(July – September 2016) AID-492-G-15-00002

QUARTERLY PERFORMANCE REPORT YEAR 2 Q4 (July – September 2016) AID-492-G-15-00002

26 October 2016 Table of Contents

TABLE OF CONTENTS ...... 2 ACRONYMS ...... 3 EXECUTIVE SUMMARY ...... 4 I. PROGRAM DESCRIPTION AND OBJECTIVES ...... 6 II. SNAPSHOT OF ACTIVITIES ...... 7 III. PROGRAM COMPONENTS ...... 9 1. RESEARCH COMPONENT ...... 9 2. POLICY DEVELOPMENT COMPONENT ...... 14 3. CAPACITY BUILDING COMPONENT ...... 17 4. COMMUNICATIONS COMPONENT ...... 22 5. CROSS-CUTTING ...... 25 IV. PROGRAM MANAGEMENT ...... 28 1. WORK PLAN FOR FISCAL YEAR 3 ...... 28 2. HUMAN RESOURCE ...... 28 ANNEXES ...... 32 Annex 1 Performance Indicator Tracking Table (as of 30 September 2016) Annex 2 Photo documentation of EPDP FY2 Quarter 4 activities Annex 3 EPDP-International Food Policy Research Institute workshop program and discussion note on the research collaboration Annex 4 Minutes of the meeting with US Energy Agencies Annex 5 Exchange of letters between Congressman Lord Allan Velasco and Dr. Orville Solon (Dean of University of the Philippines - School of Economics) and EPDP’s technical comments Annex 6 Technical advisory note on the increase in biodiesel blend mandate Annex 7 Terminal report on the Training Course on Forecasting Annex 8 Terminal report on the Executive Course on Competition and Regulation in the Philippine Power Sector and session highlights Annex 9 EPDP users and visitors between 11 May 2016 to 27 September 2016 Annex 10 EPDP Newsletter Vol. 2 No.1 Annex 11 Evaluations of the lectures

2 Acronyms

ADRi Alberto Del Rosario Research Institute AGMO Autonomous Group Market Operator CSP Competitive Selection Process DOE Department of Energy DTI Department of Trade and Industry DU Distribution Utilities EPDP Energy Policy and Development Program EPIRA Electric Power Industry Reform Act ERC Energy Regulatory Commission GAD Gender and Development GPH Government of the Philippines IFPRI International Food Policy Research Institute IMO Independent Market Operator ManCom Management Committee Meralco Manila Electric Company NBB National Biofuels Board NEA National Electrification Administration NEDA National Economic and Development Authority NGCP National Grid Corporation of the Philippines NPC National Power Corporation PCC Philippine Competition Commission PEMC Philippine Electricity Market Corporation PITT Performance Indicator Tracking Table PSA Philippine Statistics Authority PSC Program Steering Committee SDAA Senior Deputy Assistant Administrator TAN Technical Advisory Note TDP Transmission Development Plan TOR Terms of Reference UPSE University of the Philippines - School of Economics UPSS University of the Philippines – School of Statistics USAID United States Agency for International Development VAT Value added tax WESM Wholesale Electricity Spot Market

Executive Summary

The transition in the Philippine Administration after the May 2016 National Elections created the need to build relationships with the new set of senior Philippine Government (GPH) officials while keeping the Program’s existing commitments. With most of the first round of research studies completed and the increasing recognition of EPDP, the Program is in good stead to engage with the new senior officials in the National Economic and Development Authority (NEDA) and the Department of Energy (DOE). The Program also maximized the remaining activities in FY2 to reach out and collaborate with new and existing partners.

Recognizing the unique opportunity to influence the new Administration’s policy agenda in the energy sector, EPDP shared the initial set of three-pager policy briefs and the technical advisory notes with the new Secretaries of the NEDA and the DOE. Beyond NEDA and DOE, the opportunity to directly engage both Houses of Congress has also opened up. In response to the House Committee on Energy’s request, which the University of the Philippines - School of Economics (UPSE) forwarded to EPDP, the Program provided comments on House Bill No. 2298 - “An Act Amending Paragraph (J) Section 47 of Republic Act 9136 or the Electric Power Industry Reform Act of 2001.” In aid of the legislative agenda, the Senate Committee of Energy and Economic Affairs also invited EPDP to discuss EPDP’s research studies.

In addition, EPDP progressed the research collaboration with the International Food Policy Research Institute (IFPRI) and the second round of its research papers to generate pieces of evidence that could support the ongoing policy discussions around many contentious and pressing energy issues.

EPDP’s capacity building activities became venues to engage with new and existing GPH officials and staff and other stakeholders. The Executive Course was represented by both the executive and legislative branches of Government. It initiated candid and constructive discussion on competition and regulation as well as areas of perceived political and technical tensions. Building on the previous intensive training courses, the Training Course on Forecasting further deepened the knowledge and skills of technical staff from eight (8) agencies on Eviews, a widely-used econometrics software for forecasting. The lecture series also continue to serve as an open venue for various stakeholders to interact around specific issues, and to disseminate EPDP’s research work.

Prompted by the EPDP lecture on “The Value Added Tax and Red Tape: What Contributes More to Electricity Tariffs in the Philippines,” a columnist wrote an opinion piece on the topic in Business World Online dated 15 September 2016. This study was among EPDP’s first set of research studies. UNTV’s Serbisyong Kasangbahay also interviewed Dr. Majah Ravago, EPDP Program Director, about environmentally-sound energy development as well as the country’s growth.

In preparation for FY3, EPDP submitted its proposed FY3 Work Plan, taking into account the significantly reduced level of budget and human resources in the coming year. It reflects the recalibrated set of activities and prioritizes the list of unprogrammed activities. It also contained the updated Performance Monitoring and Evaluation Plan 4 (PMEP), the Performance Indicator Reference Sheet (PIRS), and Gender Action Plan. These updated documents capture the additional indicators and the changes assessed necessary to increase their usefulness and make them more attuned to the current Program context.

I. Program Description and Objectives

The Energy Policy and Development Program (EPDP) is a project launched in November 2014 that aims to strengthen the capacity of the Philippine government to formulate coherent and evidence-based policies and strategies for sustainable, reliable, and efficient use of energy resources and technologies. It supports the national government, in particular the National Economic and Development Authority (NEDA) and the Department of Energy (DOE), in policy analysis and formulation for the energy sector. EPDP is being implemented by the UPecon Foundation and is funded by the United States Agency for International Development (USAID).

EPDP’s approach to attaining its objective involves the following key initiatives (as depicted in Figure 1) that also represent EPDP’s four components:  provide the technical foundation for policy development, capacity building, and communications interventions through an energy research program. This entails setting up (i) an energy research program unit to support a mix of policy and operational research on energy and (ii) a data management and analysis unit to lay the groundwork for analysis of energy issues, as well as monitoring and evaluating the impact of energy policies. EPDP’s energy research program acts as the foundational pillar for the other components – i.e., the technical basis for policy development, capacity building, and communication interventions;  provide policy development advisory, initially to the National Economic and Development Authority (NEDA) and Department of Energy (DOE)–EPDP’s core clients–including their attached agencies1 but can be expanded to include legislators, if there is demand;  support capacity building activities for NEDA and DOE and their attached agencies, as well as other stakeholders, such as national government agencies, legislators, and private sector – including support for a pool of energy specialists and practitioners;  support communications activities to share energy-related research and activities with stakeholders in the energy sector.

1 Energy Regulatory Commission (ERC), National Power Corporation (NPC), National Electricity Administration (NEA), and Philippine Statistical Authority (PSA) 6

This report covers EPDP’s performance in Quarter 4 (July – September 2016) of Fiscal Year 2 (FY 2). Section II is a snapshot of key activities in quarter four (Q4). Section III details program component and other cross-cutting activities and achievements. Section IV tackles program management activities and finances. The Annexes provide the supporting documents for this report, including the updated Performance Indicator Tracking Table (PITT) as Annex 1.

II. Snapshot of Activities

Table 1 chronologically lists the activities of EPDP in Q4, which are further elaborated in the succeeding sections. Annex 2 contains the photo-documentation of these activities. Table 1. EPDP Activities in FY2-Q4 (July– September 2016) Dates Activities 5 July Core Management Committee (ManCom) Meeting 11-13 July Mid-level Training Course on Forecasting 14 July Presentation of the study Filipino 2040 - Energy: Power Security and Competitiveness during the 38th Annual Scientific Meeting by the National Academy of Science and Technology (NAST) 18-20 July Meeting with Ms. Gloria Steele, USAID Senior Deputy Assistant Administrator (SDAA)-Asia Bureau EPDP-International Food Policy Research Institute Workshop

Dates Activities Meeting with USAID, U.S. Department of Energy, U.S. State Department, and U.S. Energy Association 26 July Expanded ManCom Meeting 2 August Meeting with NEDA Deputy Director General (DDG) Rosemarie Edillon on the Executive Course Meeting with Manila Electric Company (Meralco) 5 August Presentation of the Filipino 2040 study at De La Salle University Interview on EPDP with UNTV’s Serbisyong Kasangbahay Core ManCom Meeting 8 August Meeting with the Socioeconomic and Planning Secretary and NEDA Director General Ernesto Pernia 12 August Meeting with DOE Secretary Alfonso Cusi Presentation of the technical advisory note (TAN) on Biodiesel to NEDA DDG Edillon; Agriculture, Natural Resources and Environment Staff (ANRES); and Infrastructure (INFRA) Staff 17 August Coordination Meeting with USAID and Building Low Emission Alternatives to Develop Economic Resilience and Sustainability Project (B-LEADERS) 24 August Expanded ManCom Meeting 25 August EPDP Lecture Series Session 6 - Philippine Energy Planning Part 2: Transmission Development Plan and Distribution Development Plan by Mr. Rodel Limbaga, DOE, and Engr. Redi Allan Remoroza, National Grid Corporation of the Philippines (NGCP) Participation in the Stratbase Albert Del Rosario Institute (ADRi) Energy Stakeholders’ Forum 31 August – 2 EPDP Session at the Philippine Statistical Authority, Inc. (PSAI) September Annual Conference in Bicol 2 September Core ManCom Meeting 6 September Participation in the Philippine Energy Outlook Forum of DOE 7 September EPDP Fellow’s Meeting with Meralco on Filipino 2040 8 September EPDP Lecture Series Session 7 - The Value Added Tax and Cost of Doing Business: What Contributes More to Electricity Tariffs in the Philippines by Dr. Ramon Clarete, EPDP Fellow 14 September Expanded ManCom Meeting 16 September Executive Course on Competition and Regulation on the Philippine Power Sector 19 September Educational Visit to MakBan Geothermal Plant 21 September EPDP Lecture Series Session 8 - The Role of Power Prices in Structural Transformation: Evidence from the Philippines by 8

Dates Activities Dr. Arlan Brucal, EPDP Fellow, and Mr. Jan Carlo Punongbayan, EPDP Researcher 26 September Quest: A Research Workshop, UP School of Statistics 28 September Meeting with Meralco and International Energy Consultant on International Electricity Rate Comparison Study

III. Program Components

1. Research Component

The fourth quarter saw the completion of the first round of research studies and the commencement of the second round of research focused on the identified priority topics. The EPDP-IFPRI research workshop also took place in Washington, D.C., which formally set off the research collaboration between the two organizations. During the Washington visit, EPDP also organized a meeting with Ms. Gloria Steele, USAID Senior Deputy Assistant Administrator, and several representatives from USAID, U.S. Department of Energy, U.S. State Department, and U.S. Energy Association. As part of research dissemination, EPDP likewise accepted invitations to present the Filipino 2040 energy chapter. The engagement report on Filipino 2040 was also submitted to USAID and NEDA. EPDP also participated in the Philippine Statistical Authority Annual Conference.

A. Research Studies

i. First Round of Research Studies Delivered outputs: technical papers and policy briefs

Three (3) additional EPDP-initiated research studies were completed, bringing the number of completed studies to ten (10). The peer reviews were completed for two (2) of the papers while still ongoing for one (1). These ten (10) studies constitute the first round of EPDP research studies, which were based from the research agenda drawn up in Fiscal Year 1.

