
privatization of government services
and assets, and deregulation of
business activities – all in the name
of free markets, competitiveness,
efficiency and economic growth. It was
adopted willingly in many developed
nations and imposed on developing
nations by the World Bank and the IMF
as conditions of their loans. Ultimately,
it is an idea that places faith in market
mechanisms in resolving the national
and global-level fiscal and economic
quagmires.
TRANSCO: The Filipino’s Last Line of Defense Against Privatization
With the Washington consensus, the
public sector was deemed “bloated
and inefficient.” Publicly-owned and
state-regulated electricity monopolies
were claimed to be so wasteful and
inefficient that private companies
competing in a free market could save
enough money to both cut prices and
make a profit.
It is unfortunate for the proponents of
the consensus, that their rhetoric had
largely remained unfounded, and had
even been used for pure private gain.
In the power sector, for example, the
cumulative evidence of one hundred
years of electricity provision all
over the world proved that publicly-
owned electricity enterprises have
consistently provided electricity at
no greater cost than privately-owned
enterprises and often for prices that
were far less than those charged by
private companies.
To quote Professor Sharon Beder
(June 2005), recipient of the World
Technology Award for Ethics (2001)
and one of Australia’s most influential
engineers:
“The privatisation of electricity is not
something that citizens have demanded
nor wanted. In general, there has
been very little public participation in
electricity reform decisions and as the
consequences are observed, there have
been many bitter protests against
electricity privatisation. Popular
uprisings have occurred in Argentina,
India, Indonesia and Ghana. Protests
have halted privatisation proposals in
Peru, Ecuador and Paraguay. In the
Dominican Republic several people were
killed during protests against blackouts
imposed by privatized companies. In
South Africa thousands marched during
a two day general strike to protest
privatisation, which they labelled ‘born-
again apartheid’. In Papua New Guinea
students were killed when thousands
rallied against the planned privatisation
of government services including Elcom,
the electricity authority. Even in China,
workers protested the sale of a power
plant in Henan province to a private
company and threatened to ‘block the
state highway and lie on the railroad
while the trains run over us’.
32  PAID!  Dark Power Rising  November 2009
Today, no less than the former Senior
Vice President and Chief Economist
of the World Bank sharply criticizes
neo-liberal prescriptions that promote
modern day privatization schemes.
Joseph Stiglitz, also the recipient of
the Nobel Memorial Prize in Economic
Sciences (2001), stressed last July
2008:
“The world has not been kind to neo-
liberalism, that grab-bag of ideas
based on the fundamentalist notion
that markets are self-correcting,
allocate resources efficiently, and serve
the public interest well. It was this
market fundamentalism that underlay
Thatcherism, Reaganomics, and the
so-called “Washington Consensus” in
favor of privatization, liberalization,
and independent central banks focusing
single-mindedly on inflation. For a
quarter-century, there has been a contest
among developing countries, and the
losers are clear: countries that pursued
neo-liberal policies not only lost the
growth sweepstakes; when they did grow,
the benefits accrued disproportionately
to those at the top… Today, there is a
mismatch between social and private
returns. Unless they are closely aligned,
the market system cannot work well.
Neo-liberal market fundamentalism
was always a political doctrine serving
certain interests. It was never supported
by economic theory.”
In the Philippines, after more than
seven years of implementation of
EPIRA, the anti-monopoly and pro-
competition provisions of the said
law remains very weak. This not to
mention the poor protection and
inefficient regulation the consumers
are getting from the Energy Regulatory
Commission (ERC).
This, plus the current state of the
Philippine political economy, paved
the way for an enhanced “electricity
oligarchies” in the whole of power
industry. High level rent seekers
are riding on the crest of the global
privatization mania to corner much
of the loot. The predatory regime is
behaving like a Mafia organization
anew in this scandal.
The high level of corruption, the
rampant rent-creation and rent-
seeking activities of the elite, even
prompted no less than Supreme
Court Chief Justice Reynato Puno
comment that the greed of a few
families has made it difficult for most
Filipinos to enjoy the good life. “These
families,” he says, “have perpetuated
their stranglehold on our country’s
wealth, dynasty after dynasty. There
is no end to their greed, no border to
their covetousness.”
V. Conclusion
The issue has spilled onto the political
plane, beyond Senate technical legalese.
We can only hope that Senators who
are opposed to TransCo privatization
uncover the whole truth behind the
controversial bidding of TRANSCO
and reverse the privatization process.
Considering all the arguments
raised above such as the inefficient
regulation, weak provisions on the
anti-monopoly and pro-competition
of EPIRA, unabated power rates
increase, national security concern
and the ugly state of power play we
have been witnessing as a product of
privatization – letting go of the very
“heart” of the whole power system
should not only be a question of legal
obligation, simply because it is one
of the major requirements of the
power sector reform program of the
government. More than anything
else, it is our moral responsibility to
protect the interest of the Filipino
against the continuing ill effects of
private investors drive for profit in
the electricity industry.
The Freedom from Debt Coalition
believes that the ownership, control
and management of the transmission
lines should remain in public hands.
This is our last line of defense against
the onslaught of privatization as we
continue to work for a genuine power
reform law that can provide us with
an affordable, clean, sustainable and
renewable energy.
The Undistributed Powers
Power Plays in Distribution Utilities
By Wilson Fortaleza
Introduction
The service of bringing appropriate
load requirements to every
household, industry and commercial
establishment is the function of the
distribution system in the power
industry. The distribution system
is defined as “the system of wires
and associated facilities belonging
to a franchised distribution utility
extending between the delivery
points on the transmission and sub-
transmission system or generator
connection and the point of connection
to the premises of the end-user.”1 It is
therefore the most important link that
connects people to the source of power,
and vice-versa. This kind of service
(or business) is being performed by
those who operate the system – in the
Philippine context either by a private
corporation, an electric cooperative, or
by an LGU-controlled utility. Currently
there are a total of 18 private investor-
owned distribution utilities (PIODUs),
1 LGU-owned, and 119 Rural Electric
Cooperatives (RECs) operating all
over the country. (See Annex A for
complete list.)
The distribution system’s proximity
to consumers makes this sector of the
power industry closely connected with
the people compared to the generation
and transmission sectors. Thus,
reliability, security, and affordability
of services are highly demanded
from the distribution utilities, such
that it remains highly regulated even
under the Electric Power Industry
Reform Act or EPIRA. Yet despite
this pervading environment of state
regulation, which ironically was a
policy renounced in the case of the
downstream oil industry, the sector
remains attractive to business and.
in fact. is becoming a venue of major
power plays and corporate battles in
the whole industry. In other words,
there is more than the rub here. What
makes this sector very desirable to
private players is no secret to policy
makers. A DU’s business thrives
not because of “free market” or of
“deregulation” but by the franchise
area(s) accorded to it by Congress.
This right to operate a distribution
system in an assigned franchise area
effectively transformed this system
into a natural monopoly and it is from
there that a DU exercises its market
power over a captive market granted to
them by the state. It is also a cash-rich
business, with a steady flow of cash
revenue guaranteed from the monthly
payments of consumers.
November 2009  Dark Power Rising  PAID!  33
Moreover, aside from exercising
monopoly power over a franchise
area, a PIODU is also allowed full cost
recovery plus an allowable return of
up to 12% on its investment, or even
higher under the new rate setting
methodology called performance-
based rate (PBR). It is different
however for electric cooperatives
which were assigned the task of total
electrification of the country but do
not enjoy the privileges of the PIODUs.
Recognizing this very nature of the
distribution sector, the EPIRA never
aimed at removing this “monopoly”
character of the system despite having
used the term “de-monopolization”.
What the law intends to is to merely
disperse the ownership structure in
the DU (not more than 25% of the
voting shares of stock) but which
can only be made possible if owners
of that controlling shares are not yet
listed in the Philippine Stock Exchange
(PSE). Thus, in the case of the Lopezes
and the Aboitizes for instance, two
big names in the business for several
decades now, the major challenge is
not from the possibility of losing their
monopoly grip of the sector but rather
on the opportunities provided to them
by the EPIRA to expand their holdings
in the distribution sector and beyond.
The Undistributed Powers
Hence, the battle for control of Meralco
cannot be qualified as an outcome of
a “de-monopolization” process, nor
is it a product of ownership dispersal
or democratization. It is a dirty
power play pure and simple, between
the old and emerging oligarchs the
outcome of which will be neither for
the broadening of ownership base
of the industry, as claimed in the
EPIRA, nor for the democratization
of ownership and control of public
utilities as espoused by the Freedom
from Debt Coalition.
In short, despite the “de-
monopolization” façade of the EPIRA,
powers remain undistributed in the
distribution sector.
Developments in the distribution
sector
The history of the power industry,
according to Meralco’s Oscar Lopez
in his speech before the Foreign
Correspondents Association of
the Philippines (FOCAP) forum in
November 2006, can be analyzed
in terms of the “swinging of the
pendulum” – from private power in the
pre-martial law period to public power
during the martial law years, and that
pendulum is swinging back once more
in favor of private power after the
passage of the EPIRA in 2001.2
Oscar Lopez is the current patriarch of
a clan that operated the first private
and Filipino-owned power system in
the country. In 1961, Oscar’s late
father, Eugenio Lopez, acquired full
ownership of the Meralco, then the
Manila Electric Railroad and Light
Company, from the Detroit-based
American investors. Before the
acquisition, the private company,
which began operating in 1903, was the
dominant power company in Luzon.
By the outbreak of WWII, Meralco
operated not only in Manila but as
far as Dagupan in Pangasinan down
to Naga in the Bicol region. According
to Lopez, it was only after WWII that
Meralco relinquished its franchise
operations in 45 municipalities in 10
provinces to concentrate its attention
34  PAID!  Dark Power Rising  November 2009
to the Manila Metropolitan area.
To his recollection, Lopez described
the 1960s as a “Golden Age” for
Meralco. Meralco then was both
in the generation and distribution
businesses. Its generating capacity
increased fivefold, from 300,000 KW
in 1961 to 1,500,000 KW in 1972. Its
sales went from 1,700 gWh in 1961
to 5,100 gWh in 1972 as its customer
base grew from 370,000 to 600,000.
During that time, Meralco sourced 30-
40 percent of its power requirements
from the National Power Corporation.
Lopez also claimed that during those
times, Meralco rates were the lowest
in Asia and those in 43 of the 50 states
in the United States.
The combined economic and political
crisis of the 1970s ended Meralco’s
Golden Age. On the economic side,
the oil crisis, inflation and the floating
exchange rate pushed Meralco deep
into debt. And the final death blow
came after the declaration of Martial
Law when the late dictator, Ferdinand
Marcos, ordered the takeover of
Meralco through Presidential Decree
No. 40. PD 40 ordered all Meralco
power plants sold to NPC when the
latter was mandated to operate a single
integrated system of generation and
transmission.
The period of martial law in effect
dissolved private power after the
power industry was “nationalized”
by virtue of the expanded powers of
the NPC. Meralco then was managed
by Benjamin “Kokoy” Romualdez, a
known Marcos crony.
Rural Electrification
It is interesting to note here that the
1960s, the time described by Oscar
Lopez as the “Golden Age” for Meralco
was also the time the government
had begun to embark on a national
rural electrification program. Citing
“profit-orientation” of the private
utilities, the government conceded
that electrification was limited to high-
density urban areas where electric
utility operations were considered
viable. With this condition, the
government realized that the rural
areas were deprived from being
program beneficiaries.
According to the National
Electrification Administration (NEA),
most of the remote areas in the
1960s were bereft of electricity, some
of which only had it for six to eight
hours and only after nightfall. This
condition kept the rural economy tied
entirely and exclusively to agriculture.
Factories and businesses naturally
preferred to locate in the cities where
electric power was easily acquired.3
Thus, in 1960 the Electrification
Administration (EA) was created
by Republic Act (RA) 2717 to carry
out the country’s electrification
policy. The agency was authorized
P25 million to be loaned out to
the electric utility operators for
financing the construction and
operation of generating plants, electric
transmission and distribution systems
for the furnishing of electric energy,
particularly in the rural areas. In
1966, the US, through the United
States Agency for International
Development (USAID), provided
assistance to the Rural Electrification
Program. A contract with the National
Rural Electric Cooperative Association
(NRECA) of the United States was
executed. The NRECA made feasibility
studies for pilot projects. Two Rural
Electric Cooperatives (RECs) were set
up, one in Mindanao and the other
in Visayas. These were the Misamis
Oriental Rural Electric Service
Cooperative, Inc. (MORESCO) and
the Victorias-Manapla-Cadiz Rural
Electric Service Cooperative, Inc.
(VRESCO), respectively.4
In 1969, the NEA was created by
virtue of Republic Act 6038, which
declared the total electrification of
the Philippines on an area coverage
basis as a national policy objective. PD
269 issued in 1973 transformed NEA
into a corporation wholly owned and
controlled by the government, with
borrowing authority and corporate
powers, and increased its capitalization