The peer review process, which has been put in place to ensure high quality studies, involves circulating the technical papers to EPDP fellows and select energy scholars to solicit comments and recommendations. These papers are progressively being released as working papers in the EPDP website to also elicit comments from the public. The link to the papers is http://www.upecon.org.ph/epdp/resource-center/library/epdp- products/working-papers/

Three (3) policy briefs summarizing the research studies and recommendations have also been released. The policy briefs are concise

version of the studies for the consumption of the policy-makers. These will be used to engage policy-makers and help inform policy options and decisions.

Meanwhile, three (3) studies are ongoing. These are expected to be completed early in FY3.

Table 2 below shows the status of the first round of research studies.

Table 2. Status of First Round of EPDP Research Studies RESEARCH AUTHOR/S PEER WORKING POLICY REVIEWED PAPER BRIEF RELEASED RELEASED Completed First Round of EPDP Studies 1. The Market Testing of Raul Fabella    Power Supply Agreements: Rationale and Design Evolution in the Philippines 2. An Error Correction Model Rolando Danao   for Forecasting Philippine Geoffrey Ducanes Aggregate Electricity Consumption 3. Lighting up the Last Mile: Ujjayant   The Costs and Benefits of Chakravorty Extending Electricity to Kyle Emerick the Rural Poor Majah-Leah Ravago 4. Assessment of the Ruperto Alonzo  Philippine Power Sector Policy Landscape 5. The Value Added Tax and Ramon Clarete   Cost of Doing Business: What Contributes More to Electricity Tariffs in the Philippines 6. The Role of Power Prices Majah-Leah Ravago  in Structural JC Punongbayan Transformation: Evidence Arlan Brucal from the Philippines James Roumasset 7. The Public Economics of Majah-Leah Ravago Ongoing Electricity Policy with James Roumasset Philippine Applications Completed NEDA-Requested Research 8. Filipino 2040 Energy: Majah-Leah Ravago    Power Security and Raul Fabella Competitiveness* Ruperto Alonzo Rolando Danao Dennis Mapa 9. Filipino 2040: James Roumasset    Environmental Resources, Majah-Leah Ravago Shocks, and National Well- Karl Jandoc Being* Clarissa Arellano 10

RESEARCH AUTHOR/S PEER WORKING POLICY REVIEWED PAPER BRIEF RELEASED RELEASED 10. An Economic and Ruperto Alonzo Environmental Analysis Ongoing review for of the Impact of Higher- release Blended Biodiesel on the Philippine Coconut Industry* 11. Impact Study of Higher- Roehlano Briones  Blended Biodiesel on the Rex Demafelis Coconut Industry Ongoing 12. Macro-Micro Level Dennis Mapa Linkage of Energy and Majah-Leah Ravago Poverty: Evidence of Manuel Albis Benefits for the Poor Michael del Mundo 13. The Economics and Laarni Escresa Politics of Power Plant Approvals in the Philippines 14. Gender, Energy, and Connie Dacuycuy Weather Shocks * A research study requested by NEDA that was subsequently incorporated in FY1 EPDP research. ii. Second Round of Research Studies Delivered outputs: concept notes

The fourth quarter marked the official start of the second round of research. In light of the budget cut, research topics were assessed according to priority. The prioritization is anchored on EPDP’s objective of helping to bring the cost of power down. Table 3 below shows the nine (9) research studies identified for the second round. The new batch of studies will mainly tackle various aspects of electricity prices. Other research topics include optimal fuel mix, interconnection of energy-water-food sectors, electric cooperatives, and missionary electrification.

Table 3. Topics for the Second Round of Research RESEARCH TOPIC RESEARCH FELLOWS CONCEPT NOTE 1. Towards an Economic Model of an Karl Jandoc  Integrated Power System Majah-Leah Ravago James Roumasset 2. Power Rates in the Philippines: Majah-Leah Ravago  Causes and Implications Arlan Brucal James Roumasset 3. Optimal Energy Mix for Power Romeo Balanquit,  Generation in the Philippines Sarah Daway 4. Evaluative Study on the Services of Raul Fabella  Electric Cooperatives

RESEARCH TOPIC RESEARCH FELLOWS CONCEPT NOTE 5. Forecasting Philippine Sectoral Rolando Danao  Electricity Demand Geoffrey Ducanes 6. Impacts of Electricity Prices on Ujjayant Chakravorty  Philippine Economy/ Labor Market Kyle Emerick Majah-Leah Ravago 7. The Impact of Energy Prices on Renato Reside  Consumption in the Philippines 8. Missionary Electrification Ruperto Alonzo  9. Are Energy Conservation “Nudges” Majah-Leah Ravago  Effective? Evidence from a Arlan Brucal Randomized Residential Field Experiment in the Philippines

B. EPDP-IFPRI Research Workshop Delivered output: collaboration with a U.S.-based research institute

On 19-20 July 2016, the EPDP-IFPRI Research Workshop took place at IFPRI’s headquarters in Washington, D.C., United States of America (U.S.A.). The two- day workshop entitled “Energy, Water, Food and Competition Policies” was an initial step to establish the research collaboration. It focused on the interlinkages of the energy, water and food sectors and tackled different country cases and models. The EPDP delegates provided the current situation in the Philippines through the following presentations: i. Energy-Water-Food Policy Issues in the Philippines: Managing Water Storage by Dr. Majah-Leah Ravago and Dr. James Roumasset ii. An Assessment of the Philippine Power Sector Policy Landscape by Prof. Ruperto Alonzo iii. Understanding Increasing Power Demands in the Philippines by Dr. Geoffrey Ducanes

The details and timeline of the research collaboration were also discussed. Playing on each other’s strengths, IFPRI will focus on the modeling, while EPDP will validate the model on the ground given its local knowledge. A stakeholder consultation will be organized before developing the model to engage NEDA and DOE early in the process. This will be crucial in enhancing the research uptake. The Philippine Competition Commission (PCC) was also identified as another primary partner.

The research collaboration aims to develop an integrated modeling framework to assess trade-offs across the energy-water-food sectors in the country. The intention is to strategically integrate this in the economy-wide model of NEDA. The envisioned outputs of the collaboration are: (i) a research study on the energy-food-water sectors in the Philippines, and (ii) capacity building for government (DOE and NEDA) and students on the models used in the study.

IFPRI is a US-based international research center providing research-based policy solutions.

Annex 3 contains the workshop program and a discussion note on the research collaboration.

C. External Meetings during the Washington, D.C. Trip i. Meeting with Ms. Gloria Steele, USAID SDAA, 18 July 2016

On 18 July 2016, EPDP led by Program Director Dr. Majah-Leah Ravago, met with Ms. Gloria Steele, SDAA. They were joined by Dr. Arsenio Balisacan, PCC Chairperson, and Dr. Mark Rosegrant, IFPRI Division Director, and James Roumasset, EPDP Program Advisor.

The EPDP team shared with Ms. Steele the program’s accomplishments and plans. The research collaboration with IFPRI was also discussed with the aim of securing potential funding from USAID. In response, Ms. Steele suggested for the development of a concept note with an Asia regional scope that will build on the Philippine project to increase chances of additional funding. Possible countries to include are Myanmar and Vietnam. ii. Meeting with U.S. Energy Agencies Delivered output: minutes of the meeting

On 20 July 2016, the EPDP team had a meeting with USAID, U.S. Department of Energy, U.S. State Department, and U.S. Energy Association. This was organized by Dr. Jayne Somers, USAID Energy Advisor of the Asia Bureau. The meeting was an opportunity to get insights from other energy experts regarding the current energy landscape in the Philippines. The discussion centered on market designs. Opportunities for EPDP to have on-ground trips at U.S. electric cooperatives through the assistance of the U.S. Energy Association (USEA) were also mentioned.

Annex 4 reflects the minutes of the meeting.

D. Presentations of Filipino 2040 Energy: Power Security and Competitiveness Delivered outputs: research dissemination/presentations of select EPDP research studies

EPDP Program Director, Dr. Majah-Leah Ravago, presented the study entitled “Filipino 2040 Energy: Power Security and Competitiveness” at the 38th Annual Scientific Meeting of the National Academy of Science and Technology, Philippines on 14 July 2016 at the Manila Hotel. The annual meeting is considered as the most prestigious Philippine scientific conference. Dr. Ravago was also invited to present the same research study in the Undergraduate Colloquium at the De La Salle University on 5 August 2016.

The said study is one of the thematic chapters included in NEDA’s AmBisyon Natin 2040 visioning project. She co-authored the study with EPDP Fellows, Dr. Raul Fabella, Prof. Ruperto Alonzo, Dr. Rolando Danao, and Dr. Dennis Mapa.

During the quarter, EPDP also submitted to the USAID and the NEDA a copy of the engagement report on Filipino 2040. The said report provides comprehensive documentation of all activities from conception to completion of the two technical papers that EPDP contributed to the Ambisyon Natin 2040. The report includes details of meetings and presentations and likewise consolidates comments gathered from different stakeholders.

E. National Conference: Philippine Statistical Association, Inc. (PSAI) 2016 Annual Conference, 31 August – 2 September 2016 Delivered outputs: research dissemination/presentations of select EPDP research studies

EPDP organized a session at the PSAI 2016 Annual Conference with the theme “Role of Statistics in Monitoring Progress of Social Protection,” held in The Avenue Plaza Hotel, Naga City last 31 August to 2 September 2016. The occasion was another venue for EPDP to disseminate results and generate further discussions and comments on two EPDP papers, namely, the “Links Between Energy and Poverty: Evidence of Benefits for the Poor” and “The Value Added Tax and Cost of Doing Business: What Contributes More to Electricity Tariffs in the Philippines.” These were respectively presented by EPDP fellows Dr. Dennis Mapa and Dr. Ramon Clarete.

2. Policy Development Component

As the new Administration establishes its foothold, EPDP focused its efforts in building relationships through engagement with the new set of senior officials especially in NEDA and DOE. For the Policy Component, this meant using the existing areas of policy engagements as a stepping board to engage the new GPH officials. Apart from the government, EPDP also continued its dialogues with energy stakeholders in the private sector.

A. Technical Assistance to NEDA, DOE, and the House of Representatives

i. Technical Comments on House Bill No. 2298 “An Act Amending Paragraph (J) Section 47 of Republic Act 9136 or the Electric Power Industry Reform Act of 2001” Delivered output: technical advisory/comments

On 13 September, EPDP through Dr. Orville Solon, UPSE Dean and UPecon Chairperson, received a request from Congressman Lord Allan Q. Velasco, Chairperson of the House Committee on Energy, for technical inputs on House Bill No. 2298 – “An Act Amending Paragraph (J) Section 47 of Republic Act 9136 or the Electric Power Industry Reform Act of 2001.” Dr. Solon, in a letter

dated 26 September 2016, forwarded EPDP’s technical comments to Congressman Velasco.

Annex 5 are the exchange of letters between Congressman Velasco and Dr. Solon and EPDP’s technical comments. ii. Impact of Higher-Blended Biodiesel on the Philippine Coconut Industry Delivered outputs: terms of reference (TOR); inception report; technical paper; policy paper; TAN; and engagement report

In response to NEDA’s request on December 2015, stemming from a request of DOE to NEDA to quantify the economic benefits of expanding the biofuels program, EPDP commissioned a study on the impact of higher-blended biodiesel on the Philippine coconut industry. Under the Biofuels Act of 2006, the biofuel blend mandate is expected to increase upon the recommendation of the National Biofuels Board (NBB) to the DOE.

The study entitled, “Economic and Environmental Analysis of the Impact of Higher-Blended Biodiesel on the Philippine Coconut Industry” was completed by the two external consultants engaged by EPDP in FY2. The technical paper went through a peer review process to validate its technical soundness and to expound aspects needed for apt policy decision-making of key GPH officials.

EPDP issued a TAN to NEDA and DOE Secretaries and other members of the EPDP Program Steering Committee (PSC) recommending the postponement of the increase in biodiesel blend from two percent (2%) to five percent (5%), at least in the short run. This recommendation is primarily due to relative world price trends in coconut oil and crude oil plus the bleak scenario for domestic coconut production. The issued TAN addressed the issues of the commissioned study, which were not sufficiently responded to by the external consultants. From the TAN, the working paper and policy brief are developed by Prof. Ruperto Alonzo, EPDP Fellow.