to P1 billion to further strengthen and enable the RECs to
become effectively established and operationally viable.5
During the period 1985-1989, NEA was able to organize
117 ECs servicing some 2.8 million households. Now
the total ECs number 119, servicing approximately eight
million households.6 The NEA targets total barangay
electrification by 2009 and total electrification of consumer
connections by 2020.
The empire strikes back: The return of private power
The Lopezes reclaimed the Meralco, including all its
franchises, after the fall of Marcos in 1986. The family
claimed to be victims of martial law and thus justified
their right to their restored holdings. How they got that so
easily, courtesy of the Aquino regime, has been the subject
of debates and discussions in business and political circles
since the post-Edsa regimes. Claims that the Lopezes won
their fortunes back through rent-seeking simply do not
vanish away. For it was also through this same method
of rent-seeking that the family built its massive fortunes
since the time of Quezon, and perhaps until the present
and into the future.
An opinion column printed in the Business Mirror (5/23-
24/2008) provides a glimpse of history on how the Lopezes
got to where they are now. The article makes reference to
the book Greed and Betrayal, written by journalist Cecil
Arillo, which relates how the Lopez family grew to be so
financially and politically powerful under 10 presidents,
from Manuel Quezon to Cory Aquino. Arillo implies that
the phenomenal growth of the Lopez financial empire
largely sprung from its control of Meralco.
“Since Meralco was acquired by the Lopezes, it was
transformed from a highly profitable organization
distributing power to the Greater Manila Area
into a hydra-headed monster that branched out
into real estate and construction, petroleum
refining and the manufacture of electric goods
and merchandise.
“Ever since the Lopezes took over Meralco, they
were able to secure approval for several rate
increases using their political influence in the
Public Service Commission, at the same time
raking in huge profits at the expense of the
consumers.”7
Documents cited in the book reveal how the Lopezes
defied the powers of the president, evaded government
efforts to collect legitimate taxes and earned more from
its crude oil importation. They were also able to raise
money through loans guaranteed by the government. Arillo
also belied the claim that the Lopezes sold their Meralco
shares to the Meralco Foundation under duress during
The Undistributed Powers
martial law, saying that the deed of sale was guaranteed
by the Philippine National Bank through a letter of credit
it issued to the foundation for the purchase of the Benpres
shares of stock. The foundation also assumed Benpres’
P9.5-million debt on stock subscription and an obligation
to pay Benpres P48.6 million on its equity, payable by
installment over a 10-year period at a 10-percent interest
on the unpaid balance.8
Another book, The Anarchy of Families: State and Family
in the Philippines, edited by the renowned American
historian Alfred McCoy, attributed the growth of the Lopez
Empire, then headed by Eugenio Lopez, Sr., to trickery and
maneuverings, and employment of violence to forward
their interests.
“After the war, when they joined the national
economic elite, the Lopez brothers moved into
a world of corporate connections remote from
the provincial violence that marred postwar
democracy. But before the war, they had engaged
in provincial struggles, with clear territorial
manifestations over bus routes, waterfronts,
precincts and congressional districts. The
territorial specificity of local politics created a
zero-sum game, a win-or-lose situation, that made
violence a necessary instrument for every player.”
After the war, McCoy wrote, the Lopez brothers used ABS-
CBN and the Manila Chronicle to their advantage (Eugenio
as media mogul and Fernando as politician). They took over
and established several profitable ventures, one of which
is Meralco. The empire then grew bigger and bigger until
they were stripped off of power by the Marcos regime. The
family, however, was able to stage a political and economic
come back after the downfall of Marcos, by using what
McCoy described then as the practice of “rent-seeking”. 9
In his book, The Rise of Ersatz Capitalism in South-
East Asia, Kunio Yoshihara identified the Lopezes as
‘capitalists-turned politicians’ who entered politics to
advance their business interests. Yoshihara referred to
Fernando Lopez, the brother of Eugenio, who became a
powerful member of the Nacionalista Party and became
Vice-President before martial law. For Yoshihara, capitalists
who try to establish government connections for business
advantage can be called rent-seekers “because they are
essentially seeking opportunities to become recipients
of the rent the government can confer by disposing of its
resources, offering protection, or issuing authorization for
certain types of activities it regulates.”10
The Lopez family has continuously refuted charges
of rent-seeking. But it cannot be denied that of all the
victims of martial law, it was they who were compensated
virtually in full while claims of thousands of other victims
of martial law remain entangled in court battles. From
November 2009  Dark Power Rising  PAID!  35
The Undistributed Powers
then on, the Lopezes quickly recovered their fortunes and
began to amass more. Today, the Lopez group’s Benpress
Holdings Corporation holds majority control in several
other companies in power, media and entertainment, real
estate, construction, business solutions, among others. It
controls the country’s largest distribution utility, and now
the largest exploration company, the Philippine National
Oil Company-Energy Development Corporation (PNOC-
EDC).
Lopez-Owned Distribution Utilities
DISTRIBUTION UTILITY FRANCHISE AREAS CUSTOMER BASE
Mega-Manila (Metro
Manila Electric Company Manila, Bulacan, Cavite,
4.5 million
(MERALCO) Batangas, Laguna and
Quezon Province)
Panay Electric Company
Iloilo City 43,000
(PECO)
Clark Electric Distribution Clark Special Economic 1,000 customers,
Corp.11 Zone in Pampanga consisting mostly
of large industrial
companies at the
economic zone
The power crisis which spilled over into the Ramos
administration in the early 90s was eventually transformed
into a great business opportunity for the Lopez family.
The Ramos administration invited the Lopezes to build
its own IPPs, a gas-fired generation plants to “align” the
interest of Shell and the government in the flourishing
Malampaya Deep Water Gas to Power project. This was in
recognition of the fact that the project could not proceed if
not fully integrated with the downstream power projects.
The Lopezes also own Meralco which controls more than
70 percent of the country’s electricity market in Luzon.
Thus, Gas Sales and Purchase Agreements (GSPA) with
First Gas’ Sta. Rita and San Lorenzo power stations were
signed in January and April 1998 respectively.12 GSPA
was also signed for NPCs Ilijan power plant in 1997. In
other words, entering into IPPs enabled the Lopezes to
favor its companies and use Meralco as a milking cow for
its affiliates.
According to a report by the Philippine Center for
Investigative Journalism (PCIJ), Meralco took advantage of
Napocor’s shrinking market and the lucrative IPP contracts
it bagged from the Ramos administration to justify high
PPA charges.13
And the fraud continues. In 2002, the Supreme Court
ordered Meralco to refund some P28-B it illegally collected
from the consumers since 1994. The decision upheld the
1997 findings of the Commission on Audit which found
Meralco guilty of committing an illegal act for listing its
income tax as part of its operating expense.
Under the Arroyo administration, the Lopezes tried to
negotiate a deal to settle a botched contract with NPC. The
36  PAID!  Dark Power Rising  November 2009
Settlement Agreement which was signed in July 15, 2003
(reportedly in the presence of President Arroyo and Oscar
Lopez) intended to modify the last three years of a 10-
year supply contract which began in 1994. The Agreement
stipulates that Meralco shall compensate NPC some
P27.515 billion for energy contracted but not consumed
for the last three years of the contract, stretching from
2002 to 2004. In turn, NPC shall compensate Meralco
an amount of P7.465 billion for its failure to adequately
provide transmission services to Meralco’s IPPs, and turn
over the directly-connected customers to Meralco. The net
settlement amount of P20.05 billion was thus arrived at by
subtracting the claims of both parties. Meralco and NPC
jointly filed with the Energy Regulatory Commission (ERC)
for the recovery of the computed net settlement amount;
which will be passed on to consumers over a period of five
years. The case is still pending before the ERC.
But in a sudden twist of events, the Office of the Solicitor
General (OSG) has opposed the settlement agreement,
creating signals that there was indeed animosity between
the administration and the Lopezes. And this hostility
became more pronounced last year when GSIS President
Winston Garcia, who represents the government’s shares in
Meralco, launched a failed power grab against the Lopezes.
Aside from the Meralco, another Lopez firm, the Panay
Electric Company (PECO) which covers the Iloilo franchise
area was also found to have committed fraud and was also
ordered by the ERC to reduce its rates by P2/kWh. The FDC
chapter in Iloilo which caused the filing of the complaint
against PECO claimed that the ERC decision exposed
PECO’s malpractices in rate-making by inserting some
assets in in their rate base like their property in Benigno
Aquino Highway with an appraised value at P51-million.
PECO brought the case to the Court of Appeals and the
latter issued a TRO on the implementation of ERC’s order.
But in September 2005, the CA upheld ERC’s decision.
PECO has reduced its rates, but has yet to refund some
P1.5 billion it has illegally collected from the consumers
from May 2004 to May 2005.
Let us not also forget the fact, however, that this kind
of privileges was not only extended by past and present
governments to the Lopezes. In fact, the Arroyo
administration, through the First Family is reportedly
closer to the Aboitizes, prompting many sectors to raise the
issue of an emerging cronyism in the government. Rumors
were even ripe then that the Aboitizes were behind Winston
Garcia’s failed bid to topple the Lopezes out of Meralco.14
This is not the first time that the Aboitiz family has been
involved in controversies in the power sector. During
the Aquino administration, allegations that they made
money out of the power crisis from the sale of small
power generators were also hurled against them. Today,
allegations that energy deals are designed intently to favor

the Cebu-based power tycoon are too
convenient to ignore.
Obviously here, the granting of
favors and privileges to businesses is
definitely the work of politics, as rules
and policies are deliberately crafted to
favor vested interests. The Lopezes
and the Aboitizes, for instance,
made it sure that EPIRA becomes an
opportunity rather than a threat to
their empires. And this was made
possible with the backing of former
Senators John and Serge Osmena who
both chaired the Senate and House’s
energy committee when EPIRA passed
Congress. The two Osmenas, although
not on good terms, are both known
political allies of the Lopezes and the
Aboitizes.
These tales of fraud and rent-seeking
politics in the power industry belie
the fact that private power is far
better than public power, a common
view held by those who favor the
commoditization of essential services,
whatever it costs to consumers. While
Marcos used state power to favor his
cronies and displace his opponents,
the Lopezes, and increasingly the
Arroyo and Aboitizes are using the
altar of private power to consolidate
and expand their wealth and power.
The distribution sector under the
EPIRA
As envisioned, EPIRA should have
ushered an era of competition that
would result to lower costs as a
consequence of the dismantling of
monopolies. The restructuring of the
power supply should likewise provide
a secure and reliable supply of clean
power to consumers.
The visions of EPIRA, however, remain
pipe dreams as the law was craftily
designed to contradict itself to protect
monopoly interests in the industry.
The Lopezes and Aboitizes who
strongly lobbied to have the EPIRA
enacted to their favor have succeeded
in inserting provisions which bolstered
their position in controlling both the
distribution and generation sector.
Thus, the “cross-ownership”15 and
“de-monopolization”15 sections of
EPIRA allowed them to venture into
generation and distribution without
having to worry about divestments or
possible dilution of their controlling
shares to several of their power-related
companies.
Accordingly, what the Lopezes got
the Aboitizes also reaped. Hence,
eight years after its implementation,
only the state monopoly was clearly
dismantled. The well-entrenched
private monopolies remain pretty
much in control and their power is
growing even bigger each day as they
acquire new captive markets.
Total energy sales in 2007, according to
the DoE, reached 48,009 gWh. Based
on Meralco’s 2007 annual report, it
sold 26,219 gWh or 55.61 percent of
the total energy sales. On the other
hand, Aboitiz-owned DUs sold 3,915
gWh or equivalent to a 8.15 percent
share in energy sales. It is assumed
here that the remaining 17,875 gWh
Figure 1. DU’s share in energy sales
of the total energy sales represents
the 37.23 percent market share of the
119 ECs, an LGU-owned utility, and
industry direct connect.
Furthermore, a quick look at the
current ownership structure of
PIODUs easily leads to a conclusion
that no de-monopolization process
has ever happened in the sector. On
the contrary, a concentration has been
emerging as owners consolidate their
positions to keep their footholds in
November 2009  Dark Power Rising  PAID!  37
The Undistributed Powers
their empire while spanning their
wings wide to consolidate or acquire
new franchise areas. Meralco is one
example. Rather than partitioning
Meralco to invite more players into
the system, Congress in 2003 granted
Meralco a mega-franchise which
is a consolidation of 52 existing
franchises which covered the spans
of Metro Manila, Bulacan, Laguna,
Cavite, Pampanga, Batangas and
Quezon. No doubt Meralco is the
country’s largest private distribution
utility today, servicing a customer
base of 4.5 million in 25 cities and 86
municipalities, and with an annual net
income of more than P4-B.17
In economics, having such a very huge
captive market must result to lower
cost due to the principle of economy
of scale. The contrary is happening.
Meralco, the biggest DU, charges
the highest distribution rate in the
country. And one major reason for
this is its self-dealing transactions in
the supply of power. Meralco supplies
come from its own affiliates. Meralco
also gets some 50 percent of its power
requirements from its sister IPPs.
The Lopezes’ reported alliance with
PLDT’s Manny Pangilinan is viewed by
many as a masterstroke to prevent a
Cojuangco takeover. The alliance gave
the Lopez empire a big advantage over
a hostile group which is reportedly
being backed by Malacañang.
The Aboitiz Power Corporation (APC)
comes second to Meralco having in
The Undistributed Powers
control of seven DUs all over the
country. APC is owned by the Aboitiz
family, a familiar name in the industry
since the 1930s. Like the Lopezes, the
Aboitizes are now also into generation
especially on hydro and thermal power.
The Cebu-based empire considered
the power privatization, “a once-in-
a-lifetime opportunity and something
we were not going to miss out on.”18
The Visayan Electric Company (VECO)
is the second largest DU in the country
while Davao Light and Power Company
is third. The rest of the DUs in the list
were acquired by the APC after the
EPIRA was passed in 2001.
In its financial report to stockholders
on 2008, The APC reported a 124
percent increase in its revenue from
P4.1 billion in 2007 from P1.8 billion
in 2006. P1.5 billion came from the
distribution business, a 52 percent
increase from the previous year of
P995 million. At the beginning of
EPIRA, APC’s revenue was recorded at
P1.6 billion, thus, from 2001 to 2008,
the company’s revenues increased by
193.75 percent.
There are other DUs owned by well-
known business or political families
such as the Cagayan de Oro Light and
Power Company (CEPALCO) owned by
the Abaya family and the Cabanatuan
Electric Corporation owned by the
Vergara family. The only remaining
PERCENTAGE OF OWNERSHIP
DISTRIBUTION COMPANY
(2008)
Davao Light and Power Company,
Inc.
Cotabato Light and Power Company,
Inc.
Visayan Electric Company
San Fernando Electric Light and
Power Company
Subic Enerzone Corporation
Balamban Enerzone Corporation
Mactan Enerzone Corporation
Source: Aboitiz Power Corporation Website, http://www.aboitiz.com/
38  PAID!  Dark Power Rising  November 2009
utility owned by a local government the RECs development into genuine
unit (LGU) is the Public Utilities cooperatives. To date, only 10 of the
Department (PUD) of Olongapo City. ECs have so far registered with the
The Provincial Electrical System, now CDA.
Bohol Light Company Inc., used to
be owned and run by the Provincial This obvious quandary over what
Government of Bohol. But in August to do with the RECs can be directly
2000, this was acquired by the
attributed to EPIRA’s predisposition
Consortium of Salcon International,
Inc.(SII), Salcon Power Corporation to primarily secure the interest of
(SPC), and Pure and Palm Inc. private power in the restructuring of
the distribution sector. EPIRA was
The 119 electric cooperatives, on enacted without a clear conceptual
the other hand, retained its control framework on democratizing the
of around eight million customers. ownership and control of the PIODUs
Under the EPIRA, the RECs were as well as the RECs. The RECs in
given two options: to register either particular are areas where democratic
as a stock cooperative under the CDA ownership and governance are most
relevant to people since consumers
or a stock corporation under the
Securities and Exchange Commission already own them in the first place.
(SEC). EPIRA’s Implementing Rules And the same can also be invoked even
and Regulations (IRR), however, gave on the PIODUs had the concept of de-
them a third option - to remain under monopolization not been reduced to
NEA. Because of this, two opposing mere scrap of paper. Furthermore, the
camps are now competing within RECs are good vehicles in promoting
the RECs. Those who are in favor of new alternatives to the old setup
remaining under the supervision of of power – that is if these electric
NEA argue that the CDA lacks the cooperatives, in the words of Maitet
technical and financial capabilities Diokno-Pascual, “are transformed
to assist the cooperatives. The pro- into community enterprises that are
economically and financially viable,
CDA camp on the other wanted to
maximize the tax incentives enjoyed that are environmentally sustainable,
by CDA-registered cooperatives. They and that operate under a healthy and
are also against the NEA where the mutually sustaining relationship with
system of supervision, they claim, the community it serves.”19
is undemocratic thus proscribing
FRANCHISE AREAS CUSTOMER BASE
Davao City, Davao del Norte
99.90% municipalities of Carmen, Panabo, 247,341
Santo Tomas and Dujali
Cotabato City, part of Maguindanao
99.90% municipalities of Datu Odin Sinsuat 26,379
(formerly Dinaig) and Sultan Kudarat
Metropolitan Cebu (which includes
Cebu City, Mandaue City, Talisay
55.00% City, Naga City, municipalities of 296,003
Consolacion, Liloan, Minglanilla and
San Fernando
43.80% San Fernando, Pampanga 64,585
100.00% Subic Bay Freeport Zone NA
100.00% MEZ 2 export processing zone NA
100.00% West Cebu Industrial Park 50 companies