An engagement report, documenting EPDP’s support, was also submitted to USAID and NEDA.

Annex 6 is EPDP’s TAN on the increase in biodiesel blend mandate from two- percent (2%) to five-percent (5%). iii. DOE’s Survey on the Governance Structure of Wholesale Electricity Markets Delivered outputs: accomplished questionnaire on wholesale electricity markets in US, Europe, Asia, and South America; analysis of advantages and disadvantages of different kinds of governance structures in wholesale electricity markets; technical advisory note (ongoing)

To determine the suitable governance structure of an Independent Market Operator (IMO) in accordance with the Electric Power Industry Reform Act (EPIRA), DOE sent request letters to foreign Embassies in the Philippines to

secure responses from relevant entities in their countries on a questionnaire about the structure of wholesale electricity markets.

To offer DOE an analysis on the governance structure of an IMO for the wholesale electricity spot market (WESM), EPDP complemented this with an online research on various governance structures of wholesale electricity markets in the United States, Europe, Asia and South America. In addition, it started the analysis of the advantages and disadvantages of different types of governance structures. This will be subsequently conveyed to the new GPH officials in a form of a TAN to inform new GPH officials on policies related to the creation of an IMO.

Under the EPIRA, WESM operations must be turned over to an IMO 12 months after its operations. Since WESM started operations in 2006, it is still being operated by the designated Autonomous Group Market Operator (AGMO) namely, the Philippine Electricity Market Corporation (PEMC). iv. Executive Course on Competition and Regulation in the Philippine Power Sector Ongoing output: TAN

EPDP has started working on a TAN, targeted to the new NEDA and DOE Secretaries, which will provide recommendations in relation to the pressing issues and concerns in the transmission sector. This was prompted by the discussion among 37 energy officials during the Executive Course organized by EPDP on 16 September 2016.

The training course dealt with theories of competition and regulation and their applications in the Philippines power sector. v. DOE and the Competitive Selection Process (CSP)

In view of the transition in administration, EPDP has sought reconfirmation from the relevant government partners (initially through a meeting with the ERC Commissioner) on the policy direction in relation to the independent entity tasked to administer and manage the power supply auction. The next PSC meeting in Q1 of FY3 will be another venue to determine whether this is among the GPH priorities.

EPDP was previously requested to draft the terms of reference for an independent entity tasked to administer and manage the power supply auction as mandated under DOE Circular 2015-060008. The circular also mandated (i) the Competitive Selection Process (CSP) for all demand of all distribution utilities (DUs) not yet covered by long-term contracts; and (ii) the aggregation of the demand of small DUs into bid-attractive volumes. This circular was among the government’s attempts to enhance market competition in the electricity sector in order to bring down the cost of electricity.

However, setting up the independent entity has been effectively put in abeyance after the issuance of DOE-Energy Regulatory Commission (ERC) Joint Resolution 1 (making ERC responsible for issuing regulations for the CSP implementation); ERC Resolution 13 (laying down the methods through which power supply agreements may be awarded) in October 2015; and ERC Resolution 1 (directing all DUs and generation companies to file PSAs not covered by CSP) in April 2016. These resolutions focused the priority on progressing the CSP for all demands of all DUs not yet covered by long-term contracts.

While EPDP remains committed to provide the technical assistance required, it has deferred further work on the TOR pending the reconfirmation from key agencies involved in the CSP.

B. Strengthening Institutional Linkages with the Private Sector Ongoing outputs: presentations, meeting minutes, conference collaboration

As part of EPDP’s mandate to strengthen institutional linkages and to share best practices, EPDP responded to the request of private entities such as the Meralco for a discussion on EPDP’s proposed fuel mix policy. In a different occasion, Meralco also shared with EPDP a study they conducted on the regional comparison of retail electricity tariffs, which could be relevant inputs in succeeding EPDP analyses.

Further, the PEMC sought partnership with EPDP for the upcoming Philippine Electricity Summit on December 2016. The Summit is annually organized by PEMC to gather energy stakeholders in government and the private sector to tackle developments and issues in the Philippine power industry. As an identified partner for the Summit, EPDP will have a panel session, a forum to discuss and disseminate EPDP’s research papers.

EPDP’s participation in forums organized by private sector entities, such as the Stratbase Albert Del Rosario Institute (ADRi) Energy Stakeholders’ Forum, also further expanded EPDP’s linkages. EPDP was subsequently invited by Senator Sherwin Gatchalian, Chairperson of Senate Committee of Energy and Economic Affairs, who was among the resource persons during the ADRi’s forum. The upcoming meeting with Senator Gatchalian is another step towards more direct engagements with key legislators and offices of the legislative branch.

Beyond maintaining institutional linkages, these engagements manifest the increased credibility of EPDP with stakeholders.

3. Capacity Building Component

In Q4, more agencies participated in EPDP’s training courses, showing a stronger engagement with GPH, equally represented by the executive and legislative branches, and sector regulatory agencies. The Component’s capacity-

building activities for the fiscal year culminated with an educational visit to a geothermal power plant.

A. Short-Term Capacity Building: Training Course on Forecasting, 11-13 July 2016 Delivered outputs: course modules and training

EPDP conducted the three-day Training Course on Forecasting last 11-13 July 2016 at the Microtel by Wyndham, Diliman, Quezon City. Thirty-two (32) technical officers and employees – 21 male and 11 female – from the following agencies attended the training course:

1. DOE 2. NEDA 3. ERC 4. National Electrification Administration (NEA) 5. National Power Corporation (NPC) 6. Department of Trade and Industry (DTI) 7. PEMC 8. Philippine Statistics Authority (PSA)

Resource persons included professors Dr. Rolando Danao and Dr. Geoffrey Ducanes of the UPSE; Dr. Dennis Mapa, Mr. Manuel Leonard Albis, Mr. John Carlo Daquis, and Mr. Michael Dominic Del Mundo of the UP School of Statistics; Mr. Richard Emerson Ballester of NEDA; and Ms. Marietta Quejada of DOE.

The training course dealt with the fundamentals of forecasting methods, processes, and software systems. The training course consisted of lecture- discussions, guided group exercises, and case presentations. Building on earlier mid-level training courses on forecasting, this deepened the knowledge and skills of participants from eight (8) government agencies on Eviews, another commonly used econometric software for forecasting.

Based on the four-part evaluation accomplished by the participants, on a scale of 1 (Poor) to 5 (Excellent), the training course was rated as shown below in Table 4.

Table 4. Rating of the Training Course on Forecasting Key Areas Average Notes Rating Overall Rating 4.56 out of 5 59.38% of the respondents gave the (Very Good training course an overall rating of 5 to Excellent) (Excellent), 37.50% gave an overall rating of 4 (Very Good), and 3.13% gave an overall rating of 3 (Good). Achievement 4.63 out of 5 All respondents believed that the training of Objectives course achieved its objectives. 62.50% strongly agreed (score of 5) and 37.50% agreed (score of 4).

Key Areas Average Notes Rating Relevance and 4 out of 5 Most respondents rated the training Usefulness course as relevant to their current function and will be useful for their work. 25% of the respondents strongly agreed (score of 5) and 50% agreed (score of 4). Meanwhile, 25% neither agreed nor disagreed (score of 3). Content and 4.16 out of 5 Delivery Administrative 4.62 out of 5 and Logistical Arrangements

A terminal report on the training course is enclosed as Annex 7.

B. Short-Term Capacity Building: Executive Course on Competition and Regulation in the Philippine Power Sector, 16 September 2016 Delivered outputs: course modules and training

EPDP conducted the “Executive Course on Competition and Regulation in the Philippine Power Sector” last 16 September 2016 at the Oakwood Premier – Joy Nostalg Center, Ortigas Center, Pasig City. Thirty-seven (37) officials – 17 male and 20 female – from the following agencies attended the training course:

1. DOE 2. NEDA 3. ERC 4. PCC 5. NEA 6. NPC 7. DTI 8. PEMC 9. PSA 10. Senate Economic Planning Office/Office of Senator Sherwin T. Gatchalian 11. Joint Congressional Power Commission/Congressional Policy and Budget Research Department

Resource persons included EPDP Fellow and National Scientist Dr. Raul Fabella, ERC Commissioner Gloria Victoria Yap-Taruc, and PCC Commissioner Johannes Benjamin Bernabe.

The training course dealt with theories of competition and regulation, and their applications in the Philippine power sector. The course also served as a platform for discussions on striking a balance between competition and regulation policies; Philippine electric power industry regulations vis-à-vis the EPIRA implementation; and the importance of a competition law.

Based on the four-part evaluation accomplished by the participants, on a scale of 1 (Poor) to 5 (Excellent), the training course was rated as shown in Table 5 below.

Table 5. Rating of the Executive Course Key Areas Average Notes Rating Overall Rating 4.27 out of 5 30% of the respondents gave the (Very Good) executive course an overall rating of 5 (Excellent), 66.6.7% gave an overall rating of 4 (Very Good), and 3.33% gave an overall rating of 3 (Good). Achievement 4.27 out of 5 Most respondents believed that the of Objectives executive course achieved its objectives. 30% strongly agreed (score of 5) and 66.67% agreed (score of 4). Meanwhile, 3.33% neither agreed nor disagreed. Relevance and 4 out of 5 Most respondents rated the executive Usefulness course as relevant to their current function and will be useful for their work. 43.33% of the respondents strongly agreed (score of 5) and 40% agreed (score of 4). Meanwhile, 16.67% neither agreed nor disagreed (score of 3). Content and 4.26 out of 5 Delivery Administrative 4.47 out of 5 and Logistical Arrangements

A terminal report on the executive course and session highlights are enclosed as Annex 8.

C. Long-Term Capacity Building: Faculty Research Grant Outputs: research grant contract as instrument (delivered); research paper, policy brief, and lecture/brown-bag session (ongoing); expertise in the field of energy research (continuous)

In line with its objective of producing a pool of energy experts that the GPH may tap in the future, EPDP provides research grants to encourage members of the academe to undertake energy-related research and other significant output that will be of the highest standards and with excellent socio-economic potential.

In relation to this, EPDP supports in further building the capacity of the UP School of Economics (UPSE) to establish a reputation as “good in energy policy.” A research grant was given to Dr. Renato E. Reside of UPSE for his paper provisionally entitled “The Impact of Energy Prices on Consumption in

the Philippines.” This will form part of EPDP’s second round of research studies.

D. Long-Term Capacity Building: Educational Visit to the MakBan Geothermal Power Plant Outputs: educational visit (delivered), expertise in the field of energy research (continuous)

The EPDP organized an educational visit to the MakBan Geothermal Power Plant last 19 September 2016 in Bae, Laguna. The educational visit consisted of a two-hour orientation seminar and lecture by AP Renewables, Inc. and a two- hour tour of the Cleanergy Center and the power plant. Fourteen (14) participants – 7 male and 7 female – composed of EPDP fellows, graduate students/research assistants, and EPDP staff joined the educational visit.

The educational visit provided the participants with a holistic appreciation of the country’s electric power industry, and with practical understanding of geothermal power plant operations and maintenance. The tour of the power plant also demonstrated concrete applications of theories and concepts related to energy, resource, and environmental economics.

Based on the three-part evaluation accomplished by the participants, on a scale of 1 (Poor) to 5 (Excellent), the educational visit was rated as shown in Table 6 below.