But the most obvious reason for
this dilemma was the government’s
presumption that private investors are
interested only in putting their money
to economically viable areas, thus, the
missionary role of electrification is
negligently left to the RECs and the
SPUGs which functions under EPIRA
were in fact expanded and made more
complicated, like trading in the spot
market.
According to Pascual, the RECs shall
assume new specific roles under the
deregulated regime of EPIRA. These
are as follows:
1. To acquire from TRANSCO
the subtransmission assets in
their respective franchise areas.
According to the EPIRA (Section
8), the RECs are to be given a
20-year concessional financing
from TRANSCO for these assets;
however, RECs are required to
give first priority to amortizing
these loans out of the net income
derived from the subtransmission
assets. TRANSCO is supposed
to determine the value of said
assets.
2. To submit annual distribution
development plans to the
National Electrification
Administration (Section 23).
3. To participate in the wholesale
electricity spot market (Section
31).
4. To meet performance obligations,
technical and financial viability
standards as required by the NEA
in exchange for the transfer to
PSALM of their debt obligations.
(Sections 58 and 60)
Unfortunately, ailing RECs are also
lined up for privatization. Several of
them are now under the Investment
Management Contract (IMC) scheme.
These are: Pampanga II and Pampanga
III Electric Cooperatives (PELCO
II and PELCO III), Camarines Sur I,
Camarines Sur III and Camarines Sur
IV Electric Cooperatives (CASURECO
I, CASURECO III, CASURECO IV),
and Central Pangasinan Electric
Cooperative (CENPELCO). Of these
six, PELCO III is the most advanced,
with due diligence already conducted
by Castalia Strategic Advisor. Five
prequalified investors have been
identified as follows: Aboitiz Equity
Ventures, Salcon Power, Trans-Asia
Power Gen, Asiaphil Manufacturing
Industries, and Benguet Electric
Cooperatives, Inc.20
The IMC, according to Pascual, is the
vehicle through which the RECs will
be privatized.
Conclusion
Mr. Oscar Lopez’s analogy of a
swinging pendulum in describing the
power industry is packed with rock-
hard intention to promote private
power over public power. The context
when he delivered that speech was a
looming scenario of a government
takeover of Meralco through the
GSIS. What was not mentioned by
Mr. Lopez, however, was their position
that behind Winston Garcia’s attempt
at a power grab is a “mafia” – a “Cebu
Mafia” -- reads one poster believed to
have been published by the Meralco
camp. Behind Garcia’s move, many
pundits have said, is the Aboitiz family
owing to their established business
and political relations in Cebu. The
Aboitiz family on the other hand is
believed to be closely connected with
the First Family. And who’s- behind-
who is a never ending puzzle in the
power industry that has become a
battle zone for private powers which
wanted control of the whole industry.
This is the story of the power industry
today, eight years after the enactment
of EPIRA. Eight years after the NPC
monopoly was broken, power play
ensued among private players to
consolidate their empires, conquer
new fronts, and re-divide the spoils.
November 2009  Dark Power Rising  PAID!  39
The Undistributed Powers
The generation and distribution sector
of the industry is basically a contest
between these two superpowers –
The Lopezes and the Aboitizes. But
both are also watchful of emerging
big players with the entry of powerful
tycons who possess the same mastery
in the art of rent-seeking. Public
power, indeed, is now out in the
balance of that pendulum. What we
have now is a revitalized private power
presiding over a fully-privatized public
service industry.
It was therefore not a public power’s
takeover of Meralco that Mr. Lopez
was afraid of when he stirred up the
specter of a swinging pendulum. It
was rather a hostile takeover by
industry rivals backed by a friendly
government. Thus it is the height
of hypocrisy to equate moves by
the government to become a tool of
rival private interests as something
that represents a threat of a return
to “public power”. The Lopez empire
knows better. It just so happens that
the empire is not in good terms now
with the same government of rent-
seekers.
Unfortunately the prospect also looks
dim in the area where people have the
immediate chance of exercising control
over public power. Eight years after,
the situation of electric cooperatives
looks more of the same, or even worse.
One of the major benefits expected
from using cooperatives to deliver
power, according to a 1980 study
conducted by the USAID, “was the
participation by rural people which
would have a spill-over effects to
other development activities.” But
these expectations, the study said,
has been largely unfulfilled because
the process of decision-making,
membership influence over the ECs
has been minimal. These problems of
the past still beset the RECs today.
And the government has made no
effort to address them.
Truly, it has been a very disempowering
eight years under the EPIRA and the
regime of Gloria.
The Undistributed Powers

Endnotes
1
“Distribution System,” Sec. 4. Definition of of the regulatory powers of the state over 13
http://www.pcij.org/stories/print/ramos.
Terms, EPIRA. businesses to favor a few, paving the way html
2
Remarks of Oscar M. Lopez, Chairman and for installation of business empires. A classic
example of this, added McCoy, was how the
14
Power Shifts by Marichu Villanueva, Philstar
CEO of Benpres Holdings Corporation at
Lopezes were able to establish (before the 5/23/08
the FOCAP Forum held at the Palm Grove,
Rockwell Club, Makati City on November Martial Law) and reestablish (after Edsa) their 15
EPIRA, Sec. 45
27, 2006 conglomerates by exacting favors from the
powers-that-be whom the family had earlier 16
EPIRA, Sec. 28
3
http://www.nea.gov.ph/home.htm helped to gain political might. It’s patronage 17
Meralco Annual Report 2007
4
Ibid. politics on the national scale.
18
Aboitiz Power Annual Report 2007
5
Ibid. 10
Yoshihara, Kunio, “The Rise of Ersatz
Capitalism in South-East Asia”, Ateneo De 19
Maitet Diokno-Pascual, Electric Cooperatives
6
NEA Media Release, October 28, 2008
Manila University Press, 1988 and the EPIRA, April 2006.
7
http://www.businessmirror.com. 11
“Meralco takes over Clark power firm” by
ph/0523&242008/opinion03.html 20
Ibid.
Donnabelle L. Gatdula, The Philippine Star.
8
Ibid February 1, 2008.
9
“Rent-seeking”, according to Alfred McCoy, is 12
http://www.malampaya.com/web/F_
characterized by the political manipulation
project2.html
Market shares of DUs
DU Total Customer Base Total gWh Sales Income
Lopez DUs
Meralco 4,500,000.00 26, 219.00 PhP4.04-B*
PECO 43,000.00 NA
Clark Electric Distribution Corp 1,000.00 NA
Total 4,544,000.00
Aboitiz DUs
Davao Light and Power Company, Inc. 247,341.00 1,331.00
Cotabato Light and Power Company, Inc 26,379.00 0.021384
Visayan Electric Company 296,003.00 1,683.00
San Fernando Electric Light and Power Company 64,585.00 0.000070794
Subic Enerzone Corporation NA NA
Balamban Enerzone Corporation NA 50.00
Mactan Enerzone Corporation 50.00 46.00
Total 637,000.00 3,915.00 PhP1.5-B**
119 Electric Cooperatives + 1 LGU-owned 8,000,000.00 17,875.00 NA
*based on Meralco’s 2007 Annual Report
** based on APCs 2007 Annual Report

Private Distribution Utilities

1 Cotabato Light & Power Company, Inc. (COLIGHT)
2 Visayan Electric Company, Inc. (VECO)
3 Cagayan Electric Power and Light Company, Inc. (CEPALCO)
4 Iligan Light and Power Inc. (ILPI)
5 Angeles Electric Cooperative (AEC)
6 La Union Electric Company, Inc. (LUECO)
7 Cabanatuan Electric Corporation (CELCOR)
8 Davao Light and Power Company (DLPC)
9 Dagupan Electric Corporation (DECORP)
10 Manila Electric Company (MERALCO)
11 Panay Electric Company, Inc. (PECO)

40  PAID!  Dark Power Rising  November 2009

 The Undistributed Powers

Private Distribution Utilities

12 San Fernando Electric Light and Power Company, Inc. (SFELAPCO)
13 Tarlac Electric Inc. (TEI)
14 Bauan Electric Light System (BELS)
15 Ibaan Electric and Engineering Corporation (IEEC)
16 Mansons Corp.
17 Bohol Light Company, Inc. (BLCI)
18 Mactan Electric Company, Inc. (MECO)
19 Clark Electric Distribution Corporation (CEDC)
20 Subic Enerzone Corporation
21 Balamban Enerzone Corporation

List of Electric Cooperatives List of Electric Cooperatives

1 Lanao del Sur Electric Cooperative, Inc. (LASURECO) 12 Ilocos Norte Electric Cooperative, Inc. (INEC)

2 Maguindanao Electric Cooperative, Inc. (MAGELCO) 13 Ilocos Sur Electric Cooperative, Inc. (ISECO)

14 La Union Electric Cooperative, Inc. (LUELCO)

REGION 1
3 Sulu Electric Cooperative, Inc. (SULECO)
ARMM

15 Pangasinan I Electric Cooperative, Inc. (PANELCO I)

4 Siasi Electric Cooperative, Inc. (SIASELCO)
16 Central Pangasinan Electric Cooperative, Inc.
5 Cagayan de Sulu Electric Cooperative, Inc. (CASELCO) (CENPELCO)
17 Pangasinan III Electric Cooperative, Inc. (PANELCO III)
6 Tawi-tawi Electric Cooperative, Inc. (TAWELCO)
18 Batanes Electric Cooperative, Inc. (BATANELCO)
7 Abra Electric Cooperative, Inc. (ABRECO)
19 Cagayan II Electric Cooperative, Inc. (CAGELCO II)
8 Kalinga Apayao Electric Cooperative, Inc. (KAELCO) 20 Cagayan I Electric Cooperative, Inc. (CAGELCO I)
REGION 2

9 Mountain Province Electric Cooperative, Inc. 21 Isabela II Electric Cooperative, Inc. (ISELCO II)
CAR

(MOPRECO)
22 Isabela II Electric Cooperative, Inc. (ISELCO I)
10 Ifugao Electric Cooperative, Inc. (IFELCO)
23 Quirino Electric Cooperative, Inc. (QUIRELCO)
11 Benguet Electric Cooperative, Inc. (BENECO)
24 Nueva Vizcaya Electric Cooperative, Inc. (NUVELCO)

List of Electric Cooperatives List of Electric Cooperatives

25 San Jose City Electric Cooperative, Inc. (SAJELCO) 38 Lubang Electric Cooperative, Inc. (LUBELCO)

26 Nueva Ecija II Electric Cooperative, Inc. (NEECO II) 39 Batangas I Electric Cooperative, Inc. (BATELEC I)

27 NEA Management Team (NEECO III) 40 Oriental Mindoro Electric Cooperative, Inc. (ORMECO)

28 Nueva Ecija I Electric Cooperative, Inc. (NEECO I) 41 Occidental Mindoro Electric Cooperative, Inc. (OMECO)

29 Tarlac I Electric Cooperative, Inc. (TARELCO I) 42 Busuanga Island Electric Cooperative, Inc. (BISELCO)

43 Palawan Electric Cooperative, Inc. (PALECO)

30 Tarlac II Electric Cooperative, Inc. (TARELCO II)
REGION 3

REGION 4

44 Aurora Electric Cooperative, Inc. (AURELCO)

31 Zambales I Electric Cooperative, Inc. (ZAMECO I)
45 Quezon I Electric Cooperative, Inc. (QUEZELCO II)
32 Zambales II Electric Cooperative, Inc. (ZAMECO II)
46 First Laguna Electric Cooperative, Inc. (FLECO)
33 Public Utilities Department (PUD) Olongapo City
47 Quezon I Electric Cooperative, Inc. (QUEZELCO I)
34 Pampanga Rural Electric Cooperative, Inc. (PRESCO)
48 Marinduque Electric Cooperative, Inc. (MARELCO)
35 Pampanga I Electric Cooperative, Inc. (PELCO I)
49 Romblon Electric Cooperative, Inc. (ROMELCO)
36 Pampanga II Electric Cooperative, Inc. (PELCO III) 50 Batangas II Electric Cooperative, Inc. (BATELEC II)

37 Peninsula Electric Cooperative, Inc. (PENELCO) 51 Tablas Island Electric Cooperative, Inc. (TIELCO)

November 2009  Dark Power Rising  PAID!  41

The Undistributed Powers

List of Electric Cooperatives List of Electric Cooperatives

52 Camarines Norte Electric Cooperative, Inc. (CANORECO) 93 Zamboanga City Electric Cooperative, Inc. (ZANECO)
53 Camarines Sur I Electric Cooperative, Inc. (CASURECO I)
54 Camarines Sur II Electric Cooperative, Inc. (CASURECO II) 94 Zamboanga del Sur I Electric Cooperative, Inc.
(ZAMSURECO I)
55 Camarines Sur III Electric Cooperative, Inc. (CASURECO

REGION 9
III) 95 Zamboanga del Sur II Electric Cooperative, Inc.
(ZAMSURECO II)
56 Albay Electric Cooperative, Inc. (ALECO)
REGION 5

57 Masbate Electric Cooperative, Inc. (MASELCO) 96 Zamboanga City Electric Cooperative, Inc. (ZAMCELCO)

58 Camarines Sur IV Electric Cooperative, Inc. (CASURECO

IV) 97 Basilan Electric Cooperative, Inc. (BASELCO)
59 First Catanduanes Electric Cooperative, Inc. (FICELCO)
60 Sorsogon II Electric Cooperative, Inc. (SORECO II) 98 Camiguin Island Electric Cooperative, Inc. (CAMELCO)

61 Sorsogon I Electric Cooperative, Inc. (SORECO I)

99 Misamis Oriental II Electric Cooperative, Inc. (MORESCO
62 Ticao Island Electric Cooperative, Inc. (TISELCO)
II)
63 Aklan Electric Cooperative, Inc. (AKELCO)
100 Misamis Oriental I Electric Cooperative, Inc. (MORESCO
64 Capiz Electric Cooperative, Inc. (CAPELCO) I)

REGION 10
65 Iloilo III Electric Cooperative, Inc. (ILECO III)
101 Misamis Occidental I Electric Cooperative, Inc. (MOELCI
66 Iloilo II Electric Cooperative, Inc. (ILECO II) I)
REGION 6

67 Antique Electric Cooperative, Inc. (ANTECO) 102 Misamis Occidental II Electric Cooperative, Inc. (MOELCI
68 Iloilo I Electric Cooperative, Inc. (ILECO I) II)

69 VMC Electric Cooperative, Inc. (VRESCO) 103 Bukidnon II Electric Cooperative, Inc. (BUSECO)
70 Central Negros Electric Cooperative, Inc. (CENECO)
71 Guimaras Electric Cooperative, Inc. (GUIMELCO) 104 Bukidnon I Electric Cooperative, Inc. (FIBECO)

72 Negros Occidental Electric Cooperative, Inc. (NOCECO)

105 Davao del Norte Electric Cooperative, Inc. (DANECO)
73 Bantayan Electric Cooperative, Inc. (BANELCO)
74 Cebu III Electric Cooperative, Inc. (CEBECO III)
106 Davao Oriental Electric Cooperative, Inc. (DORECO)
75 Camotes Electric Cooperative, Inc. (CELCO)
REGION 11