Table 6: Rating of the Educational Visit to the MakBan Geothermal Power Plant Key Areas Average Notes Rating Overall Rating 4.86 out of 5 All respondents gave the learning (Excellent) activity an overall rating of 5 (Excellent). 85.71% gave the learning activity an overall rating of 5 (Excellent) and 14.29% gave an overall rating of 4 (Very Good). Achievement of 5 out of 5 All respondents believed that the Objectives learning activity achieved its objectives. Relevance and 4.71 out of 5 All respondents rated the learning Usefulness activity as relevant to their current function and will be useful for their work. 71.43% of the respondents strongly agreed (score of 5) while 28.57% of the respondents agreed (score of 4). Content and 4.88 out of 5 Delivery

Key Areas Average Notes Rating Administrative 5 out of 5 and Logistical and Arrangements

E. Long-Term Capacity Building: Quest: A Research Workshop Delivered output: orientation on possible energy research

On 26 September 2016, Dr. Majah-Leah Ravago, EPDP Program Director was invited to speak at Quest: A Research Workshop at the UP School of Statistics. Dr. Ravago shared with the undergraduate students EPDP’s key priority areas and research agenda and offered numerous guidelines as to how to undertake research on specific energy topics. During the open forum, Dr. Ravago responded to questions from students on data and their topic of interest. This event provided EPDP a platform to encourage and to spark interest among students to take up energy research.

4. Communications Component

This quarter, the Communications Component focused on polishing the website, expanding the resource center databank, packaging EPDP products and offering continuous support to other EPDP components. In addition to maximizing digital platforms to cut costs, the last quarter of the fiscal year was about adjustments within the component to prepare for the dip in budget and manpower come FY 3. Given the crosscutting nature of the Communications Component’s main tasks, efforts to work more efficiently with fewer resources within the component and with others have become a priority.

A. EPDP Resource Center and Enhancement of Webpage Ongoing outputs: enhanced website and EPDP resource center

After the completion of the EPDP website in Q3, the first weeks of Q4 were dedicated to troubleshooting and debugging, which necessitated updating the website’s content management system WordPress to its latest version in order to accommodate further changes without producing more errors. After this, the download monitor became functional. This means that data on the number of times a product has been downloaded and by whom can now be determined.

Databank expansion has been fast-tracked and a training session will be done by the web developer to help the Communications and Research Components manage the website and resource center with minimal technical assistance after the fiscal year ends. The goal is for the databank to be fully functional and structurally complete in time for the next PSC meeting. The databank will house a wide array of data on economics, energy, environment and natural disaster. Visitors will be able to download tables and create graphs according to the required information. This extend EPDP’s commitment to evidence-

22 based research and its support to energy scholars even beyond the life of the Program.

As of 27 September 2016, Google Analytics showed that the EPDP website has had 1,227 users and 14,042 page views since 11 May 2016, when Analytics was installed. These translate to 200% increase of new visitors and almost 300% increase of viewers since Q3.

Annex 9 captures the number of EPDP users and visitors between 11 May 2016 to 27 September 2016.

B. Communications-specific products and activities Delivered outputs: newsletter, social media updates/posts

Newsletter vol. 2 no. 1, the fifth since the Program started in 2014, was released in July 2016 through the EPDP’s website and Facebook page. It was also emailed to over 500 recipients in the Program’s mailing list. The newsletter can be found at http://www.upecon.org.ph/epdp/wp- content/uploads/2016/07/Newsletter-5-Single-Paged-050716.pdf

Annex 10 is EPDP Newsletter Vol. 2 No. 1.

In addition to the website, the Component continuously maintains and manages the social media accounts of EPDP, expanding the potential reach of EPDP to include those that are not captured by the mailing list or are more accustomed to social media. Through these platforms, more stakeholders are informed about products and activities across the various EPDP components.

As of 27 September 2016, EPDP directly reached at least 1,012 followers on Facebook, Twitter, LinkedIn, and Instagram. Even with only 634 likes on Facebook, EPDP page activities can reach almost three times the number of individuals. For example, Facebook insights show that the number of people reached by EPDP’s Facebook activities went up to 1,787 on 21 July 2016, the highest for the quarter, as shown on Figure 2 below.

Figure 2. EPDP’s Reach in Q4

The Component also regularly monitors energy-related content in local news. These articles are sent weekly via email to EPDP fellows, researchers, and research assistants, and counterparts in USAID.

C. Communications support Delivered outputs: photo documentations, collaterals, copy edited materials

The Communications Component continually supports other components through the photo documentation of activities; composition, design, and production of collaterals such as posters, banners, certificates, and invitations; social media and online dissemination of activities and products; post-activity updates on social media; and writing, proofreading, and/or copy editing of products and report contents.

For Q4, the Component documented eight (8) EPDP activities, including lecture series sessions, training courses, a national conference, a research workshop, and an educational trip; copy edited internal documents, letters, proposals, and the Technical Advisory Note on biodiesel. The Component also packaged two (2) working papers and eight (8) policy briefs for dissemination.

D. EPDP in the News

As another manifestation of the credibility of EPDP in the energy sector, it has started to gain the interest of mainstream media. One of its studies has been the content of an article in Business World Online. The mainstream media’s pick of EPDP-related studies also opens up opportunities to expand the reach and broadly disseminate EPDP’s analyses and policy recommendations. i. UNTV – Serbisyong Kasangbahay, 5 August 2016

On 5 August 2016, EPDP was featured on UNTV's Serbisyong Kasangbahay. Dr. Majah Ravago and the show's hosts discussed topics crucial not only to environmentally-sound energy development but also to the country's growth. The video can be viewed at: https://www.facebook.com/energypolicyanddevelopmentprogram/videos/12 58998510778458/ ii. Business World Online – “Eliminate red tape in the Philippine energy sector” by Bienvenido S. Oplas, Jr., 15 September 2016

The opinion piece by Mr. Oplas talked about EPDP’s research study “The Value Added Tax and Red Tape: What Contributes More to Electricity Tariffs in the Philippines,” authored by Dr. Ramon Clarete, an EPDP fellow. This article came out after the 8 September 2016 EPDP lecture on the study, which Mr. Oplas attended. The article can be accessed at: http://www.bworldonline.com/content.php?section=Opinion&title=eliminate- red-tape-in-the-philippine-energy-sector&id=133467

5. Cross-Cutting

This section captures the activities that are being carried out across various components, contributing to multiple Program objectives or having across-the- board implications. These include high-level meetings, monitoring and evaluation, gender, and lecture series.

In Q4, the Program had preliminary meetings with the new set of senior officials in NEDA and DOE as part of its efforts to establish relationships with the new set of GPH officials. The Performance Monitoring and Evaluation Plan (PMEP), Performance Indicator Reference Sheet (PIRS), and the Gender Action Plan were also updated. Meantime, the lecture series continues to build capacities, offer venues for multi-stakeholders interaction, and disseminate research.

A. Engagements with senior GPH officials Output outputs: meeting highlights

Led by Dr. Majah-Leah Ravago, Program Director, EPDP met with Socio- economic and Planning Secretary Ernesto Pernia on 8 August 2016. This was a follow through of the preliminary meeting with Secretary Pernia prior to his official assumption as NEDA Director-General and Socio-economic and Planning Secretary. Secretary Pernia is a professor emeritus of UPSE.

From this meeting, Secretary Pernia linked EPDP with DOE Secretary Alfonso Cusi. EPDP subsequently had a courtesy call on Secretary Cusi on 12 August 2016. DOE Undersecretaries Felix William Fuentebella and Jess Posadas, Assistant Secretary Robert Uy, Director Jesus Tamang, and two officials from NEA and Philippine National Oil Company (PNOC) also joined the meeting.

EPDP shared with both Secretaries the initial copies of the policy briefs of completed research studies to serve as additional briefing materials on key issues in the energy sector.

B. EPDP Lecture Series Outputs: lectures (delivered), expertise in the field of energy research (continuous)

Launched in March 2016, the lecture series offers a mechanism to support various program objectives. This contributes in (i) building short- and long- term capacities through providing holistic understanding of the country’s electric power industry; (ii) engaging with government, practitioners, professionals and other stakeholders on EPDP research studies; and (iii) disseminating the research studies to the public and raising their awareness on various energy-related issues.

The lecture series also contributes towards the establishment of academic and policy programs specific to the energy sector in institutions of tertiary education. By bringing in energy experts and professionals, the EPDP aims to 25

integrate energy concepts into regular graduate and undergraduate courses in economics, and encourage more policy research work.

In Q4, EPDP organized three (3) lectures, as follows: i. Philippine Energy Planning (PEP) Part 2: Transmission Development Plan (TDP) and Distribution Development Plan (DDP) 25 August 2016

This lecture discussed how the TDP and DDP were drafted by the NGCP and DOE, respectively. The TDP details transmission grid expansion and upgrading projects, while the DDP is a consolidation of distribution utilities’ plans. Both development plans serve as inputs to the DOE’s annual Philippine Energy Plan. This lecture was delivered by Engr. Redi Allan Remoroza of the National Grid Corporation of the Philippines and Mr. Rodel Limbaga of the Department of Energy.

17 participants – 9 male and 8 female – from government, the academe, and the private sector attended the lecture. ii. Value Added Tax and Cost of Doing Business: What Contributes More to Electricity Tariffs in the Philippines 08 September 2016

The lecture presented a comparison of the effects of value-added tax (VAT) and red tape on electricity tariffs in the Philippines. A breakdown of the general equilibrium model used, as well as a view on the realities associated with VAT and red tape, was presented. The lecture portrayed the electricity industry as part of an economic system, not to be taken as an independent factor. The lecture correspondingly presented the effects of various industry policies examined on electricity prices and government revenues. This lecture was delivered by Dr. Ramon Clarete, EPDP Fellow.

32 participants – 15 male and 17 female – from government, the academe, and the private sector attended the lecture. iii. The Role of Power Prices in Structural Transformation: Evidence from the Philippines 21 September 2016

The lecture discussed the effects of high electricity prices on the growth and composition of the manufacturing sector in the Philippines. It covered the causes of deindustrialization, such as globalization, political instability, and protectionism, and the impacts of premature deindustrialization to the Philippine economy. Cross-country comparisons were made to further illustrate that high electricity rates may accelerate deindustrialization. This lecture was delivered by EPDP Fellow Dr. Arlan Brucal and EPDP Researcher Mr. Jan Carlo Punongbayan.

20 participants – 13 male and 7 female – from the academe and the private sector attended the lecture.

Table 7 below summarizes the four-part evaluation accomplished by the participants for the four lectures, on a scale of 1 (Poor) to 5 (Excellent).

Table 7. Summary Ratings of the EPDP Lectures Average Rating Key Areas Phil. Energy VAT and Cost of Role of Power Planning Part 2 Doing Business Prices Overall Rating 4.18 out of 5 4.45 out of 5 4.47 out of 5 (Very Good) (Very Good to (Very Good to Excellent) Excellent) Achievement 4.27 out of 5 4.55 out of 5 4.55 out of 5 of Objectives Relevance and 4.38 out of 5 4.55 out of 5 4.55 out of 5 Usefulness Content and 4.38 out of 5 4.53 out of 5 4.41 out of 5 Delivery Administrative 4.73 out of 5 4.52 out of 5 4.68 out of 5 and Logistical Arrangements

Annex 11 contains more details of the evaluations.

C. Performance Monitoring and Evaluation Plan Delivered outputs: updated PMEP and PIRS

The team engaged with the monitoring and evaluation specialist in updating the PMEP and the PIRS to capture the needed modifications, including additional indicators and activities that were no longer pursued following information on the FY3 budget cut. Systems have also been simplified in aid of the transition to a reduced human resource by FY3 when budget will be 75% lower than what was initially anticipated. The M&E specialist position will be dissolved. The function will be taken on by the Deputy Program Director and two part-time program assistants.

D. Gender Action Plan Delivered outputs: updated Gender Action Plan, draft technical paper, peer review comments

The EPDP updated the gender action plan, a component of the PMEP. The main consideration was the limited technical support to progress the implementation of the action plan. It had to abort the plan to get a gender specialist to mentor and assist the program given the budget cut.

EPDP will seek out collaboration with DOE’s for gender collaboration and maximize the opportunity presented by the recently completed DOE Gender Toolkit for the Energy Sector. 27 In relation to the research work on “Gender, Energy, and Weather Shocks,” EPDP already received a draft technical paper from Dr. Connie Bayudan- Dacuycuy on 25 July 2016. The next iteration of the technical paper is expected to incorporate and address the peer review comments conveyed to Dr. Dacuycuy on 31 August 2016.

IV. Program Management

1. Work Plan for Fiscal Year 3

Consistent with the provisions of the grant agreement, EPDP drew up and submitted a proposed Work Plan for FY3 to USAID on 30 August 2016. The proposed Work Plan took into account the key accomplishments of the Program in FY2 and the reduced budget in FY3. It reflected the set of activities presented to and endorsed by the PSC on 20 May 2016, which were recalibrated following the budget cut announcement. In addition, the Work Plan identified strategies to maximize the impact of reduced resources, and prioritized the activities that were unfunded to guide and facilitate the planning on the use of any additional funding that may come online.

The updated PMEP and PIRS were also submitted along with the proposed Work Plan for FY3.

2. Human Resource

As a result of the reduced budget, EPDP management decided to consolidate and dissolve certain positions for FY3. The policy and capacity building associate positions were collapsed into one associate position. One of the two program assistant positions was converted to accommodate the functions of the policy and capacity building administrative assistants. The communications administrative assistant position was also dissolved.

This decision brought down the number of positions from 19 in FY2 Q4 to 14 in FY3. Of the 14 positions (excluding the Advisors and Data Management Unit Manager), nine (9) and five (5) are full-time and part-time, respectively. The new configuration was conveyed to the team on 2 September 2016 after a formal endorsement of the core ManCom.

EPDP saw the departure of five (5) personnel by end September. One completed her contract in July while the other four opted to complete their contracts by 30 September 2016. This left one (i.e. Capacity Building and Policy Components Associate) of the 14 positions vacant. EPDP then initiated the recruitment process to fill the position. A new personnel member will be selected by October 2016.

28 These changes are assessed necessary due to the significant budget cut. Nonetheless, these will entail a degree of adjustment to all members of the team. In anticipation, the Work Plan for FY3 already factored in this limited resource.

Figure 3: EPDP Team in FY3 (as of 30 September 2016)

29 Annexes

Annex 1 Performance Indicator Tracking Table (as of 30 September 2016) Annex 2 Photo documentation of EPDP FY2 Quarter 4 activities Annex 3 EPDP-International Food Policy Research Institute workshop program and discussion note on the research collaboration

Annex 4 Minutes of the meeting with US Energy Agencies

Annex 5 Exchange of letters between Congressman Lord Allan Velasco and Dr. Orville Solon (Dean of University of the Philippines - School of Economics) and EPDP’s technical comments

Annex 6 Technical advisory note on the increase in biodiesel blend mandate

Annex 7 Terminal report on the Training Course on Forecasting Annex 8 Terminal report on the Executive Course on Competition and Regulation in the Philippine Power Sector and session highlights

Annex 9 EPDP users and visitors between 11 May 2016 to 27 September 2016 Annex 10 EPDP Newsletter Vol. 2 No.1

Annex 11 Evaluations of the lectures

32 Annex 1. Performance Indicator Tracking Table (PITT) for FY2 (as of 30 September 2016) Indicators in red fonts are standard USAID indicators Logical Framework Narrative Summary and Baseline FY2 FY2 ACTUAL (Quarterly) Indicators Year Value Target Rationale Planned Actual Q1 Q2 Q3 Q4

Goal: Decision-making environment to support cost-effective and clean energy development improved Indicator G: Government plans/policy/frameworks/ 2014 0 0 2 0 0 2 0 implementation guidelines/administrative procedures with EPDP inputs issued/adopted or implemented Project Purpose: GPH capacity to formulate coherent and evidence-based policies and strategies for cost-effective and environmentally-sound energy development strengthened Indicator PP: Number of EPDP-supported research 2014 0 Some results from 2 2 0 0 2 0 outputs that served as inputs to draft government previous year's plans/policy frameworks/implementation activities but guidelines/administrative procedures uncertainty due to new government Sub-Purpose 1: Improved GPH capacity to guide and inform energy-related policy and practice through enhanced research Indicator SP1: Number of EPDP-supported research 2014 0 Uncertainty due to new 3 4 0 1 2 1 outputs with NEDA and DOE commitment to utilize in government the formulation, implementation and monitoring & evaluation of energy-related policies, breakdown by: a) Demand-driven outputs - Research 0 0 0 0 0 b) Demand-driven outputs - Just in-time 4 0 1 2 1 c) Supply-driven outputs 0 0 0 0 0 Sub-Purpose 1 Output 1: Institutional platform to provide evidence-based advice and inputs to energy policy and strategies is established Indicator SP1-O1.1 Number of government requests 2014 0 Given EPDP has already 6 51 1 49 0 1 received for EPDP policy research support or technical established assistance relationship, EPDP anticipates 6 additional research requests

Indicator SP1-O1.2 Number of key priority areas 2014 0 Research workshop 5 3 3 3 3 3 (KPAs) cumulative coverage out of 5 identified KPA in conducted by Q3 FY2 the approved research agenda Indicator SP1-O1.3: Number of days of USG funded 2014 0 274 218 39 87 79 13 technical assistance in technical energy fields provided to counterparts or stakeholders Indicator SP1-O1.4: Number of days of USG funded 2014 0 193 193 67 87 39 0 technical assistance in climate change provided to counterparts or stakeholders Sub-Purpose 2: Increased capacity of GPH to undertake and sustain coherent and evidence-based energy policy & decision- making Logical Framework Narrative Summary and Baseline FY2 FY2 ACTUAL (Quarterly) Indicators Year Value Target Rationale Planned Actual Q1 Q2 Q3 Q4 Indicator SP2.1: Number of institutions with improved 2014 0 At the minimum: NEDA, 3 11 0 0 0 11 capacity to address climate change issues as a result of DOE, and ERC USG assistance a. clean energy capacity 2014 0 3 11 0 0 0 11 b. cross cutting: climate change capacity (including 2014 0 3 11 0 0 0 11 reduction of GHG emissions) Indicator SP2.2 Number of institutions with improved 3 20 2 0 7 11 capacity to address other energy issues as a result of USG assistance Sub-Purpose 2 Output 1: Increased training of GPH officials and staff in the use of research/analytical tools for energy policy planning & decision-making Indicator SP2-01.1: Number of person hours of 2014 0 Activity will support 1 52 37 0 0 0 37 training completed in climate change as a result of day executive training EPDP/USG assistance, breakdown by: and two 3-day midlevel training. Clean energy subject to availability of resource person. a. clean Energy men 2014 0 Target refined based on 17 0 0 0 17 b. clean Energy women 2014 0 FY 1 experience; more 20 0 0 0 20 c. cross-cutting climate change men 2014 0 women involved: 40% 21 17 0 0 0 17 d. cross-cutting climate change women 2014 0 men, 60% women 31 20 0 0 0 20 Indicator SP2-O1.2: Number of person hours of 2014 0 Activity will support a 1 1328 2360 432 0 864 1064 training completed in other energy topics as a result of day executive training EPDP/USG assistance, breakdown by: and two 3-day midlevel training a. Energy men 2014 0 Target refined based on 531 1264 168 0 456 640 b. Energy women 2014 0 FY 1 experience; more 797 1096 264 0 408 424 women involved: 40% men, 60% women Indicator SP2-O1.3: Percentage of capacity building 2014 0 Refinements 70% 82.41% 82.35% NA 85.71% 79.17% participants that find the training/workshop “relevant” undertaken and new (relevant); (relevant); (relevant); (relevant); and/or “satisfactory” field may included 100% 100% 100% 100% based on demand; (satisfactory) (satisfacto (satisfacto (satisfacto refined targets based ry) ry) ry) on FY1 experience Sub Purpose 2 Output 2: Partnership with other institutions in place Indicator SP2-O2.1: Number of faculty or teaching staff 2014 0 Activity will support at 8 74 0 45 12 17 whose qualifications are strengthened through the minimum EPDP/USG-supported tertiary education program, additional 6 faculty or breakdown by: teaching staff a. Male 2014 0 5 47 0 30 8 9 b. Female 2014 0 3 27 0 15 4 8 Logical Framework Narrative Summary and Baseline FY2 FY2 ACTUAL (Quarterly) Indicators Year Value Target Rationale Planned Actual Q1 Q2 Q3 Q4 Indicator SP2-O2.2: Number of students or energy 2014 0 24 447 1 179 191 76 practitioners whose qualifications are strengthened through EPDP/USG-supported program, breakdown by: a. Male 2014 12 210 1 71 95 43 b. Female 2014 12 237 0 108 96 33 c. Sector: private sector 2014 0 88 0 15 49 24 d. Sector: academe 2014 22 269 1 128 115 25 e. Sector: government 2014 2 90 0 36 27 27 f. Specialization: clean energy 2014 67 0 1 62 4 g. Specialization: climate change 2014 11 0 0 7 4 h. Specialization: other energy 2014 373 1 178 122 72 Indicator SP2-O2.3: Number of U.S.-host country joint 2014 0 One other additional 3 4 2 0 2 0 research projects institutional linkages identified. Indicator SP2-O2.4: Number of energy-related 2014 0 The activity will 4 16 0 5 7 4 educational activities supported by EPDP, breakdown support 2 class by: conferences and 2 educational visits a. clean energy 3 0 0 2 1 b. climate change 1 0 0 0 1 c. other energy 13 0 5 5 3 Indicator SP2-O2.5: Number of USG-supported tertiary 2014 0 Revision of curriculum 0 0 0 0 0 0 programs with curricula revised with private and/or in UP requires a lengthy public sector employers’ input or on the basis of market review and approval research process Indicator SP2-O2.6: Number of education 2014 0 0 3 2 0 0 1 program/subjects/modules that incorporated energy- related topics as a result of USG assistance Sub-purpose 3: Increased capacity to share results of energy-related and complementary economic research Indicator SP3.1:Number of presentations in national & 2014 0 EPDP will release 1 5 41 6 20 4 11 international conferences/seminars or citations in policy brief per media, public and legislative discussions of EPDP- research paper at supported research outputs. minimum. Indicator SP3.2: Number of policy 2014 0 Some research studies 0 0 0 0 0 0 reforms/laws/regulations/administrative procedures are completed but drafted and presented for public/stakeholder uncertainty due to new consultation to enhance sector governance and/or government facilitate private sector participation and competitive markets as a result of USG assistance Subpurpose 3 Output 1: Increased exposure of researchers to scientific community; researchers are increasingly informed regarding developments in the energy sector Logical Framework Narrative Summary and Baseline FY2 FY2 ACTUAL (Quarterly) Indicators Year Value Target Rationale Planned Actual Q1 Q2 Q3 Q4 Indicator SP3-O1.1: Number of research outputs 2014 0 Minimum target 1 0 0 0 0 0 developed with EPDP assistance submitted to peer- reviewed journals Indicator SP3-O1.2: Number of EPDP-supported 2014 0 Available budget 12 66 10 21 9 26 researchers and staff participating in local and international energy-related conferences or trainings, breakdown by a. Male 6 34 5 13 3 13 b. Female 6 32 5 8 6 13 Subpurpose 3 Output 2 Increased engagement with stakeholders for raising awareness and building understanding Indicator SP3-O2.1: Number of EPDP-led 2014 0 The activity will 6 7 1 3 2 1 conferences/stakeholder fora/roundtable discussions support 1 conference + held, breakdown by specific stakeholders targeted, 3 forum + 2 consultations a. government decision makers 4 4 0 2 0 2 Additional for a b. private sector 1 2 1 0 1 0 included due to new c. others - multi-sector 1 2 0 1 1 0 government. Indicator SP3-O2.2: Number of stakeholders that 2014 0 Estimated based on 230 235 3 209 17 6 participated in conferences/stakeholder participation in fora/roundtable discussions, breakdown by: conference (150), stakeholders fora (60,) and consultation (20) a. Male Assumed 60% male, 138 135 3 122 8 2 b. Female 40% female 92 100 0 87 9 4 c. Sector: Government Conference will also 160 118 0 104 8 6 d. Sector: Private attract academe from 40 81 3 71 7 0 e. Sector: Others other countries 30 36 0 34 2 0 Indicator SP3-02.3: Number of EPDP products 2014 0 More materials become 5 10 0 3 6 1 downloaded or requested available on the website. Indicator SP3-02.4: Number of private stakeholders 2014 0 Average based on FY1 2 24 0 16 4 4 that served as a technical resource to EPDP-supported activities Indicator SP3-02.5: Number of cumulative website 2014 0 Website fully 50 1318 0 0 409 909 visitors functional. (as of June 30) Indicator SP3-02.6: Number of platforms for 2014 0 EPDP products 5 5 4 5 4 5 distribution of EPDP products disseminated through various platforms: social media, direct mail, email, mass media, and online. Logical Framework Narrative Summary and Baseline FY2 FY2 ACTUAL (Quarterly) Indicators Year Value Target Rationale Planned Actual Q1 Q2 Q3 Q4 * Indicators are for the entire program period. *For the definitions/details, please refer to the Performance Monitoring and Evaluation Plan (PMEP) and Performance Indicator Reference Sheet (PIRS). Annex 2. Photo documentation of EPDP FY2 Quarter 4 activities