76 Cebu II Electric Cooperative, Inc. (CEBECO II)

107 Davao del Sur Electric Cooperative, Inc. (DASURECO)
77 Cebu I Electric Cooperative, Inc. (CEBECO I)
REGION 7

78 Negros Oriental I Electric Cooperative, Inc. (NORECO I) 108 South Cotabato I Electric Cooperative, Inc. (SOCOTECO
79 Negros Oriental II Electric Cooperative, Inc. (NORECO II) I)
80 Bohol I Electric Cooperative, Inc. (BOHECO I) 109 South Cotabato II Electric Cooperative, Inc. (SOCOTECO
II)
81 Bohol II Electric Cooperative, Inc. (BOHECO II)
82 Province of Siquijor Electric Cooperative, Inc. 110 Lanao del Norte Electric Cooperative, Inc. (LANECO)
(PROSIELCO)
REGION 12

83 Northern Samar Electric Cooperative, Inc. 111 North Cotabato Electric Cooperative, Inc. (COTELCO)
(NORSAMELCO)
83 Samar I Electric Cooperative, Inc. (SAMELCO I) 112 Sultan Kudarat Electric Cooperative, Inc. (SUKELCO)

84 Biliran Electric Cooperative, Inc. (BILECO)

113 Dinagat Island Electric Cooperative, Inc. (DIELCO)
85 Samar II Electric Cooperative, Inc. (SAMELCO II)

86 Eastern Samar Electric Cooperative, Inc. (ESAMELCO) 114 Surigao del Norte Electric Cooperative, Inc. (SURNECO)
REGION 8

87 Leyte III Electric Cooperative, Inc. (LEYECO III)

115 Surigao del Sur I Electric Cooperative, Inc. (SURSECO I)
REGION 13

88 Leyte II Electric Cooperative, Inc. (LEYECO II)

116 Agusan del Norte Electric Cooperative, Inc. (ANECO)
89 Leyte V Electric Cooperative, Inc. (LEYECO V)

90 Leyte I Electric Cooperative, Inc. (LEYECO I) 117 Agusan del Sur Electric Cooperative, Inc. (ASELCO)
91 Leyte IV Electric Cooperative, Inc. (LEYECO IV)
118 Surigao del Sur II Electric Cooperative, Inc. (SURSECO II)
92 Southern Leyte Electric Cooperative, Inc. (SOLECO)

42  PAID!  Dark Power Rising  November 2009

Why
WESM
Won’t Work
By Maitet Diokno-Pascual and Wilson Fortaleza
PART I: The Unfolding of WESM
Introduction
The establishment of the Wholesale
Electricity Spot Market (WESM) is
a necessary reform component of the
Electric Power Industry Reform Act
(EPIRA). Its main thrust is to promote
and facilitate “unfettered” competition
in the power industry, the consequence
of which is the attainment of EPIRA’s
overall objective of bringing down
electricity rates.
WESM is therefore the cornerstone
of the Philippine power industry’s
transformation from a regulated to a
deregulated regime. Thus, its success
could bolster the argument that this
model can work in the Philippines
despite a humiliating experience in
the United States and other developed
countries. Its failure would prove
otherwise - that this model will not
work, especially in this country where
the market is not only relatively weak
and small but is also strategically
ruled or captured by well-entrenched
industry players and oligarchs.
Barely three months after WESM was
launched, a case of possible abuse
of market power was lodged before
the Energy Regulatory Commission
against the Power Sector Assets and
Liabilities Management Corporation
(PSALM). Also in May 2008, during
a public hearing conducted by the
Joint Congressional Power Committee
(JCPC), Prof. Rowaldo Del Mundo
of the UP School of Engineering,
disclosed that Meralco’s purchases
from the WESM in 2007 and the 1st
quarter of 2008 increased its power
cost by PhP0.30/kWh. This was
because Meralco’s purchases from
WESM were PhP 1.00 to PhP 2.00/
kWh higher than its average purchases
from NPC and its IPPs (see boxed
article on the next page).
The Aboitiz group, on the other hand,
declared in its 2007 financial report to
stockholders that the rise in its income
by more than double (124%) was
mainly due to its strategy of trading its
generated electricity at WESM during
peak hours.
A preliminary assessment conducted
by no less than the Market Assessment
Group of the Philippine Electricity
Market Corporation (PEMC),
WESM’s designated operator,
points to a menu of factors such as
market concentration and absentee
demand-side participation, among
others, contributing largely to the
malfunctioning of the spot market,
giving credence to arguments that this
November 2009  Dark Power Rising  PAID!  43
model was doomed from the start. One
year after WESM began, prices were
volatile, capacities being offered for
sale were consistently below available
capacities, and bilateral contracts
dominated the sale and purchase of
electricity.
Yet, despite the overwhelming evidence
of market failure as illustrated in its
2007 Annual Market Assessment
Report (AMAR), the PEMC prefers
to downplay these events as mere
“hangovers” from the industry’s
previous regime, “birth pains” the
industry has to undergo as part of the
restructuring under EPIRA. For PEMC,
full competition is yet to be attained,
thus the industry cannot afford further
delays in the privatization process.
Consisting of the market players
themselves, PEMC people would
probably be the last to recognize
that the persistence of market
concentration is rooted not in the
delay of privatization but more in the
inherent failure of EPIRA to break the
monopoly structures in the industry
and establish a strong regulatory
framework. As PEMC, which
prides itself in making the market
transparent, gathers and publishes the
market data, it cannot for long be blind
Why WESM Won’t Work

UP Professors’ critique of WESM

Excerpts from “Reducing Power Rates by at least P2.00/kWh”, a Is Meralco providing its customers the cheapest electricity?
collaborative work by UP School of Engineering Professors Edna Espos,
— NO, according to UP Professor Rowaldo del Mundo
Allan Nerves, Ivan Benedict Nilo Cruz and Rowaldo del Mundo. Selected
Tables below were part of Prof. del Mundo’s presentation before the According to Prof. Rowaldo del Mundo, MERALCO’s power supply
JCPC last July 5, 2008. purchases from WESM for 2007 and the first quarter of 2008 are
PhP1.00 to PhP2.00 higher than NPC and IPP average rate. The
The establishment of the Wholesale Electricity Spot Market impact of this was increased cost of PhP0.30 per kWh for Meralco
(WESM) is pre-mature and an expensive distraction from more customers.
pressing problems facing the industry. While WESM supports
the privatization of NPC’s assets by providing a ready market in Summary of Purchases - Ave. Rate (Php/kWh)
the absence of retail competition and open access; spot prices have Period NPC IPPs WESM
increased rather than decreased the cost of electricity. MERALCO’s
purchases from WESM in 2007 and in the first quarter of 2006 Jan-Sep 2007 5.4396 4.1743 6.2260
increased its power cost by PhP0.30 per kWh. Oct 2007 - Mar 2008 4.3170 4.1036 6.6546

Prices of the WESM are set by NPC/PSALM who account for Jan 2007 - Mar 2008 4.9296 4.1773 6.2048
approximately 70% of the capacity traded in the market. The
occasional softening of WESM prices has less to do with competition Comparison with Average Rates:
than on the generating capability of NPC/PSALM plants and other TOU Only vs. TOU + Ecozone Rates
factors such as transmission constraints. For instance, MERALCO’s
Period TOU + WESM WESM Difference
announced reduction in generation charges for May was attributed
to the early onset of the rainy season which lowered demand and Jan-Sep 2007 5.1312 4.7820 0.3492
increased generating capacity of NPC/PSALM plants; while the Oct 2007 - Mar 2008 4.1766 3.9105 0.2661
price spikes in August were due to severe transmission constraints.
Jan 2007 - Mar 2008 4.6973 4.3930 0.3043
The enormous market power of NPC/PSALM shows up in the
Tables below show that MERALCO bought more from WESM during
market’s Herfindahl-Hirschman Index (HHI) and Price-Setting
off-peak, an average of 19.23 percent compared to 10.50 percent
Frequency Index (PSFI). The HHI is way past 1,800 while PSFI
during peak hours. They did the same for its IPPs, an average of
shows the dominance of NPC plants and MERALCO’s IPPs in price
64.33 percent and 44.36 percent, respectively. According to PEMC,
setting. The other conditions for an efficient spot market are
Meralco IPPs such as FGPP’s Sta. Rita, San Lorenzo and QPPL were
also missing. These are: no transmission bottleneck; no supply
price-setters next to NPC’s Pagbilao CFTPP and KEPCO Ilijan during
constraints; availability of hedging facilities to avoid price volatility
OFF-PEAK (AMAR 2007, pp 56-58).
and trading losses; and, vigorous enforcement of competition law.
As an auction, the spot market will always be vulnerable to gaming. Possible gaming? PEMC says YES. ERC sees NONE.
The vigorous enforcement of competition law is essential to deter
anti-competitive conduct by its participants. ERC’s action on the Actual Purchases, PEAK and OFF-PEAK
alleged abuse of market power by NPC/PSALM in 2006 manifest PEAK OFF-PEAK
the regulator’s inability to correctly and vigorously implement its Period
competition rules. NPC IPPS WESM NPC IPPs WESM
Jan - Sep 2007 41.49% 43.82% 14.70% 9.34% 64.13% 26.53%
Bidding at WESM is price-based which allows the dominant
generators to exploit their market power and game the market. Oct 2007 -
53.21% 42.14% 4.65% 23.39% 62.33% 14.28%
The rules should be changed to cost-based bidding where generators Mar 2008
bid their actual or forecast variable cost and the dispatch schedule Jan 2007 -
is drawn-up accordingly. The spot price will be a combination of 44.01% 44.32% 11.67% 14.43% 64.36% 21.21%
Mar 2008
the System Marginal Price and a capacity payment to encourage
investments. Cost-based bidding has been successfully employed
in Latin America (some in transition to price-based bidding) and As shown in the table above, Meralco favored its IPPs off-peak
resulted in increased private investment in generation and operating more than NPC or WESM even though NPC rates are lower than
efficiency. Meralco’s IPPs during off-peak.

to the fact that rather than deconstruct the state-owned
monopoly of the National Power Corporation, EPIRA is
powerless to transfer ownership of this monopoly to a
few power players. PEMC itself warns that greater market
concentration renders it vulnerable to possible gaming
or outright manipulation. Granting that it is in its infant
stage — merely three years old —WESM is not designed as
a self-healing mechanism for the industry to move forward
and produce EPIRA’s desired results of competition and
cheaper electricity.
It has been three years since WESM opened its trading floor,
and in these three years, the promised decline in power
rates as envisioned by EPIRA has failed to materialize.
This paper looks into the workings of WESM since it started

44  PAID!  Dark Power Rising  November 2009


operating in 2006. In particular, it attempts to assess the
implementation of WESM in relation to EPIRA’s objectives
of promoting competition and bringing down power rates.
As mentioned earlier, a preliminary assessment of the
WESM has already been conducted by the PEMC itself.
This paper draws extensively on this self-assessment.
Recognizing however that PEMC’s study was short of calling
a spade a spade, thus, more substantive analyses on EPIRA
and the political economy of the Philippine electricity
market was deemed necessary to better understand why
competition in the industry is practically dead and why
WESM, as argued here, cannot and will not achieve its
intended aims.
The Wholesale Electricity Spot Market
On June 23, 2006, the WESM was finally launched and set
into operation three days later, with financing from the
Asian Development Bank (ADB). The launch was two years
behind the schedule set under the EPIRA and the coverage
was limited to the Luzon grid only since the technical
and market requirements for the Visayas and Mindanao
operations remained absent. The main requirement was
that at least 70 percent of the generating assets — also not
met—of the National Power Corporation’s (NPC) should
have been privatized. This also caused the delay in the
implementation of retail competition and open access.
Proclaimed publicly as a mechanism to facilitate
competition and efficiency in the power industry, WESM
elicited positive reactions from industry players. Federico
Lopez, president of First Gen Corporation of the Lopezes,
the country’s largest Filipino-owned independent power
generation company, said that should the objectives of
EPIRA be met “the country would benefit from affordable
and reliable electricity supply.” Also, Edgardo Bautista
of Mirant Philippines (now TeaM Energy), a Napocor-
contracted IPP and one of the largest in the Philippines, was
quoted as saying that, “The passage of the Power Reform
Act is seen by Mirant as an opportunity to participate in
bringing about the objectives of the Power Reform Act—to
ensure that reliable, quality electricity will be made available
at reasonable price. It is an opportunity for us (Mirant) to
participate in making that happen.”
The objective of WESM is to establish a competitive,
efficient, transparent and reliable market for electricity
where: (a) a level playing field exists among WESM
Participants; (b) trading of electricity is facilitated among
Participants within the spot market; (c) third parties are
granted access to the power system in accordance with the
Act (EPIRA); (d) prices are governed as far as practicable
by commercial and market forces, and (e) efficiency is
encouraged [WESM Rules 1.2.5 (WESM Objectives), p2]
WESM aims to: 1) provide incentives for the cost-efficient
Why WESM Won’t Work
dispatch of power plants through an economic merit order,
2) create reliable price signals to assist participants in
weighing investment options (to invest in additional
generating capacity), and 3) protect a fair and level playing
field for suppliers and buyers of electricity, wherein prices
are driven by market forces.
But the ultimate reason for establishing the WESM is
to bring down power rates in accordance with EPIRA’s
objectives.
The Department of Energy (DoE) together with industry
participants was mandated by EPIRA to formulate the
WESM Rules to govern its operations. Adopted in June
2002, the WESM Rules provide the mechanism for
determining the price of electricity (those that are not
covered under bilateral contracts) to be traded in the spot
market. The price determination methodology contained
in the Rules required the approval of the Energy Regulatory
Commission (ERC).
The WESM is operated by the Philippine Electricity
Market Corporation (PEMC), a private non-stock,
non-profit corporation constituted by the DOE in
November 2003. The PEMC Board is shared “equitably” by
representatives from electric power industry participants:
market operator (1 director), system/transmission
operator (1 director), supplier (1 director), generators
(4 representatives), distributors (4 representatives two
of which are from rural electric cooperatives), and four
independent members of the board. The Energy Secretary
chairs the PEMC Board.
PEMC acts as the Market Operator (MO) of WESM. It
performs a dual function. One is formulating the rules and
guidelines of WESM operations through the Philippine
Electricity Market Board (PEM Board) and regulating
the conduct of market players. The other is performing
the Market Operations (MO) function, for purposes of
undertaking the preparatory work and operation of WESM.
Industry participants
Industry participants such as the (a) generation
companies; (b) distribution utilities; (c) suppliers; (d) IPP
administrators; (e) end-users; and (f) other similar persons
(or entities) may be authorized by the ERC to become
eligible members of the WESM.
Under EPIRA, other than generators and distributors in
the supply sector, new players were added — the electricity
suppliers. An electricity supplier is a person or entity
authorized by ERC to sell, broker, market or aggregate
electricity to end-users in the franchise area of a distribution
utility. In layman’s terms these electricity suppliers are
“agents” who will aggregate demand of end-users in a
contestable market and market or broker electricity from
November 2009  Dark Power Rising  PAID!  45
Why WESM Won’t Work

a generator. Through open access, this electricity supplier of electricity (power plants) representing the supply side
will be using wires of the distribution utility in selling (sellers), and buyers of electricity (distribution utilities),
electricity to end-users and impose “supplier’s charge”, a representing the demand side, to trade (the buying and
charge that excludes charges for generation, transmission selling transactions) electricity.
and distribution wheeling (the charge imposed for using
wires in transmitting electricity to end-users). The typical steps or procedures in power trading are as
follows:
On January 26, 2007, seven months after its launch, WESM
had 25 registered generators and 157 customers (Table Step One: Trading participants submit hourly
1). These customers are the purchasers of electricity from bids to the Market Operator (MO) (PEMC) stating
generators in different categories (private distribution their price of, and demand for, electricity. Price bids
utilities, electric cooperatives, industrial and commercial reflect only the energy costs.
loads, and government offices).
At this stage, trading participants — e.g., generators,
Table 1: Registration Status After the Launching of WESM distributors, suppliers, aggregators, and other
(As of January 26, 2007) participants authorized by the ERC — submit their
Participants Classification Number Registered MW hourly bids to PEMC. There are 24 one-hour trading
Generators 25.00 20.00 11,412.00
periods in a day at the spot market but practically,
bidding takes place 24 hours in advance. In the case
1. NPC-Owned (Trading 8.00 8.00 2,661.00 of sellers (i.e., generators), they will state their price
Teams)
of electricity per MW in a given trading hour. Note
2. PSALM (NPC-IPPs) 4.00 4.00 6,159.00
(Trading Teams)
that a plant can be dispatched only if it enters a bid
and wins. This explains why Meralco IPPs bid zero
3. First Gas Power Corp. / 2.00 2.00 1,500.00
FGP Corp.
to ensure dispatch.
4. Quezon Power 1.00 1.00 500.00
Philippines Company
Price offers and bids differ from hour to hour. During
peak hours when the demand for electricity is high,
5. First Gen Hydro Power 1.00 1.00 112.00
Corp
the price of electricity goes up, and conversely the
opposite during off-peak hours. Using Gross Pool
6. Other IPPs 9.00 6.00 480.00
concept all generators connected to the power grid
Customers 157.00 16.00 6,642.00 shall submit their offers for both price and quantity
1. Private Distribution 11.00 3.00 4,875.00 for energy for central scheduling and dispatch. For
Utilities buyers (i.e., distributors), they will also state their
2. Rural Electric 45.00 13.00 1,219.00 corresponding demand for electricity at a given
Cooperatives trading hour.
3. Industrial & Commercial 80.00 0.00 482.00
Loads Step Two: Market Operator matches bids using
4. Government Offices/ 21.00 0.00 66.00 the Market Dispatch Optimization Model (MDOM),
Installations which takes into account market requirements and
Source: WESM physical system constraints. Demand and supply
of electricity are stacked into merit order based
How does WESM work? on price offers, with the cheapest-bid plant being
dispatched first.
An electricity spot market is a trading place where
electricity is traded between buyers and sellers on an
At this stage PEMC matches the bids (from buyers)
hourly basis to meet the power demand on competitive
with offers (from seller) before scheduling the
basis at marginal cost.
dispatch. The dispatch is to begin from the lowest
bid up to the ‘point’ where supply meets the demand
In principle, an electricity spot market is similar to any
at a given trading hour. This ‘point’ is called the
commodity market where commodities (i.e., wheat,
market clearing price (MCP) that is set by the last
potatoes, oil) are traded. But technically and procedurally,
dispatched generator (power plant) which met the
it differs in many aspects since electricity cannot be stored,
demand. The price of the last generator is expectedly
and therefore must be traded continuously. One trading
higher than the earlier dispatch. The established
day in a spot market is divided into 24 one-hour trading
MCP will also be the basis for determining the prices
periods.
in the other locations (or the Locational Marginal
Price [LMP]).
As a power trading place, a spot market allows generators

46  PAID!  Dark Power Rising  November 2009


Take note that the MCP is the price paid to ALL
winning bidders for the trading hour concerned. So
even if a bid of zero is offered by a supplier (such as
Meralco IPP or PSALM/NPC trader), the price paid
to the zero-price bidder is the MCP.
Step Three: Market Operator submits the
dispatch schedule to TransCo, the System
Operator (SO), for implementation.
After matching the bids and offers, PEMC sends
instructions to TransCo for the scheduling of
dispatches of generators using the principle of
lowest price first to dispatch. Electricity from a
generator will be transmitted to a distribution
utility (DU) via the TransCo’s transmission lines.
Step Four: Suppliers and buyers of electricity
settle respective payments through WESM.
Under its price determination methodology, the
total cost of electricity is computed using the market
clearing price (spot price), market fees, and charges
for ancillary services. In the case of bilateral power
supply contracts however, the involved trading
participants have the option of settling directly
with their contracting parties OUTSIDE the market,
using the contract pricce rather than the WESM
price.
How have WESM players behaved?
To expect the highly concentrated Philippine electricity
market to respond positively under the WESM is to assume
theory to reign over reality. Such an expectation is at best
naivete or a simplistically blind faith in markets. For
competition to flourish in the market, the PEMC itself
Why WESM Won’t Work
admitted that the first requirement is the presence of
many small players — in other words, a market with
many buyers and sellers competing among themselves
and too small in size to wield influence over the price and
quantity of the traded commodity. (This however does not
always apply in the electricity spot market; see section
below.) Other requirements include homogeneity of the
commodity, mobility of capital, and price discovery and
full transparency of information.
Is that the case now in the country’s electricity market?
PEMC’s AMAR 2007 already concedes that the Philippine
electricity market is highly concentrated. In fact, rather
than de-monopolizing, the power sector is becoming
increasingly concentrated.
According to PEMC, the demand side (buy-side) in the
Luzon grid is basically dominated by Meralco, with 74
percent share in consumption. It is followed at a far second
by 119 electric cooperatives at 14 percent (taken as a whole;
separately, electric cooperatives have peak demand ranging
from half a megawatt to below 100 MW), industry direct-
connect at 8 percent, and other utilities for a 4 percent
share. See graph below.
Spot Market - Bilateral Contract Quantity Ratio (Whole Market)
6/26/2006 to 12/25/2006
November 2009  Dark Power Rising  PAID!  47
Why WESM Won’t Work
But where did Meralco and other utilities primarily
purchase their power needs? Data shows they were from
bilateral contracts and not from the spot market, a clear
indication that WESM at best is marginal. PEMC added that
for most of the year (2006) Meralco and other distribution
utilities were “passive” participants in the spot market and
the trend that took precedence, on the contrary, was the
rise of bilateral contracts. As of the end of 2006, bilateral
contracts accounted for almost 80 percent of the market,
as shown below.
Distribution utilities are mandated by EPIRA to source
at least 10% of their total demand from the WESM. It
should not be interpreted, however, as a cap for trading.
What is provided under Section 45 (c) of EPIRA is for the
first five (5) years from the establishment of WESM, no
DU shall source ninety percent (90%) of its total demand
from bilateral power supply contracts. This is to avoid abuse
of market power and anti-competitive behavior (which is
also absurd considering the ratio). Section 23 supersedes
this ‘misconstrued’ cap as DUs, as provided, shall have the
obligation to supply electricity in the least cost manner to
its captive market.
Theoretically, traded electricity is supposed to be the
least cost since it is priced at marginal cost. If that is
the case, DUs should have preferred to buy at WESM as
mandated. Ironically, despite the abundance of tradeable
electricity, WESM trading is constrained and resulted to
high settlement prices.
On the supply side (generation), the NPC and PSALM
still maintain a dominant role because of the slow pace of
privatization. As of 2007, the combined NPC-NPC-IPP and
NPC-SPUG account for 70 percent of the total generating
capacity. But the Lopez-owned IPPs are running second,
getting 24 percent of the share, while the remaining 6
percent are shared by other non-NPC utilities including
the Aboitiz group. This kind of ownership structure in the
generation side shows the “high concentration index” of
the Philippine electricity market, as expounded by PEMC.
What is the impact of this kind of market concentration
on EPIRA’s objective of promoting competition? We have
a single dominant buyer in the shape of Meralco, which
has sister IPPs with whom it has entered into bilateral
contracts. Imagine what clearing price the WESM can
match if Meralco (which accounts for more than 70 percent
of the demand-side market) stays out of or remains a
passive player in the spot market. Under the WESM Rules,
demand-side bidding was made optional. But when it
decides to actively buy (which Meralco has done), Meralco
offers enormous economic opportunity in favor of the
48  PAID!  Dark Power Rising  November 2009
seller/s (generator/s), which in most cases happen to be its
own affiliates. This explains why Meralco IPPs, with only
a 25% share of installed capacity, are able to capture 40%
of electricity bidded and sold through WESM.
Clearly this is not competition at work but monopsony
power at play — market power held by the buyer on the
basis of its size and command of the market, as well as its
organic links with some IPPs.
On the part of suppliers, the government in early 2007
controlled 77 percent of installed generating capacity,
giving it a monopoly of the market. Market power held by
suppliers can be exercised by withholding capacity (creating
a shortage where none actually exists), gaming (using its
leverage in the market as a crucial supplier to raise prices
above cost), and even outright manipulation (price fixing
and the like; see section below).
Now the big question: Why is WESM like this? For one,
the market was already concentrated prior to EPIRA, and
as discussed earlier, WESM is not designed to prevent a
government monopoly from being passed on to a few power
players in the private sector. For another, EPIRA’s provisions
and safeguards against anti-competitive behavior are weak
and were significantly watered down by the legislators
themselves (especially those with obvious links to the
industry players). EPIRA allows cross-ownership between
generation, supply and distribution. Another provision
enables Meralco, with the biggest single hold over the
Philippine electricity market, to favor its affiliates in
generation and supply up to 50 percent of its electricity
requirement.
Furthermore, WESM rules allow players to settle their bids
through bilateral contracts, thus, the buyers’ preference
is tilted towards bilateral contracts as they are more
desirable under a monopsony setup, while at the same
time maximizing their membership in WESM to gain more
profit or win favors for their affiliates.

PART II: Market Power and its Abuse
Market Power defined
When a generating firm has an ability to maintain higher
prices by reducing its output or offering to sell electricity
at a price significantly above cost, it has market power.
When it behaves in such a manner, it is said to be exercising
market power.
The actions of offering to sell electricity at a high
price (higher than cost), and of failing to generate
electricity when the cost of doing so is below
market price, denote the exercise of market power.
(Severin Borenstein, James Bushnell and Frank
Wolak, “Diagnosing Market Power in California’s
Restructured Wholesale Electricity Market,”
National Bureau of Economic Research Working
Paper 7868, http://www.nber.org/papers/w7868,
p. 5)
There are two kinds of market power: vertical and
horizontal. Vertical market power is a concern in the
Philippines because the EPIRA allows cross-ownership
between distribution (which is regulated), and generation
and supply (both of which have been deregulated). Vertical
market power refers to the control or dominance of a
firm or business group in two related activities (such as
generation and distribution), which it employs to raise
prices and profits. Says the US Department of Energy:
“Vertical market power is exercised when a firm
involved in two related activities, such as electricity
generation and transmission, uses its dominance in
one area to raise prices and increase profits for the
overall enterprise.” (“Horizontal Market Power in
Restructured Electricity Markets,” DOE/PO-0060,
March 2000, p. 1.)
Horizontal market power refers to the control by a firm
of a single activity, e.g., power generation (where its share
of total capacity is significant), which it can use to drive
up prices, thereby profiting from the exercise. Studies of
the electricity markets in the US and the UK show that
horizontal market power exists in these restructured
electricity sectors, and has been exercised. Note that these
markets are much larger than that of the Philippines, with
less dominant players than in the Philippines. Enron,
for example, which was found to have manipulated the
electricity market in California, accounted for only 6
percent to 8 percent of generating capacity.
Horizontal market power refers to the control by a firm
of a single activity, e.g., power generation (where its share
of total capacity is significant), which it can use to drive
up prices, thereby profiting from the exercise. Studies of
Why WESM Won’t Work
the electricity markets in the US and the UK show that
horizontal market power exists in these restructured
electricity sectors, and has been exercised. Note that these
markets are much larger than that of the Philippines, with
less dominant players than in the Philippines. Enron,
for example, which was found to have manipulated the
electricity market in California, accounted for only 6
percent to 8 percent of generating capacity.
The report of the Market Surveillance Committee of the
PEMC defines market power and the abuse of market
power as follows:
“When a trading participant with substantial
share of the market can significantly increase
its price offer without the fear of not being
dispatched and when the independence and sense
of competition among the players in the market
has been circumvented in order to control price on
the market, there is an abuse of market power.”
Note that in all definitions above, the action referred to is
that of one firm, by virtue of its hold or advantage in the
market, to cause prices in that market to rise above costs,
so that it can gain more profits. A firm such as this, by
its own actions, without necessarily entering into a price
fixing arrangement with other players in the market, can
cause prices to rise and thus benefit from the exercise of its
market power. To quote economists who have researched
extensively on market power in the electricity industry:
“In contrast to price-taking firms, a firm with
market power can unilaterally influence the market
price by withholding output at the margin or
raising the price at which it is willing to sell this
marginal output. Market power is enhanced when
demand is relatively inelastic, as well as when the
supply of other firms is inelastic, such as during
peak production times in electricity markets. High
storage costs also enhance market power, since
inventories are not available as an alternative
supply source if a firm tries to exercise market
power. For this reason, electricity markets are
more vulnerable to the exercise of market power
than are other energy markets such as the one for
gasoline.” (Severin Borenstein, James Bushnell
and Frank Wolak, “Diagnosing Market Power in
California’s Restructured Wholesale Electricity
Market,” National Bureau of Economic Research
Working Paper 7868, http://www.nber.org/papers/
w7868, p. 6; emphasis added)
November 2009  Dark Power Rising  PAID!  49
Why WESM Won’t Work
Vertical Power in the Philippine Electricity Industry
EPIRA tolerates vertical power in the Philippine electricity
industry, through its cross ownership provision and by
allowing distribution utilities to source up to half of their
electricity needs from affiliated generators. By virtue of
its franchise (again, granted by the State), size, and sister
companies in the generation sector, Meralco is the most
striking example of vertical power in the country’s power
sector. Meralco’s franchise covers nearly three-fourths of
the demand for electricity in Luzon. It has affiliates with
the capacity to supply up to 25 percent of the electricity
needs of consumers in Luzon (2006 data), but who actually
provided more than this, thanks to their bilateral contracts
with Meralco. With the entry of Danding Cojuangco into
Meralco, and with his acquisition of the Limay thermal
plant in Bataan and the controversial hydropower plant
in Laiban, Rizal, one can only expect this vertical giant to
grow even taller.
Another vertical power in the making is the Aboitiz Group’s
distribution utilities and generating plants. While no
other utility comes close to the giant that is Meralco, the
Aboitiz Group is a dominant force both in generation and
distribution in Mindanao, Cebu, and parts of Luzon outside
the Meralco franchise area. It has acquired through bidding
several hydropower and geothermal plants of Napocor.
(See article “From State Monopoly to a De Facto Electricity
Oligarchy”)
In its Annual Market Assessment Report on the first year
of WESM operations, the PEMC, while recognizing the
“potential monopsony power” of Meralco, also observes
that Meralco has not exercised the vertical power it enjoys in
the electricity sector, appearing instead to be “passive buy-
side participants”. Because Meralco and other distribution
utilities simply pass on their generation costs to their
consumers, PEMC says there is little, if any, incentive for
them to raise WESM prices.
Nevertheless, being in a position of a monopsony, and
having the backing of EPIRA to keep affiliates in generation
and supply, and to purchase up to half of its own needs
from its affiliates, gives Meralco a strategic advantage in
the Philippine power sector. The enormity of its franchise
enhances this advantage enjoyed by no other player in the
industry. This alone renders uncompetitive the wholesale
electricity spot market.
More recently, in December 2008, Congress with the
approval of President Arroyo granted a franchise to the
National Grid Corporation of the Philippines, a joint
venture involving Monte Oro, a Philippine company, with
the National Grid Corporation of China. In the granting
of the franchise through Republic Act 9511, Congress and
Mrs. Arroyo redefine cross ownership and the provisions
on cross ownership in the EPIRA (R.A. 9135). The new
50  PAID!  Dark Power Rising  November 2009
definition in the Transco franchise law is watered down.
Instead of maintaining the total ban on cross ownership
between transmission and other sections of the electricity
industry (distribution, generation and supply), R.A. 9511
allows cross ownership up to one percent of the outstanding
shares of the other industry player. Cross ownership beyond
this percentage is not allowed among relatives and spouses
within the fourth civil degree of consanguinity, but not
prohibited for more distant relatives and their spouses.
In other words, there could be cross ownership between
transmission and generation and distribution. EPIRA’s
already weak cross ownership provision just got weaker.
Vertical power in the Philippine electricity industry is
apparently here to stay.
Horizontal Power in the Philippine Electricity Industry
Taken as one, PSALM and the NPC enjoy a substantial
share of the generating wholesale electricity spot market.
At the start of the WESM they held 56.7 percent of installed
capacity of all registered generators. With privatization of
NPC’s generating assets we expect the latter’s horizontal
power in generation to decline. But today this remains
significant.
PSALM alone has enough capacity to supply 90 percent of
the current peak demand of 6,500 MW. Originally, PSALM
had four trading teams responsible for selling the electricity
of 15 IPPs of the Napocor. In March 2007, PSALM reduced
the number of trading teams to three. This action, according
to PEMC, “further consolidates the concentration of this
market power along with the tendency to set the price.”
(AMAR 2007, p. 25)
PEMC monitors the price setting behavior of WESM and
keeps a record of the hourly trading offers and results.
Among the information it compiles and analyzes is that
of hourly trading price — its level (usually in pesos per
megawatt hour), which generating plant set the price for
the particular trading hour, etc. By looking at which plant
sets the price one has an indication of which plant enjoys
market power. Considering that the exercise of market
power is most evident during peak hours, we focus on
trading behavior during these times.
In the first year of WESM’s operation, the top six generators
setting the price most often during peak hours (from 10
percent to 33 percent of the time) were PSALM-traded
plants. Pagbilao set the peak price 33 percent of the time,
followed by Kepco which set the peak price 23 percent of
the peak trading time during the year. The power plants
Limay, Sual, Bauang and Subic Enron each set the peak
price from just below 10 percent to below 20 percent of all
peak trading hours in the first year of WESM.
During off peak hours, the three generators that set the
off peak price most often in the first year of WESM were