Training Course on Forecasting (11-13 July 2016)

EPDP-IFPRI Workshop in Washington, D.C. (19 July 2016)

Presentation of the Filipino 2040 Study during the 30th NAST Meeting (14 July 2016) Meeting with NEDA (08 August 2016)

Lecture on Philippine Energy Planning Part 2 (Session 6 -- 25 August 2016)

Lecture on “The Value Added Tax and Red Tape: What Contributes More to Electricity Tariffs in the Philippines” (Session 7 -- 08 September 2016) Executive Course on Competition and Regulation in the Philippine Power Sector (16 September 2016)

Educational Tour to Makban Geothermal Power Plant

Lecture on “The Role of Power Prices in Structural Transformation: Evidence from the Philippines” (Session 8 -- 21 September 2016) Quest: A Research Workshop (26 September 2016) Annex 3. EPDP-International Food Policy Research Institute workshop program and discussion note on the research collaboration

ENERGY, WATER, FOOD, AND COMPETITION POLICIES EPDP-IFPRI Workshop July 19-20, 2016 | IFPRI Headquarters

PROGRAM

DAY 1 (July 19)

Welcome Remarks Mark Rosegrant 09:00am-09:05am International Food Policy Research Institute (IFPRI)

Opening Remarks Majah-Leah Ravago 09:05am-09:10am Energy Policy and Development Program (EPDP)

Gloria Steele 09:10am-09:15am United States Agency for International Development (USAID)

Photo Opportunity 09:15am-09:20am EWF Presentations from IFPRI and EPDP Morning Session 1

Energy, Water and Food under Climate Change: Tradeoffs and 09:20am-09:40am Policies Mark Rosegrant, IFPRI 09:40am-10:00am Energy-Water-Food Policy Issues in the Philippines: Managing Water Storage Majah-Leah Ravago and James Roumasset, EPDP

Comments: Yusuke Kuwayama, Resources for the Future 10:00am-10:15am (RFF)

Open Discussion 10:15am-10:35am Coffee Break 10:35am-10:45am

Page 1 Morning Session 2

An Assessment of the Philippine Power Sector Policy Landscape 10:45am-11:05am Ruperto Alonzo, EPDP

Understanding Increasing Power Demands in the Philippines 11:05am-11:25am Geoffrey Ducanes, EPDP

Comments: Bradford Simmons, U.S. Department of State 11:25am-11:40am

Open Discussion 11:40am-12:00nn Lunch 12:00nn-01:00pm Afternoon Session 1 Exploring implications of energy use in agriculture for 01:00pm-01:20pm environmental sustainability: Insights from IFPRI’s global water quality assessment Hua Xie, IFPRI

Philippine’s sustainable energy and low carbon development 01:20pm-01:40pm strategies: A prototype evaluation using the TIMES model Alam Mondal, IFPRI

Comments: Geoffrey Ducanes, EPDP 01:40pm-01:55pm

Open Discussion 01:55pm-02:15pm Coffee Break 02:15pm-02:25pm Afternoon Session 2

Role of Water in the Agriculture and Power Sectors in the Indus 02:25pm-02:45pm River Basin, Pakistan Claudia Ringler, IFPRI

Food, Energy, and Competition Policies 02:45pm-03:05pm Arsenio Balisacan, Philippine Competition Commission

Comments: Jayne Somers, USAID Asia Bureau 03:05pm-03:20pm

Open Discussion 03:20pm-03:40pm End of Day 1

Page 2 DAY 2 (July 20) Morning Session 1 Water-Energy-Food Nexus in Large-Scale Irrigation Systems: 08:00am-08:20am Insights from Pakistan Dawit Mekonnen, IFPRI

Water-Energy-Food Nexus modeling: The case of Egypt 08:20am-08:40am Perrihan Al-Riffai, IFPRI

Comments: James Roumasset, EPDP 08:40am-08:55am

Open Discussion 08:55am-09:10am Morning Session 2 The Economics of Managing Scarce Water Resources 09:10am-09:30am Yusuke Kuwayama, RFF

Comments: Mark Rosegrant, IFPRI 09:30am-09:45am

Open Discussion 09:45am-10:00am Coffee Break 10:00am-10:10am Morning Session 3 (EPDP and IFPRI team)

EPDP-IFPRI Research Collaboration 10:10am-10:20am Introduction and Setting the Objective Presentation of Project Concept

Discussion of Collaboration/Moving Forward/Team Members 10:20pm-12:00pm Working Lunch 12:00pm-01:00pm

Reactions from PH government Arsenio Balisacan, PCC 01:00pm-01:15pm

Closing remarks Mark Rosegrant, IFPRI 01:15pm-01:30pm

Masters of Ceremonies: Rowena Valmonte-Santos, IFPRI J. Kathleen Magadia, EPDP

Page 3 ENERGY POLICY AND DEVELOPMENT PROGRAM Meeting with IFPRI 20 July 2016, Wednesday, IFPRI Headquarters, Washington, DC Meeting Notes Attendees: 1. Dr. Majah-Leah Ravago, EPDP Program Director 2. Dr. James Roumasset, EPDP Program Advisor 3. Prof. Ruperto Alonzo, EPDP Policy Component Advisor 4. Dr. Geoffrey Ducanes, EPDP Fellow 5. J.Kathleen Magadia, EPDP Research Coordinator 6. Shirra de Guia, EPDP Research Assistant 7. Chairman Arsenio Balisacan, Philippine Competition Commission 8. Dr. Mark Rosegrant, IFPRI Division Director 9. Dr. Claudia Ringler, IFPRI Deputy Division Director 10. Dr. Dawit Mekonnen, IFPRI Research Fellow 11. Dr. Alam Mondal, IFPRI Research Fellow 12. Rowena Valmonte-Santos, IFPRI Senior Research Analyst 13. Dr. Nicostrato Perez, IFPRI Senior Scientist 14. Angga Pradesha, IFPRI Research Analyst

Time: 10:30am - 12:00 nn Agenda: EPDP-IFPRI Research Collaboration

SUMMARY OF DISCUSSIONS Salient Points - EPDP will be in charge of the theoretical aspect of the research while IFPRI will take care of the modelling - Involvement of NEDA and DOE is important in the early stages of the research collaboration to enhance the possibility of uptake from both agencies - Before the capacity building seminar (on modelling), another internal meeting between EPDP and IFPRI is suggested to ensure that both are on the same page - The output of the collaboration is two-fold: (1) research; (2) capacity-building for government (DOE and NEDA) and students of UP School of Economics - Filipino 2040 / Ambisyon 2040 papers by EPDP to be used as anchor to the development of the modeling

Other Points Raised - Look at potential gains from the policies (e.g. improved efficiency in the irrigation sector, emission taxes, electric wholesale market, unfreezing land market, etc) and costs of ill- formed policies (e.g. 30-30-30 fuel mx, FIT, 70% carbon emissions) - Determine how the nexus can contribute to high quality employment / labor (look at skilled vs unskilled) - Determine how to improve investment coordination - Results must be intuitive and timing is very important (get some results out within the year so it can be shared with agencies in time for the drafting/release of the Philippine

Page 4 Development Plan. Consider releasing a technical advisory that will introduce the nexus idea in the planning process.) - IFPRI to look at the opportunity to put together a regional study built on the EPDP-IFPRI collaboration (e.g. adding a chapter on Vietnam or Myanmar) to get funding from USAID Asia Bureau (c/o GSteele) - Conduct a training/seminar on CGE and the other models used in the project to better understand the modelling process. - The TIMES model will use the electricity consumption projections from RDanao and GDucanes' paper. - EPDP will engage a water engineer from the Philippines to calibrate the water model.

Page 5 Annex 4. Minutes of the meeting with US Energy Agencies

ENERGY POLICY AND DEVELOPMENT PROGRAM Meeting with USAID 20 July 2016, Wednesday, USAID Office, Washington, DC Meeting Notes Attendees: 1. Dr. Majah-Leah Ravago, EPDP Program Director 2. Dr. James Roumasset, EPDP Program Advisor 3. Prof. Ruperto Alonzo, EPDP Policy Component Advisor 4. J.Kathleen Magadia, EPDP Research Coordinator 5. Shirra de Guia, EPDP Research Assistant 6. Jayne Somers, USAID Asia Bureau Energy Advisor 7. Allen Eisendrath, USAID Energy & Infrastructure Office Director 8. Amanda Conklin, USAID East Asia Program Specialist 9. Bradford Simmons, U.S. State Department 10. Marjorie Jean-Pierre, United States Energy Association (Program Director – Energy Utility Partnership Program 11. Jamie Kern, U.S. Department of Energy (Senior Fellow – Science and Technology Policy)

Time: 2:35 - 4:00 pm Agenda: Energy Markets

SUMMARY OF DISCUSSIONS Salient Points - AEisendrath underscored the importance of ancillary and forward markets, which tend to be more efficient than retail markets. He also suggested to look into the wholesale market first (e.g. is it working properly?) before exploring retail market. From an old school perspective, AEisendrath considers retail market as having fairly small economic gains. - USEA can coordinate/organize on-ground trips in electric cooperatives and can coordinate meetings between PH energy companies/agencies and US energy related organizations to discuss the different market designs. - The U.S. State Department could provide technical assistance to the PH DOE if the latter expresses interest Other Points Raised  On Market Design - PJM and ERCOT are U.S. examples that can be looked into in terms of IMO/ISO market designs - Kazakhstan and India only have ancillary services market and a spot/day-ahead market; only 6-7% trade in the market

Page 1 - For the Philippines, AEisendrath said to consider how many enter sport market and through bilateral contracts (MRavago: Only 7-10% is contracted from WESM, the rest are bilateral contracts) - In New Zealand, it is required that all power plants sell in the market

 On Reverse Auctions - In Tanzania, they are establishing reverse auctions wherein participants are shortlisted and the auction is facilitated by an independent operator (third party) - When Mexico needed 1700 MW of capacity, they did a reverse auction for the IPPs and they successfully awarded contracts to 15 companies. - In Texas, after the PPAs expire, generation plants have to compete in an auction for the short-term PPAs.

 On FIT - Instead of FIT, PH may consider applying a ceiling similar to Australia and El Salvador. - The Mexico market is also a good example; they conducted small auctions depending on the grid capacity for RE integration. - UAE was successful in integrating solar PVs. - For Australia, Brazil, and South Africa, the LCOE of wind plants were actually lower compared to coal.

 Addressing variability of RE resources - Improve the system operator features /software (e.g. synchrophasors, millisecond readers) - Build or upgrade the transmission For the interconnection upgrade between Luzon and Visayas, you may check the case of Ireland and UK - Expand balancing areas - Create and ancillary services market; thermal / hydro fleet has a lot of flexibility (e.g. Ireland -use gas fleet for balancing) - Change ramp design of the different technologies e.g. coal plants can be used for balancing if its ramp design was adjusted - Create an externally-designed forecasting system for renewables; this will help improve the dispatch of Res. In Spain, they use big data to forecast

 On Texas Case - They did an LCOE analysis per zone and consulted the land owners - Annually, they pay land owners $2000-$7000 per turbine per land - The transmission investment costs $5 Billion

 On RE Grid Integration - US DOE has a study on the PH RE Grid Integration. Copy is with from Lily Gutierrez. This will give you an idea whether the PH needs an ancillary market or not.

Page 2  Others - US EIA has an article on the US Energy Market (see July 20 article - http://www.eia.gov/todayinenergy/detail.cfm?id=27152) - Check Brazil and South Africa markets - Midcontinent Independent System Operator (MISO) – combination of market and bilateral

 Further research needed - Load following balancing vs. reserve - Flex study of the system at the various nodes - Reverse auction vs. Wholesale market - Check the characteristics of the PH market

Page 3

Annex 5. Exchange of letters between Congressman Lord Allan Velasco and Dr. Orville Solon (Dean of University of the Philippines - School of Economics) and EPDP’s technical comments

111•MIENtli NIS= Mill•••••••••••••• • -601011;1111TEE- ON ENEiEGY- CTSS I, Committee Affairs Department, 3t RVM Building, Hoise of Representative;, Constitution Hills, Quezon City ft +63 2 931-3.t93 or 931-5001 local 7133; Fax No.: +63 2 931-359 5

September 13, 2016

Mr. Orville Jose C. Solon Dean UP - School of Economics Room 203, University of the Philippines Diliman, Quezon Fax No. 920-5463

Sir: 1 May we refer to you for comments the attach House Bill No. 2298, authored by Representative Maximo Rodriguez, Jr., entitled: "An Act Amending Paragraph (J) Section 47 of Republic Act 9136m or the Electric Power Industry Reform Act of 2001".

We would appreciate receiving your comments within ten (10) working days from receipt hereof.

Thank you very much.

Very ...... truly e7yours, .-

LORD AL Q. ELASCO Chairman Ft At- 1

ar71A--' Tin EL. RS' t/L(, LIP( A t.,(1< L. C ?), DR G. -C1 C.4.1 rip cc Oct' 1 cr SEVENTEENTH CONGRESS REPUBLIC OF THE PHILIPPINES ) First Regular Session

HOUSE OF REPRESENTATIVES

Introduced by Representative Maximo B. Rodriguez, Jr.

House Bill No. 2298

EXPLANATORY NOTE

In its report on the 2013 power supply-demand outlook, the Department of Energy (DOE) noted that the Mindanao grid has been experiencing "undergeneration" since 2010. It also said half of the region's plants are hydroelectric and depends on "the availability of water and affected by weather conditions!' The DOE further said that Mindanao needs 1,600 megawatts of additional power "to meet the electricity demand and the required reserve margin of the grid". These very dark projections can actually be already felt on the Island as parts of Mindanao are now suffering from 10-12 hours of rotating power blackouts. There has been no dramatic improvement in Mindanao's power situation since the DOE issued its outlook with it recently reporting that the region's power supply of 1,064 MW was 158 MW short of its peak demand of 1,222 MW. Dr. Gerardo Sicat already warned about this situation as early as 2012 when he said that the electricity problem in Mindanao "has been a crisis waiting to happen". In a paper he wrote, Dr. Sicat put the blame squarely on the government, which he said "did not pursue the series of long term actions required to solve the power development problems of Mindanao". He also partly blamed the EPIRA Law which mandated that privatization of government-run power plants and prohibited the government from entering into power generation. According to the Association of Mindanao Rural Electric Cooperatives, the rotating brownouts are "largely the effect of EPIRA" and are "largely a power generation issue, caused by the provision in the EPIRA, which does not allow government to put up additional power generation capacity'. As such, it is high time that the government seriously focus on generating other sources of energy. According to the Renewable Energy Act of 2008, it is the policy of the State to "accelerate the exploration and development of renewable energy resources such as, but not limited to, biomass, solar, wind, hydro, geothermal and ocean energy sources, including hybrid systems, to achieve energy self-reliance, through the adoption of sustainable energy development strategies to reduce the country's dependence on fossil fuels and thereby minimize the country's exposure to price fluctuations in the international markets, the effects of which spiral down to almost all sectors of the economy" It is therefore imperative that all avenues be considered when it comes to renewable energy. In view of the foregoing consideration, immediate approval of this bill is highly recommended.

K.%

(PM

MAXIMO B. RODRIGUEZ, JR. SEVENTEENTH CONGRESS REPUBLIC OF THE PHILIPPINES ) First Regular Session

HOUSE OF REPRESENTATIVES

Introduced by Representative Maximo B. Rodriguez, Jr.

House Bill No. 2298

AN ACT AMENDING PARAGRAPH (J) SECTION 47 OF REPUBLIC ACT 9136 OR THE "ELECTRIC POWER INDUSTRY REFORM ACT OF 2001"

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Paragraph (j) of Section 47 of Republic Act 9136 or the EPIRA Law is hereby amended to read as follows:

SEC. 47. NPC Privatization. — Except for the assets of SPUG, the generation assets, real estate, and other disposable assets as well as IPP contracts of NPC shall be privatized in accordance with this Act. Within six (6) months from the effectivity of this Act, the PSALM Corp shall submit a plan for the endorsement by the Joint Congressional Power Commission and the approval of the President of the Philippines, on the total privatization of the generation assets, real estate, other disposable assets as well as existing IPP contracts of NPC and thereafter, implement the same, in accordance with the following guidelines, except as provided for in Paragraph (f) herein:

(j) [NPC may generate and sell electricity only from the undisposed generating assets and IP P contracts of PSALM Corp. and shall not incur any new obligations to purchase power through bilateral contracts with generation companies or other suppliers] THE GOVERNMENT, THRU THE NPC OR ANY OTHER GOVERNMENT OWNED OR CONTROLLED CORPORATION IS HEREBY AUTHORIZED TO GENERATE AND SELL POWER/ELECTRICITY FROM RENEWABLE ENERGY SOURCES AS DEFINED IN REPUBLIC ACT 9513 AND TO INCUR NEW OBLIGATIONS TO PURCHASE POWER THROUGH BILATERAL CONTRACTS WITH GENERATION COMPANIES OR OTHER SUPPLIERS.

SEC 2. Within 30 days after the approval of this Act, the Department of Energy is hereby mandated to prepare the Implementing Rules and Regulations necessary in order for the Philippine government to immediately implement this Act.

SEC 3. EFFECTIVITY. This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in any newspaper of general circulation in the Philippines.

Approved, UNIVERSITY OF THE PHILIPPINES SCHOOL OF ECONOMICS

23 September 2016

Congressman Lord Allan Q. Velasco Chairman Committee on Energy House on Representatives

Dear Congressman Velasco,

In response to your letter dated September 13, 2016, we are sending herewith our comments of the House Bill No. 2298 entitled "An Act Amending Paragraph (1) Section 47 of Republic Act 9136m or the electric Power Industry Reform Act of 2001".

Thank you very much.

Sincerely yours,

Orville Jose C. Solon Dean

WAFA-A

lip Intl vatic-6, Wit-brot 19)61.04,

Encarnaci6n Hall, School of Economics, University of the Philippines, Diliman, Quezon City 1101 Philippines Tel. Nos. (632) 9279686 to 89 Telefax (632) 9205465/(632) 9205463 frxr` 14- rm-ud • (V ENERGY POLICY AND UPecon Foundation DEVELOPMENT PROGRAM (EPDP) ®USAID

COMMENTS ON

House Bill No. 2298 An Act Amending Paragraph (J) Section 47 of Republic Act 9136 or the "Electric Power Industry Reform Act of 2001"

If the purpose of the amendment is to allow the government to procure new generating capacity as reflected in the preamble, then the revised provision (j) does not actually address this. Purchasing power through bilateral contracts with generation companies or other suppliers is not the same as procuring new generation assets. If the aim of the proposal is to enable the government to invest in additional assets for power generation, then it must state so clearly along with citation of other provisions in EPIRA that are inconsistent with the object of the amendent.

As regards the Mindanao situation, there is no reason to believe that power deficit is in Mindanao's near term future. Figure 1 shows the Department of Energy's Supply Expansion Outlook for Mindanao until 2030. Total capacity is set to exceed system demand in Mindanao, if we include committed capacity, as well as indicative capacity. Thus, the possibility of power shortages in the near future is slim. Indeed, Mindanao is more likely in the near term to be a power surplus area.. Table 1 provides the list of indicative projects in Mindanao. The more recent (2012-2015) brownouts in Mindanao were/are caused by maintenance shutdowns and attacks on transmission lines (see Table 2).

Other points: The better way to ease the power problem in Mindanao is for the government to protect the integrity of transmission assets in order to avoid power outages in the region. The past bombings of transmission towers have resulted in sudden outages.

In the preamble, the main argument used to justify the revision is the case of Mindanao; however, it is worth noting that any amendment in EP1RA would affect not only Mindanao but also Luzon and Visayas.

Another way to ensure stable power in the Philippines is to upgrade the existing transmission assets and complete the Pan Philippine Grid. Thus, Mindanao consumers can purchase power from Luzon and Visayas and vice-versa.

, co*P- • in €, ENERGY POLICY AND @USAID UPecon Foundation DEVELOPMENT PROGRAM (EPDP)

Figure 1: Mindanao capacity exceeds system demand by 2030

DRAFT AS OF 04 JANUARY 2016 rain- SUPPLY EXPANSION OUTLOOK (MINDANAO) DDP Based Scenario Demand Supply Omit—. 7010.7070 MINDANAO GRID WILL NEED $10 MW CAPACITY ADDITION BY 2030 • 2017 10L I Sp: 1.6 POW MO Wonsan Fm. ISO MW Thorp Sash Cowl I Pm SS MW Morn C•611 n ibllf PAW GM?.,.,, Cad 1.2.5.4 Nan 100 MW MC CeS 1 10 MW LC Mos LA MW Now\ Map MVP Jut 10 MP Pup MCP Loac 1.6 MW GM Woes Capri Mot HAMM SMC Cern Cal U1 Pm SS MW Mintrry tOSI 11.11PW SPC illannwil DPP a VW Lake Mt 141 M. SS Mgt warm cam • 7111 ---...—.. Pr US 14W SW D.= USIA 4,4,41.41/6410 Kin cops 335 MW MC Cal Ill Ott MPS PPM 1 HIPP ssoo Sep: In Les DOC Cad la 36.1 M•••• 1•40: 1P P* SP 100 MIN SI C Cast/ 5.000 Oen US few we us vi 4,000 9,500 3,000 2,560 2,003 1,500 1,003

2015 2014 2017 2011 1019 2020 2021 2022 1013 1024 2025 2076 2027 2031 2029 2030 Cap4dd-Pealdng ;0 010 1 0 0 ' 0 1_0 4 0 0 0 0 1 000 0 0 4 0 CepAdt1.6114 Range 200 ZDO 200 203 2E0 203 200 1200 200 200 • NO 300 400 602 700 , 700 t 0 CspAddaaseload 0 0 , 0,0 1 0 0 0 105 210 .0 010 0 0 1 010 4 134 . 142 995 1,445 1,464 1,445 1,445.1,445.1,445 1,445 1,426 1,426 1,426 1,426 1,4261456 Rum Cammitted Capacity 4 , -, . . tasting Dependable Capacity 2.003 1,911 1991,1.935 1,985 1,175 1975, LISS 1,965 1.9551,955 1,9451,145 1,936 1.0351.126 ‘' Reel RENT* T311 315.- 330 -115-1-340 344 3/8 3521316 360 366 373 1.379t 317 395 403 1 4. '1 —"Snlem Demand 1366 1.742 1.1772.003 2.131 2.233 2.325 2.421 2.520 2.623 2.777 2.939 3.112 3.294 3.4563.693 Considering Indicative Projects to meet required Capacity addition MINDANAO (DDP-based Scenario)

54,91n/iDe000 1015 1017 2313 7019 2023 2112 r01 1031 MN 2 1026 KO XII 223 DM WOO MI 7C0 1,310 1,113 1,310 LW 1,310 Ur 1.343 OM 3.343 Or 1.310 1.235 11.1) INDRANCE 0 0 0 D 0 0 0 0 0 0 0 0 (2079 KO (101, NUM 61 131 222 X 526 46 526 516 525 526 526 526 96 526 526

I /016 MI All 1031 X00 I

ILME10:10 4 MOMM2 • PUDIG.