Meralco IPPs: Sta Rita, San Lorenzo, and Quezon Power.
These three set the off-peak trading price for over 25
percent of the time. But PSALM’s peak price setters —
Pagbilao and Kepco — managed to set the off peak price
for over 15 percent to below 25 percent of the time, even
during off-peak.
Over the same period, the generators considered crucial
suppliers belonged to PSALM. (A generator is considered a
crucial supplier if its supply is needed to close the demand
during a peak trading hour for 20 percent or more of all
peak trading hours in a certain period.) In its first year of
operation, WESM’s crucial suppliers were (from the top)
Sta. Rita, Kepco, Pagbilao, San Lorenzo, Quezon Power
and Masinloc. Sta. Rita and Kepco, on the average, were
crucial suppliers for half the time.
Of the crucial suppliers, only two generators: Pagbilao and
Kepco – again, both PSALM traded plants – were also the
price setters during peak hours. PEMC remarks:
“The conjunction of being a pivotal supplier as
well as a price setter at the same time increases
the probability for the plant concerned to exercise
market power. The high frequency that Kepco Ilijan
and Pagbilao CFTPP were in these conjunctions
throughout the year increased the opportunities
for the two plants to manifest their bearing on the
market. In fact, Kepco Ilijan and Pagbilao CFTPP
were subjected to investigation as a result of the
September-October price surge.” (AMAR 2007,
p. 58)
What this data point to is that PSALM enjoys market power
by virtue of its substantial share of generation supply; by
the ability of some of its plants to set clearing prices during
peak hours and do so for 20 percent or more of trading time
during peak hours; and by virtue of some of its plants being
crucial suppliers in the wholesale electricity spot market.
The market data also show that some generating plants of
PSALM are the top price-setters even though they are not
always the top-ranking crucial supplier. According to the
PEMC, this indicates the exercise of “some market power
to influence price despite not playing a pivotal supplier
role in the market.”
Ways market power can be exercised
Market power can be exercised through various ways:
economic withholding – unscheduled outage of power
plant; withholding the supply of coal or other fuel needed
for generation, resulting in the non-offer of capacity by the
affected plant; bidding or offering a higher price, knowing
that such a bid would raise the market price; coordinated
bid raising among trading teams that are supposed to act
independently of each other.
Why WESM Won’t Work
Capacity withheld
Data from WESM clearly show that installed and available
capacity of electricity always exceeds demand. But the
Philippine electricity market has consistently exhibited a
“capacity gap” offers to supply electricity are “normally” half
of available capacity. The PEMC in its market assessment
of the first year of WESM concludes:
“...[O]ffers were depressed with no sign of raising
them to the desired rated or available capacity
level, generating in the process price spikes that
sting the market at large. The situation raised
the unavoidable dilemma of whether there was a
deliberate attempt for some quarters to withhold
the capacity to game the market.” (AMAR 2007,
p. 20)
The same report explains further:
“The Philippine market exhibits enough available
capacity to supply all the energy requirements but
offers are artificially low, generating in the process
spikes in prices or in some cases market failure in
the form of pricing error notices....No matter what
conditions were prevailing in the market at each
time, the ratio of the average offered capacity to
average available capacity ranged between 55 to 66
percent during the first twelve months of WESM’s
operations. This highlighted the consistency of the
market in not offering almost half of the available
capacities.” (AMAR 2007, p. 27)
Note the words above: all energy requirements can be
supplied by the market but offers are “artificially low.”
Remember one indication of market power and its exercise:
refusing to supply electricity when the cost of generating
it is less than the market price.
Bidding Strategy
When prices rise, but there is no change in demand for
electricity or supply of electricity, this may be a sign that
an industry player with market power is exercising it.
In the first fourth months of the WESM’s commercial
operation, the load weighted average price (LWAP) went
from PhP2,788 per mWh in the first month, to PhP3,079
per mWh in the second month, to PhP4,853 per mWh in
the third month and PhP6,770 per mWh in the fourth
month. The LWAP hit a maximum of PhP62,179 per mWh
in the fourth month, from a maximum of only PhP19,799
per mWh in the first month.
This price hike occurred without any significant change in
demand and supply conditions.
November 2009  Dark Power Rising  PAID!  51
Why WESM Won’t Work

zz Peak demand in the first four months of WESM
operations stayed steady, ranging from 5,900 MW to
6,100 MW.
zz The minimum demand likewise showed little variation
in the same period, ranging from 3,300 MW to 3,500
MW.
The supply conditions also showed no significant change
in the third and fourth months compared with the first
two months.
zz The maximum offers to supply electricity ranged from
7,000 MW to 7,900 MW from June to October 2006,
while the minimum offers ranged from 4,400 MW to
5,400 MW.
Clearly, the market conditions do not explain the price
escalation that took place in the third and fourth months
of the WESM operations. What changed was the bidding
behavior of key players.
of 30 August 2006. These offers are compared with the
corresponding offer by each team for the same trading hour
a week before (23 August 2006) and a day before (29 August
2006). As the table shows, prior to 30 August 2006, the
bids for the Ilijan, Pagbilao and Sual plants were different.
The uniformity of the bids is evident on 30 August 2006.
The Committee thus concluded:
“PSALM, acting as one through its three trading
teams, exercised market power. They were able to
set the market price to a level that they wanted
during peak hours. Since the production costs were
well below the PhP10,000/MW and above offered
during the third billing month, they abused market
power during the peak hours which market power
would not have been there had the three trading
teams acted competitively and independently with
each other.”

According to the Market Surveillance Committee, on 30 Fuel Procurement Strategy

August 2006 from 10 o’clock to 11 o’clock in the morning,
three trading teams of PSALM offered the same bid for
the Ilijan, Pagbilao and Sual plants, despite each plant
facing different cost structures. The Committee found the
following unusual:
zz identical bids of three different plants traded by three
separate teams of PSALM beginning on the same day,
at the same trading interval and on the same first block
zz continuing for trading intervals 11 to 21 thereafter
zz different bids for the same trading hour the day before
and the week before
The table in the following page presents the energy offer
of the four trading teams of PSALM during the trading
interval in question (10:00 to 11:00) on the morning
In its annual market assessment report for 2007, the
PEMC singled out the National Power Corporation for its
unique position of being a dominant electricity supplier
and trading participant in WESM, and at the same time,
“an exclusive procurer and importer of fuel from whom all
government-owned fuel-dependent generating plants get
their supply of oil and coal.” (AMAR 2007, p. 26)
By being the sole procurer and importer of fuel for the IPPs,
the NPC through its procurement strategy can actually
determine which plant — even the plant whose electricity
it isn’t trading — can offer its electricity in the market and
when. “If fuel is not delivered on time by NPC, these plants
may not be able to operate due to fuel constraints thereby
affecting their bidding strategies in the spot market and
therefore put in peril the market balance and effectively
impact the market price.”

PSALM’s Energy Offer, 30 Aug 2006, Trading Hour 10:00-11:00 a.m.

Price Offer (PhP per mWh)
Supply Offer (MW)
30 Aug 06 Day Before Week Ago
PSALM Team 1
Casecnan 50 200 200 200
Hedcor Benguet 26 200 200 200
NIA Baligatan 6 8,000 5,000 100
KEPCO Ilijan GO1 355 10,000 3,900 2,000
KEPCO Ilijan GO2 355 10,000 3,900 2,000
PSALM Team 2
Bakun 40 300 300 300
Bauang GO1 none none none none
Bauang GO2 none none none none
Bauang GO3 none none none none
Source: Philippine Electricity Market Corporation (PEMC)

52  PAID!  Dark Power Rising  November 2009

 Why WESM Won’t Work

PSALM’s Energy Offer, 30 Aug 2006, Trading Hour 10:00-11:00 a.m.

Price Offer (PhP per mWh)
Supply Offer (MW)
30 Aug 06 Day Before Week Ago
Sual GO1 230 10,000 4,528 4,528
Sual GO2 out out out out
PSALM Team 3
Limay_A none none none none
Limay_B none none none none
San Roque 45 2,000 2,000 300
Malaya GO1 out out out out
Malaya GO2 none none none none
Pagbilao GO1 125 10,000 5,000 2,000
Pagbilao G2O 125 10,000 5,000 2,000
PSALM Team 4
Subic none none none none
Botocan 10 1,000 1,000 1,000
Caliraya 10 1,000 1,000 1,000
Kalayaan GO1 80 1,000 1,000 1,000
Kalayaan GO2 80 1,000 1,000 out
Kalayaan GO3 80 none none 1,000
Kalayaan GO4 out out out out
Source: Philippine Electricity Market Corporation (PEMC)

PART III: Why WESM will fail: Ten Reasons

“That competition cannot be depended upon to protect the
consumer from high prices and poor service has been fully
demonstrated.” (“Application of Long Acre Company,” Electrical
World 52:1, at 8-9 (July 4, 1908))
The above conclusion was made in 1908, based on New York
City’s experience then with competition in the electricity
industry.
There are several reasons why the so called market reforms
embodied in the WESM will fail.
ONE, the industry structure, especially in the Philippines is
geared toward monopoly rather than competition. Market
demand is too small in the Philippines for there to be a
proliferation of players to compete in a level playing field.
TWO, ownership and control of the industry is concentrated
in the hands of a few. Data of the PEMC in fact show greater,
rather than diminishing, concentration.
and in our own WESM in the early months of its inception,
the market can be gamed.
FIVE, where the electricity market was deregulated, it
has been shown that the decline in electricity prices came
about as a result of regulatory orders or in our case, legal
mandates, which can be effective only temporarily. In the
long run, prices have to increase to give investors in power
generation, transmission and distribution their required
returns.
SIX, evidence from the US shows that where electricity
restructuring and deregulation did take place, industrial
prices did not fall compared with the period prior to
restructuring and compared with other states in the US that
did not restructure. In other words, evidence and studies
abroad have concluded that creating WESM does not
lead to lower prices. There is no reason to expect that the
Philippines, given its tiny market and highly concentrated
electricity sector, will be an exception.

THREE, the law that gave rise to WESM, thanks to the
influential lobbying of industry players and their relatives
in Congress, contains provisions that allow cross ownership
and bilateral contracts with affiliates — provisions that
ensure that the market will not be a level playing field.
FOUR, as shown in California before EPIRA was passed,
SEVEN, the rules of WESM are designed in such a way
that a uniform price is paid to all plants regardless of their
costs. For example, hydroelectric plants generally face
lower costs and can offer lower bids than other plants in
order to get dispatched. But these plants are generally
paid more than they bid, because WESM rules require a
uniform market clearing price paid for all generation during

November 2009  Dark Power Rising  PAID!  53

Why WESM Won’t Work

a particular hour. In this sense baseload plants cost more,
and consumers pay more for baseload electricity. In other
words, inherent in the design of WESM is a tendency for
electricity prices to go up rather than decline.
EIGHT, deregulation and electricity restructuring
requires increased monitoring and highly competent
market administration. This is costly. Also it requires a
non-politicized Energy Regulatory Commission with the
expertise to understand market power and abuse. This is
highly unlikely, as evidenced by the ERC’s dismissal of the
market abuse case involving PSALM.
NINE, a simulation study done by economist Sarosh
Talukdar shows that in a market with ten industry players
each having an equal 10 percent share of total capacity,
suppliers behave in a way to raise the price of electricity to
monopoly levels — even when supply is double demand.
What more when the industry is highly concentrated as
in the Philippines.
TEN, deregulation requires huge excess capacity in order to
ensure that no pivotal supplier exists. (In the Philippines,
as discussed in earlier sections, pivotal suppliers exist —
mostly plants traded by PSALM.) Deregulation also requires
that transmission system must be capable of carrying
electricity over greater distances. To quote a study published
by the Carnegie Mellon Electricity Industry Center: “The
cost of the additional generation and transmission needed
to support a competitive market is so great that we doubt
that the savings from a competitive market would be able to
offset this amount.” For a country like the Philippines, this
can only mean more debts on top of even more expensive
electricity.

References
Erramon I. Aboitiz, “Aboitiz Power Corporation 2008 Annual Investors’ Briefing,” June 2008.
Seth A. Blumsack, Jay Apt, and Lester B. Lave, “Lessons from the Failure of U.S. Electricity Restructuring,” Carnegie Mellon Electricity Indus-
try Center Working Paper CEIC9-05-09, http://wpweb2.tepper.cmu.edu/ceic/PDFS/CEIC_05_09.pdf (downloaded 16 February 2008)
Severin Borenstein, James Bushnell and Frank Wolak, “Diagnosing Market Power in California’s Restructured Wholesale Electricity Market,”
National Bureau of Economic Research Working Paper 7868, http://www.nber.org/papers/w7868, p. 5
Rowaldo R. del Mundo, Allan C. Nerves, Bienvenido Malquisto Jr., Ivan Benedict Cruz and Edna A. Espos, “Analysis of Power Supply Pur-
chases of MERALCO for the year 2007 and first Quarter of 2008,” University of the Philippines, 2008.
Lester B. Lave, Jay Apt, and Seth Blumsack, “Rethinking Electricity Deregulation,” Carnegie Mellon Electricity Industry Center Working Paper
CEIC-04-03, http://wpweb2.tepper.cmu.edu/ceic/PDFS/CEIC_04_03.pdf (downloaded 16 February 2008)
Maria Teresa D. Pascual and Arturo Nuera, “Governance in Electricity Regulation — The ERC Decision on Alleged Market Abuse by PSALM,”
Philipppine Electricity Governance Initiative, 2007.
Philippine Electricity Market Corporation Market Surveillance Committee, “Report to the PEMC Board on the ECO Investigation Report on the
Alleged Competitive Behavior/Market Power Abuse by PSALM,” 20 November 2006. https://www.wesm.ph/files/Market%20Surveillance%20
Committee%20Report%20on%20the%20ECO%20Investigation%20Report%20on%20the%20Alleged%20Anti-Competitive%20Behavior.pdf
(downloaded 16 February 2008).
Philippine Electricity Market Corporation, “WESM Annual Market Assessment Report (26 June 2006 to 25 June 2007),” (downloaded 4 De-
cember 2007)
Philippine Electricity Market Corporation, “Wholesale Electricity Spot Market (WESM) Rules,” Section 1.2.5, 2002. http://www.wesm.ph/page.
php?p=44 (downloaded 15 August 2009)
Republic Act 9136, “An Act Ordaining Reforms in the Electric Power Industry, Amending for the Purpose Certain Laws and for Other Pur-
poses,” 4 June 2001.
Republic Act 9511, “An Act Granting the National Grid Corporation of the Philippines a Franchise to Engage in the Business of Conveying or
Transmitting Electricity Through High Voltage Back-Bone System of Interconnected Transmission Lines, Substations and Related Facilities, and
for Other Purposes,” 1 December 2008.
US Department of Energy, “Horizontal Market Power in Restructured Electricity Markets,” DOE/PO-0060, March 2000, p. 1.

54  PAID!  Dark Power Rising  November 2009

ANNEXES
Reprinted
After MERALCO, the country’s largest electricity distributor and supplier, announced last April an increase in its generation
charges by 51.88 centavos per kilowatt hour (kWh), rumors of a brewing government takeover began spreading like wildfire.
Signals are there, experts say, as shares of both the government and the Lopezes each jumped to more than 30%, with the
Lopezes having a slight fractional advantage.

The recent government actions to pin down MERALCO and target the Lopezes, however, only serve to narrow the discourse to
a simplistic formula: Electricity rates are high; for which MERALCO and the Lopezes are to blame. MERALCO is no doubt an
easy and guilty target. But there are more reasons for electricity rates in the Philippines being among the highest in Asia. And
the Arroyo government is equally to blame, if not more so.

10 Reasons Why Electricity Bills Are High

A position paper submitted to the: Joint Congressional Power Committee (JCPC)
By the Freedom from Debt Coalition
May 12, 2008

The Freedom from Debt Coalition
(FDC) believes that the issue of
high electricity prices is a result
of a confluence of factors, from
bad governance to corruption to
mismanagement to rent-seeking to
framework concerns. It is also more
complex than what media portrays
or what some politicians would want
us to believe. We attempt to identify
these factors as our contribution to
gaining a fuller understanding of
the problem of unabated expensive
electricity.
FDC argues that the skyrocketing
price of electricity emanates from
structural, management, policy,
governance and paradigmatic causes.
FDC believes that these problems
cannot be resolved fully without
transforming the electricity industry
into one that is more responsive
and accountable to the people, and
more environmentally sustainable.
Meanwhile, it would greatly help
the consumer for the government to
target specific rate-hiking factors and
introduce immediate reforms, with
the end-in-view of course, of more
comprehensive changes sooner rather
than later.
We believe electricity is expensive
because of the following:
1. The Energy Regulatory Commission
(ERC) allows MERALCO, other
distribution utilities (DUs) and the
National Transmission Commission
(Transco) to earn over and above what
used to be the statutory return on rate
base of 8-12%. The Electric Power
Industry Reform Act (EPIRA) allowed
ERC to change the system of tariff
setting, and it did. But the systems it
now follows allows both transmission
and distribution companies to earn
far more than what they were allowed
to earn in the past. And as far as
generation and supply companies are
concerned, the ERC has little if any
say in the prices they charge because
generation and supply are deregulated
under EPIRA.
2. The Arroyo government wants to
attract private investors to purchase
the assets of the National Power
Corporation (NPC), and for the assets
to become attractive, electricity rates
have to be high. The higher the winning
bidder bids, the higher the electricity
price we have to pay in the future so
the winning bidder can recover its
investment.
This can be observed with the nature
of recent electricity rate hikes.
Following the suggestion of the
Asian Development Bank (ADB), the
NPC petitioned rate hikes in order
to attract investors since no investor
would invest without proof of financial
viability. Out of the PhP1.98/kWh
NPC petitioned in 2004, PhP1.03/
kWh was approved by ERC in 2005 –
the highest rate hike in the history of
the ERC. Transmission charges also
increased from PhP0.7716/kWh in
May 2006 to PhP0.9163/kWh in July
2006 (which is contrasted with almost
flat prices from November 2005 up to
May 2006) as the privatization and
the bidding process is about to start.
3. The Arroyo government did not
renegotiate the contracts with NPC’s
independent power producers or
IPPs. These contracts require NPC
to purchase electricity whether or
not these are actually generated or
dispatched, and to supply fuel to IPPs
that are in operation. The price NPC
agreed to pay for this electricity was
overstated to begin with, and many of
these contracts have clauses that allow
the IPP to raise rates over time. NPC
also bears the risk of peso devaluation
and the risk of the cost of fuel, such as
oil and coal, going up.

November 2009  Dark Power Rising  PAID!  55

ANNEX: 10 Reasons Why Electricity Bills Are High

We have been paying for these contracts in our electric bills
for over a decade, and we continue to pay for these today,
although this is less transparent, thanks to unbundling.
With world oil and coal prices hitting all time highs,
with the peso now at PhP40 to the dollar compared with
PhP26:$1 when these contracts were signed, the cost of
these contracts are an excessive burden on ordinary Filipino
electricity consumers. Even consumers that do not have
electricity at home are also made to pay for these contracts
because the government guarantees all of NPC’s obligations
to the IPPs.
more expensive when demand for electricity peaks, we must
compare on an hourly basis what MERALCO pays its IPPs
with what it would have paid NPC if it bought electricity
from NPC instead of its IPPs.
Fortunately during the May 6, 2008 dialogue at the ERC,
members of FDC and EmPower Consumers obtained a copy
of Meralco’s electricity suppliers and their respective cost
and share for the months of March and April. Data shows
that the cost of power from MERALCO’s IPPs is higher
than that of NPC’s.

4. EPIRA allows MERALCO to purchase at most half of
its electricity requirements from its sister companies or
IPPs. Besides the problem of NPC with the IPPs, we have
the problem of MERALCO’s contracts directly with its
own IPPs. EPIRA also allows cross ownership between
generation and distribution. A closer look at the ownership
of most of MERALCO’s IPPs will show that they are owned
by the Lopezes. Examples include the Santa Rita, the San
Lorenzo Natural Gas, and the Quezon Coal-fired Power
Plants. Whatever guarantees the government gives to its
IPPs, MERALCO also gives to its IPPs. MERALCO has always
claimed that it does not earn from the high generation
charges of its IPPs, and that it is merely passing on to its
IPPs whatever it charges its customers for generation.
MERALCO is telling the truth. But that is not the entire
picture. For while MERALCO doesn’t itself earn from the
high generation charges of its IPPs, the Lopezes do. A
simple review of the financial statements of the Lopez
holding company and its generation companies will show
this.
NPC-generated electricity is cheaper because there is a
PhP0.30/kWh mandated reduction required by EPIRA
for electricity generated by NPC or its IPPs. The electricity
MERALCO buys from its IPPs are not subjected to this 30
centavo mandated reduction.
5. High electricity prices breeds inefficiency, which further
raises the cost of electricity. The power sector is inherently
inefficient. Average capacity utilization of Transco’s
transmission lines, according to an ADB report, is only at
12%. We are paying for the investment and loans incurred
to set up a transmission grid and on the average, only 12%
of the capacity is being utilized. With regard to generation,
dependable capacity in the Philippines amounted to
13,639MW at the end of 2006, but that same year, peak
demand for electricity was only 8,760MW. We pay for
capacity we don’t use, and this is such a heavy burden on
consumers that we economize on our use of electricity even
further. However, the less we consume of electricity, the
more we have to pay of unused capacity. This is a vicious
cycle similar to a debt trap. Industries cannot survive such

March 2008 April 2008 Increase / Decrease

Supplier
Feb ’08 cost Energy Share Mar ’08 cost Energy Share Cost Energy Share
NPC and WESM 4.8673 42.13% 5.3692 45.11% 0.5020 2.98%
NPC 4.5231 31.87% 4.0173 35.96% (0.5058) 4.09%
WESM 5.9356 10.27% 10.6822 9.15% 4.7466 -1.12%
Major IPPs 4.0588 57.84% 4.5496 54.87 % 0.4908 2.98%
QPPL 3.7253 12.28% 6.4340 6.87% 2.7088 -5.41%
Sta. Rita 4.1659 29.69% 4.2749 31.31% 0.1090 1.62%
San Lorenzo 4.1165 15.87% 4.2888 16.68% 0.1723 0.81%
Philpodeco 5.7245 0.02% 3.9352 0.02% (1.7893) 0.00%
Total 4.3998 100.00% 4.9192 100.00% 0.5194
Source: Meralco

This results to a clear double-whammy for the consumers.
At one end, NPC must still pay for the unsold electricity it
gets from IPPs because of the take-or-pay provision – an
undue costs which will later be part of NPC’s stranded cost
to be passed on later to the consumers.
At the other end, MERALCO pays its IPPs more than what it
would have paid NPC, if it bought the electricity from NPC
during the same hours that MERALCO was buying from
its IPPs. As NPC rates vary from hour to hour, becoming
a set-up; poor consumers, even less so.
This is manifested in electricity consumption data obtained
from the Department of Energy: Electricity consumption
grew by 10.6% in 2003, then by a lower 3.2% in 2004,
then by an even lower 2.5% in 2005. In 2006 electricity
consumption grew by only 1.1%. Today it is residential
and commercial users who hold a bigger share of total
consumption. The thing is, residential and commercial
consumers have peak hours when their demand for

56  PAID!  Dark Power Rising  November 2009


electricity is strong. Beyond that, demand is very low. This
leaves the power sector with a huge inefficient setup: Base
load demand is weak but one has to have extra capacity
for use during the peak hours. This also means that one
has to spend on additional capacity that will most likely
get used only during peak hours. This is clearly wasteful
and inefficient.
6. Other ERC decisions have rendered the cost of electricity
high. One such decision is the ERC’s dismissal of the Power
Sector Assets and Liabilities Management Corporation
(PSALM) market abuse case alleged by the Philippine
Electricity Market Corporation (PEMC), the operator of
the Wholesale Electricity Spot Market (WESM). The ERC
dismissed this for lack of sufficient evidence, despite the
detailed market data submitted by PEMC clearly showing
that PSALM exercised its market power to raise the WESM
spot price. The dismissal by ERC will cost consumers an
additional PhP14B.
7. EPIRA-mandated removal of subsidies. Following the
logic of privatization and market-reforms, EPIRA states
that instruments such as cross-subsidies which distort
the “real” price of electricity should be removed. This is in
keeping with the transformation of the electricity industry
from a public service industry to a commodity market.
The prices should be subjected to market rules alone – and
considerations such as equity and justice in the provision of
electricity should be abolished. Households no longer enjoy
subsidies from the industrial and commercial sectors, and
households in Mindanao and Visayas are no longer being
subsidized by households in Luzon. These households that
no longer enjoy the subsidies of the pre-EPIRA days have
experienced a hike in rates as a result of the removal of
these subsidies.
Even the lifeline rate today is not what it used to be. In the
logic of subsidy, better off consumers subsidize the more
disadvantaged ones. This may work in cities like Manila
but in areas that are by and large poor, the lifeline rate is
symbolic more than real and it is actually the less poor who
are subsidizing the poorer.
8. Unfair and unjust practices of industry players that the
ERC is ineffectual to regulate, or may even condone. ERC
has not provided more substantial solutions to recurrent
abuse (overcharging and corporate malpractice) of DUs
such as MERALCO. There had already been a number of
times when MERALCO was proven to have engaged in
such unscrupulous practice, yet MERALCO can and will
probably engage in such practice because of the lack of
fundamental action on the part of the ERC. For example:
zz In 2002, ERC discovered PhP0.50/kWh unjustified
over-recoveries of MERALCO from the PPA. It
reached PhP12.3 billion as based in December 2001
computations.MERALCO was asked to refund it to
the consumers.
zz In 2003, the Commission on Audit discovered that
MERALCO overcharged its customers by PhP0.017/
kWh through inclusion of income tax as operation
ANNEX: 10 Reasons Why Electricity Bills Are High
expense which it passed on to consumers from 1994
to 2002. The Supreme Court subsequently ordered
MERALCO to stop this practice and to refund the
consumers by as much as PhP30 billion.
zz Also in 2003, FDC questioned ERC’s giving of
provisional authority to MERALCO to raise their
rates by as much as PhP0.12/kWh. Fortunately for
the consumers, the Supreme Court junked the ERC
decision in January 2004 because it violated certain
rules during its own hearings.
zz In June 2004, MERALCO again applied for PhP0.1327/
kWh increase through Generation Rate Adjustment
Mechanism (GRAM). The Supreme Court again junked
the petition in February 2006 as MERALCO did not
follow the prescribed process (lack of hearing and
publication).
But MERALCO is not the only one engaged in abusing and
deceiving the consumers. The Panay Electric Company
(PECO), also known to be owned by the Lopez family, had
also been asked by the ERC to refund the consumers PhP2/
kWh it earned due to overcharging.
9. Value Added Tax (VAT). Because of the ballooning
fiscal deficit of the government, which is in part caused
by guaranteed obligations of Government-Owned and
-Controlled Corporations (GOCCs) like NPC, the 12%
VAT now includes oil and electricity which was exempted
before (zero-rated) in the previous consumption tax regime
because it was categorized as “socially-sensitive” – raising its
prices will translate to rising prices of other commodities.
According to some studies, VAT raises electricity prices by
PhP0.60/kWh to PhP0.90/kWh. It is estimated that the
government earned at least PhP7.668 billion from VAT
in the electricity industry in 2005.
One of the more controversial applications of VAT
in electricity is the imposition of VAT to system loss,
electricity which had been generated but not used. It is
unjust to impose consumption tax on goods and services
not actually consumed.
10. Corruption and Mismanagement
zz In NPC. Corruption in National Power Corporation
(NPC) artificially inflates generation charges. This
includes allegations of “overpricing” in the process
of buying coal and oil supply for NPC-owned power
plants and NPC-IPP’s.
zz In PSALM. The privatization of NPC plants is anomaly-
ridden, the most outstanding proof of which is the
halted sale of the Masinloc Power Plant to the winning
bidder – the YNN. Aside from the fact that YNN capacity
is questionable (it failed to pay down payment despite
three extensions), sale of Masinloc to YNN will only
raise electricity prices form PhP2.80 to PhP4.80/kWh.
What is more revolting is this case is that, according to
a COA report, PSALM officials gave themselves PhP10-
million bonus because of the “successful” closing of the
failed transaction with YNN.
November 2009  Dark Power Rising  PAID!  57
Reprinted
On May 12 this year, the Freedom from Debt Coalition (FDC) submitted to and presented before the Joint Congressional
Power Commission (JCPC) its position paper titled “10 Reasons Why Electricity Bills Are High.” In the said paper, the Coalition
explained the confluence of factors causing high electricity rates—from bad governance to corruption to mismanagement to
rent-seeking to framework concerns. Recognizing the complexity of the issue, FDC attempted to identify these factors as the
Coalition’s contribution to gaining a fuller understanding of the problem of unabated expensive electricity.
A Dozen Ways to Reduce Electricity Rates Towards
Sustainable and Pro-Consumer Electric Power Industry
Freedom from Debt Coalition
17 June 2008
Recently, Finance Secretary Margarito Teves, together with
the newly-formed Economic Team Study Group created
by the Arroyo administration, boasted of six government
measures that would bring down rates by as much as
64 centavos per kilowatt hour (kWh). From asking the
Distribution Utilities (DUs) to absorb the Value Added Tax
(VAT) on systems loss starting July, to mandating Local
Government Units (LGUs) to utilize 30 percent of their
share of the National Wealth Tax to reduce electricity rates,
these measures only serve to highlight the government’s
strategy of resolving the staggering hike of consumer
electricity prices in the country by passing the buck to
the next guy without sacrificing anything. The Coalition
believes that while these proposals may soften the blow
of electricity rate hikes, the fundamental cause of the
whole price surge is the underlying government paradigm
of private sector control of supply and deregulation of a
highly concentrated market. Thus, the administration’s
palliatives which pander to such a paradigm will not keep
electricity rates down. FDC consequently rejects the Arroyo
administration’s unsustainable, and at times unfounded,
populist rhetoric, serving only to raise false hopes of future
security for ever-struggling and increasingly insecure
consumers.
Strategically, we are calling for a complete and substantial
overhaul of the Electric Power Industry Reform Act (EPIRA)
which is one of the major reasons why electricity rates
remain high. After seven years of implementation, EPIRA
has brought about a transition from government monopoly
to an enhanced private monopoly—worse, a hundred
percent increase in power rates. The promised competition
embodied in Wholesale Electricity Spot Market (WESM)
is one of form with little substance. Hence, instead of rate
reduction, we now have one of the highest rates today.
What we are actually witnessing appears to be a new kind
of competition among leading and dominant players in the
power sector with Malacañang seemingly in the leading
role supported by Ricky Razon in TRANSCO, the Aboitizes
in the generation sector and Winston Garcia’s presence in
MERALCO.
In this paper, FDC aims to offer, vis-à-vis the plethora of
58  PAID!  Dark Power Rising  November 2009
proposals by Secretary Teves and other interest groups,
what it believes to be more sustainable, democratic, and
pro-consumer solutions to the Philippine electric power
quagmire.
The following measures are proposed:
1. Remove oil and power from VAT coverage. This will
effectively reduce electricity rates by at least P0.80/
kWh. In addition, a reduction of at least P4/liter of
VAT on oil will cut down the generation cost of oil-
based power plants. In 2007, oil-based power plants
contributed 18 percent to total generation. When the
capacity of natural gas plants, hydropower plants and
coal-fired plants is not available for whatever reason,
the oil-based power plants are put into operation to
provide the electricity the other plants cannot supply.
2. Refund to consumers the overcharging by DUs and
NPC. In the April billing of Meralco, the biggest
distribution utility charged its customers P0.89/
kWh more than it should have, if the ‘least cost’
provision of section 23 of EPIRA were to be followed.
Meralco billed its customers P4.90/kWh in generation
charge in April when the ‘least cost’ power during
that time was National Power Corporation’s P4.01/
kWh. Meralco and other DUs still have to fully comply
in the decision made by ERC to refund around P13
billion for meter and bill deposits provided under
the Magna Carta for Residential Consumers. Aside
from Meralco, another Lopez-owned DU, the Panay
Electric Company (PECO), still owes the Ilonggos
a P2.89-billion refund from the amount it illegally
collected from its customers.
3. Stop the operation of WESM. Contrary to its
mission of providing good choice and cheap supply
of electricity, the Wholesale Electricity Spot Market
has become a trading center of the most expensive
electricity in the country. In March, its peak trading
was P10.68/kWh. In April, it reached almost P12/
kWh. WESM in the Philippines is running a small
market whose supply is controlled by a few—the
government through PSALM and NPC, and whose
demand is largely that of only one utility—Meralco,

which has sister independent power producers whom
it favors in its purchase of electricity. According to
WESM’s own data, the Philippine electricity market
is highly concentrated. Furthermore, studies of
electricity restructuring have shown that even in less
concentrated markets, a deregulated market can be
effective only when it is heavily administered. This is
costly, something that adds to the already high cost
of electricity we are paying. The same studies also
conclude that the functions of an independent market
operator can be undertaken by an independent and
competent regulator.
4. Remove royalty taxes on the use of renewable energy.
Royalty taxes on natural gas from Malampaya in the
last quarter of 2007, according to Meralco, amounted
to P1.61/kWh. The policy change will not only bring
down generation cost but also encourage investments
in REs, which should be the way of the future, starting
today.
5. Amend RA 7832 or the “Anti-electricity and Electric
Transmission Lines/Materials Pilferage Act of 1994”
by rationalizing further the allowable limits provided
to PDUs, electric cooperatives and Transco to recover
their systems losses from the consumers. Pass-on
charges, particularly those from administrative and
other non-technical losses should not be allowed.
6. Review tariff rates of NPC given its decreasing
liabilities, i.e. from P900 billion to P300 billion, with
National Government writing-off P200-billion NPC
debts. This is on top of fifteen (15) rate adjustments
for cost-recovery since the unbundling of rates
(Generation Rate Adjustment Mechanism and the
Incremental Currency Exchange Rate Adjustment).
7. Adjust tariff rates of electric cooperatives. Some P18-
billion debts of electric cooperatives were passed on to
and absorbed by Power Sector Assets and Liabilities
Management Corporation (PSALM) after the passage
of EPIRA. But up to now, tariff rates of electric
cooperatives are not yet fully adjusted to reflect the
consequence of this debt condonation.
8. Reform the Energy Regulatory Commission. In the
past six years, the Commission has been remiss in
its duty of protecting the interest of consumers.
Worse, ERC’s presence only serves as false semblance
of consumer protection, preventing more adequate,
substantial, and effective measures to be taken. Thus,
reforms must be undertaken to improve ERC:
a. Depoliticize the ERC. Competence and integrity
must be the main criteria for the selection of ERC
commissioners, most especially its Chairperson.
b. Democratize the ERC. ERC as an institution,
while retaining its quasi-judicial nature, should
proactively re-focus itself from merely answering
legal questions of rate increases towards meeting
more substantive public concerns, such as the
question of consumers’ capacity-to-pay. Moreover,
ERC must accord full representation for consumers
by giving them at least one seat.
ANNEX: A Dozen Ways to Reduce Electricity Rates
c. Prohibit the ERC in granting a provisional authority
for all kinds of cost recovery application. ERC
should be empowered to decide directly on
electricity price adjustments.
d. Stop the implementation of ERCs new rate
methodology. The use of performance based
rate methodology allowed DUs and Transco to
enjoy returns that are higher than the previously
mandated return on rate base (RORB) of 8 to 12
percent.
9. Renegotiate IPP contracts. Consumers should not
be made to pay for electricity they did not consume.
Onerous provisions such as the ‘take-or-pay’ guarantees
provided by the government to both the NPC and
Meralco IPPs must be removed. These guarantees
assured the IPPs that they were to be paid fully for
their generation capacities regardless of whether
these contracted capacities are actually delivered or
consumed. In preparation for the renegotiation, a
performance and technical audit must be conducted
among the IPPs to ensure if contracted capacities are
optimized and actually delivered.
10. Public investment for potential RE sources. If
the government is concerned about the country’s
sustainable energy future, it must invest in renewable
energy now rather than wait for the private sector to
come in later. Strategically, REs would provide not only
the cleanest but also the most cost-effective energy
in the country, particularly in the context of current
skyrocketing prices of oil and coal. The Philippines is
the second largest producer of geothermal power in
the world, next to the United States, with installed
capacity of more than 1,900 MW. Production in this
area can be further optimized. Also, initial production
of natural gas showed promising prospects of increased
production. These vast resources, including those
from other renewable energy sources such as hydro,
wind and solar, must be made top priority in future
energy plans.
Aside from these, a new study revealed that the
country has a vast potential in renewable energy—
some 204,000 MW of capacities from geothermal,
hydro, ocean, wind, natural gas and solar sources.
11. Promote community-based power systems. The
country’s archipelagic setup is a disincentive to a
centralized power system. Our national grid made
the cost of transmission excessively high because of
its low utilization, a mere 22 percent according to
the Asian Development Bank. Advance technologies
in power generation, decentralization of power
and democratization of ownership of the industry,
and adequate government support can make this
framework extremely possible.
12. Eliminate corruption and mismanagement in NPC,
National Transmission Corporation (Transco) and
DUs which tend to artificially inflate prices. Open the
books of these utilities for comprehensive audit, and
set the policy of procurement in a long-term contract
manner in order to avoid or minimize the effect in
the fluctuation of prices in the international market.
November 2009  Dark Power Rising  PAID!  59
Press Statement
16 June 2009
ADB privatization policy aggravates climate crisis in the Philippines – FDC
MANILA, Philippines – The privatization policy in the power
industry is not only one of the major reasons why electricity
rates in the country is extremely high, but also a policy
prescription that aggravates the problem of climate change.
This was according to the Freedom from Debt Coalition in
reaction to an on-going activity sponsored by the Asian
Development Bank dubbed “Climate and Clean Energy Week
2009.”
Describing the activity as a “mere talk shop and road show”
for profit-oriented corporate private sector, the group urged
the Bank to stop the policy and instead focus on how to
bring electricity rates down and, at the same time, to address
climate crisis.
“The ADB relies so much on the private sector initiatives on
climate change, while being conscious of the fact that the
private sector is also the main contributor to global warming.
It is also public knowledge that private sector’s past and
ongoing projects contributing to climate change received
funding from the Bank itself,” said FDC advocacy coordinator
Job Bordamonte.
FDC cited as an example the Power Sector Reform Program
(PSRP) – a program initiated and funded by the ADB, which
promotes private sector participation in the power sector.
The program takes away from the State the responsibility
of generating, transmitting, and distributing power, thus
heavy reliance on private power which produces energy from
dirty sources became the main feature of the restructured
and privatized power industry in the Philippines since the
early 90s.
Experts say that the power industry is a major contributor to
climate change with power plants utilizing fossil fuels such
as coal and diesel contributing the highest amount of CO2
emissions to the atmosphere.
FDC said that energy production in the Philippines relies
heavily on coal, diesel and natural gas which comprise 64.7
percent of the power generation mix. Combined renewable
sources such as hydro, geothermal, wind and solar power is
only 35.27 percent of the mix, or a 29.43% difference.
In addition, during the implementation of the ADB-initiated
Electric Power Industry Reform Act (EPIRA), at least four new
coal-fired power plants are scheduled to be built in the Visayas
region. Further, the two biggest coal-fired power plants in the
country located at Pagbilao, Quezon and Masinloc, Zambales,
both owned by US-based power companies, are undergoing
capacity expansion. And as of late, a new coal power plant
owned by the Korea Electric Power Corporation (KEPCO)
and SPC Power Corporation (KSPC) is being constructed in
Barangay Colon in Naga, Cebu.
Other non-renewable energy facilities that are targeted for
expansion are the Ilijan natural gas-generating facility in
Batangas and the Sual coal facility in Pangasinan.
60  PAID!  Dark Power Rising  November 2009
FDC added that under the power reform program, the three
main islands of Luzon, Visayas and Mindanao will be inter-
connected. Centralized grid requires the building of large-
scale power plants to respond to an increasing demand in
capacities.
“In order to optimize this kind of highly centralized grid
structure, the consumption level (demand) must also be high
as well as the dispatch of electricity (supply). The higher the
demand and supply of electricity, the higher the gas emissions
from the kind of energy sources being utilized. A centralized
grid also intensifies the use of fuel-based must-run-units
(MRUs) as back-up to the main grid,” FDC added.
In stressing these points, FDC is putting forward the following
demands in order for climate change to be effectively
addressed:
zz Redirection of existing dirty energy financing to
adaptation and mitigation measures and energy efficiency
projects as a form of reparation to the decades of ecological
debt owed by the north to the south;
zz Financing of renewable energies as one form of restitution
for countless years of debt domination that hampered
Southern countries capacity to develop alternative
technologies and development strategies;
zz The sovereign and democratic management and control
of funds for mitigation, adaptation and the development
of clean, safe and renewable energy; And for the World
Bank, ADB and other similar institutions with a horrible
track record to be kept from any form of control and
involvement over the disposal and use of these funds;
zz Stop to all false solutions such as agro-fuels and carbon
trading;
zz Rejection of all loans, aid and subsidies for fossil fuel
extraction, dirty technologies and exploitation of natural
resources that violate our national patrimony and the
rights of indigenous peoples;
zz An end to imposition of all conditionalities (e.g.
privatization, liberalization and deregulation) by
international financial institutions and northern
governments through loans, aid and debt cancellation;
and,
zz Total and unconditional cancellation and repudiation
of debts that have contribute to climate change, and all
other illegitimate debts and “obligations” claimed from
us by the north and lending institutions.1
The solution to climate change, the group said, cannot be
found from the world’s biggest polluters themselves (the
corporate private sector) and their long-time financiers (the
ADB and IMF-World Bank).
Note:
1
Bali Declaration on International Financial Institutions, Debt and
Climate Change. 08 December 2007
 Freedom from Debt Coalition
#11 Matimpiin Street, Barangay Pinyahan, Quezon City, Philippines 1100
+63(02)9246399 (telefax). +63(02)9211985
mail@fdc.ph
http://www.fdc.ph