Source: Department of Energy presentation at the EPDP Lecture Series on April 28 2016.

ENERGY POLICY AND OUSAID UPecon Foundation DEVELOPMENT PROGRAM (EPDP)

Table 1. Mindanao Grid Indicative Power Projects, 1,925.61 MW

- Hama of the Project 7 Project Proponent — Mother/ JV Company Location J. Rated Capacity NW) • Target Commissioning 1.11 - 150.0 U1 - Jen 2010 SMC Davao Pow Pint San Miguel Consolidated San Miguel deed Elegy. Warren. Malta. 1)2 — 150.0 02 -June 2016 Project Phase NI ' Power Corporation Pow Corporation Davao del Sur • 03— 303.0 113— Dec 2018

Power Plant Pheppme Materiel 01 Philippire Nations, Oil Stugay. Zamboanga 100.0 Sep 2016 Project Company (PNOC-EC) Company(MM) Ozamlz Power Coal Fired Power Plant CUM& Power Our* Power. Orgy. Pulo1,0zank SO Phase 1 - Sept 2018 Phew I -2 x 1013MW GenerSon, Inc. Demotion, Inc. City,MisarrdS Ckoklemel Phase 2- Dec 2018 Phew 2 -1 x 100MW Orgy. Cullman. Matta SMC Davao Power Plant San Miguel Consaidmed San Miguel Consoadeted 300.0 Dec 2013 ' Project Phase II Power Corporation Power Corporation Davao del Sur SRPI Circulatng, Sitio San Ramon. Bgry. - Ma:0,AS Power 100.0 TOO Peeked Bad (CFB) San Raman Power Inc. Cceporalicc Teksayan. Zamboanga Coal-Flred Power Station City 1:100.0 Buttldnon Power 4.8 PAW Fuel Power Plan4 &Moon Power Ekskidnan 4.8 Nov 2015 Praieol I Caporation Corporation OTAL DIESEL if . Energy Development Kidapawan. North Energy Developnent 40.0 , Jun 2018 Mindanao 3 Geothermal COMOraton Corporation Catabato 40,0 Terrines Resources and Larbatangon Cagayan de Oro City. Turbines Resource & . 9.0 Jan-2018 klYnmalectho Pow- Deeesoprneet corp. Dsvek'Prnud Corp. . Meanie °Pent& Plciath (TRDC) Fell Gen Mindanao Pint Oen Mindanao Impasugong & Sumilao, 39.0 Jun-2018 Togoloan Hydropwir Corp. ' Hydropower Cap. Butodnon Oriental Energy and , Oriental Energy and Culimin Power Generation Power Generation Montt Forte:IL Bukidnon '10.0 ;Jut 2018 Powerter Corporation ,Corporation Catedberan cant run liAiimicinom.... _ . rimr nee ewer — .Getwolenn Ammmi vial -..--.. . _...... _ ___, ... . Pasant* Phicerban. Inc. Phlrarbon, Inc. Zamboanga ay 0.5 Jrci 2019 Pberanv Hydro Power Gann. /awn Ocoldento 5.0 Apr 2019 Curio Corponiton - Poet • Minn, Hydro Cillifelilk Cagayan de Oro 2.0 Apr 2019 Mat-1-1 Corporation ' Cagayan de OrojAiramle Pleinew Hydro Power 1.6 SePt 2019 lAski-2 Corporation Oriental Phenols Hydro Power Cagapsn de Om. Meanie 3.25 Sept 2019 Maki-3 Corporation . Oriental Mangum Hydroelectric Pninew Hydro Power Manolo Relish, Butednon 10.0 Sept 2019 - Power Project Cotentin sukidnen- Maladugao River (Upper UHPC Butidnon Hydro UHPC Bukidnon Hydni ,wao. 5.50 ....lan 2020 tascadeP Power I Corporation Power learn/eaten Keitengan 8 Woo. Maladugoo River (Lower UHPC Eltilddrion Hydro UHPC Bulddnon Hydro 100 Apr 2020 Cascade). Power I Corporation Power I Corporation Elteidnon Earn Hydro Power (Asia) Lake Sebu. SCILId. . Euro Hydro Power (Asia) 9.50 May 2020 Laren (Lem-slur Holdners Inc. HolcUngs. Inc. Cotaboto Sgrece Plillorevriver Power Corp. Plillnernreer Power Conk klarratoll. Bokidoon 329 Jun 2020 Mares= Energy pante a Gab-I. no del Marano° Energy 225 .M2020 Mee iiii Corporation Corporation I Sur 8 tango del NOR@

Entine): PhlipPiele °Ws SS'PhmannElc Renewable Resources,. Enfinity Digo+ Ory, Davao del Sur 103) Oct 2015 Paver Project . - Inc,

Mora Soler Photovoltaic RenweablaEurretY Prlotc eses. Dips alt.Demo del Sea 19.58 Dec 2015 Power Raked 1r Inc. -Bevy. Ladino.% Kibees. Kdiewe Solar Pow Asian GreenEnergy Corp 10.49 Jan 2016 Project Attire GreenEnemy Corp. Bokidron Kaaba(' Solar Energy Elroy. Klrahon, Vilenueva, Kirehon Solar Power 12.5 Jul 2016 Pitied Phase1 Corporation Mit:tr.Oriental Orgy. Centralia, Surallah, Centralia Solar Power 'INV Vogt Philippines Solar 6.25 IBC. Prziecl Energy Dria. Inc. South Cotabato 1&lfitt4 ,,1

Source: Department of Energy in their presentation at the EPDP Lecture Series on April 282016.

3 ENERGY POLICY AND UPecon Foundation DEVELOPMENT PROGRAM (EPDP)

Table 1 con'd. Mindanao Grid Indicative Power Projects, 1,925.61 MW

flame bf the Pro INIMPtafct Propene 1 ',ay cempen ne. ocelipplikleS/ Reed Capacity 41EWlar t CommIsslonin 1m

Eastern Petroleum EPC Woody Biomass Agusan del Nona 21A Dec 2017. Power Plant Project Corporation

Kallengan Bic-Energy Corporation Multi- Kallangan Rs-Energy Bukidnon R0. Aug 2016 Feedstock Power Corporatton Generating Fealty Don Carlos No-Energy Corporation IAA- Don Carlos Bo-Energy Bukidnon 9.0 Aug 2016 Feedstock Pow Corporationa Generating Peaky MalatbsdaY Bc'EnergY Maleybsiey Bio-Energy Malaybatay Bio-Energy Corporation Muni Bukidnon 9 0 Dec 2017' Carpormion Carponatian Fee:Isla& Misanis Onental Bio- Biomass PM*" Plant Meant Oriental Elio- Minerals Oriental 10A Oct 2017 Project Energy Corporations Energy Corporations

NaPier Gass-Fled Mamas Ech B ktando Fortich Norms. Buludnon 104 Biomass Power Plant Energy Jr Energy Corporation Jon 2018 Prolee 0E1941,27144 -ZE4.. OTA

Source: Department of Energy in their presentation at the EPDP Lecture Series on April 28 2016.

4 ENERGY POLICY AND OU§AID UPeain Foundation DEVELOPMENT PROGRAM (EPDP)

Table 2. Recent Recorded Blackouts in Mindanao

Period Daily Cause/s Reference/s duration

Tripping of Agus I in August 2009 GMA News. 2009. Rotating brownouts implemented in Mindanao. August - 2 — 4 hours • littp://www.gmanetwork.comrnews/story/172093/monev/rotatinu- September 4-6 hours in Shutdown of the 100 MW Western Mindanao brownouts-implemented-in-mindanao 2009 Regions 1X Power Corp. (WMPC) and X Scheduled preventive maintenance operations of Agus 2, Agus 5, Pulangi 4 and the Mindanao STEAG Coal (Unit 1)

Overall, more than 400 MW of a total of 620 MW dependable capacity were affected.

The El Nifio phenomenon resulted to significantly Senate of the Philippines. 2010. Loren: Solution to Power Crisis Begins at February 2 — 4 hours reduced production from major hydropower Home, Alternative Sources. 2010 plants - a 50 percent reduction in Agus Hydro and http://www.senate.gov.oh/oress release/2010/0222 legarda4.asp 75 percent in the Pulangi plant. National Disaster Coordinating Council. 2010. Update on Mindanao Power Dry spell resulted to a reduction in the Lanao Crisis. Lake water level. Agus 6 was on forced outage due to generator air. IBON Foundation. 2014. EPIRA hinders real solutions to Mindanao power January — 2— 12 hours cooler and turbine guide bearing problems crisis. http://ibon.orn/2014/05/epira-hinders-real-solutions-to- May 2011 mindanao-power-crisis/

5 ENERGY POLICY AND UPecon Foundation DEVELOPMENT PROGRAM (EPDP)

Low water levels resulting to reduced capacity in Navarro, Adoracion. 2012. Finding Solutions to the Mindanao Electric Power February — 1 -8 hours the Agus and Pulangi plants; problem exacerbated Problem. Discussion Paper Series No. 2012-21, Philippine Institute for May 2012 by dry spell and high demand during summer. Development Studies.

Low water levels in Lanao Lake and Agus River GMA News. 2013. Mindanao scrambles to avert another power crisis. January - 2 — 6 hours http://www.gmanetwork.comMews/story/301559/money/economy/mindanao- March 2013 Slow rehabilitation of damaged transmission lines scrambles-to-avert-another-power-crisis due to Typhoon Pablo (December 2012)

Unwanted loss of generation of 2 x 105 MW Balita PH. 2014. Power situation worsens, blackout in Davao now 7.5 hours. February 27 2— 7.5 hours STEAG Mindanao Coal-fired Power Plant caused http://balita.ph/2014/05/09/power-situation-worsens-blackout-in- - May 14, (5 hours by unprecedented plant control system trouble, davao-now-7-5-hours/ 2014 during peak defective equipment of Agus 1 Hydroelectric hours and 2.5 power plant and insufficient Automatic Load Department of Energy. 2014. Power Sector Situationer. hours during Drop (ALD) at Off-Peak scenario off-peak) Repair of Unit 1 (105 MW) was completed on 10 — 14 hours May 8, 2014 and Unit 2 (105 MW) went online in Zamboanga on June 1,2014. City Low water level in Lake Lanao and Agus 4 Manlupig, Karlos. 2014. Rotational power outages in Davao City starting February — 2 hours Feb 21. http://www.rappler.com/business/industries/173-power-and- March, Scheduled preventive maintenance of the STEAG energy/84511-davao-city-rotational-brownouts-feb-2015. 2015 State Power Incorporated's coal-fired power plant in Misamis Oriental from February 19 to March 16

Low water levels brought down the generating Capistrano, Zca lo Ming. 2015. Low water levels of dams causes power July 2015 1 —4 hours capacity of the Agus — Pulangi Hydropower interruptions in Mindanao — MinDA. complexes http://davaotoday.comimain/economy/low-water-levels-dams-causes- power-interruptions-in-mindanao-minda/ Preventive maintenance shutdown (PMS) of the 105 MW Unit 2 of the 210 MW STEAG coal Mindanao Development Authority. 2015. MinDA-MPMC Statement on fired power plant of State Power Inc. (SPI) in current power situation. htip://minda.gov.ph/index.php/news/142-

ENERGY POLICY AND eU§AID UPecon Foundation DEVELOPMENT PROGRAM (EPDP)

Misamis Oriental. minda-mpmc-statement-on-current-power-situation

Low water elevation resulting to lower capacity Lagsa, Bobby. 2015. Blackout hits parts of Mindanao after bombing of October 2 — 6 hours for Agus and Pulangi plants. NGCP tower. http://www.rappl cr.comInationn 11167-blackout- 2015 mindanao-bomb-ngcp-tower One of NGCP's towers in Marawi City was bombed, resulting to the isolation of Agus 1 (80 MW) and Agus 2(180 MW) from the grid. Shutdown of a 120 MW generating unit of Davao Light. 2016. Scheduled Power Interruptions. Available from February - 2 — 7 hours Thema South, a coal-fired power plant. http://skedsearch.com/search?s=davao+light&action=SkedName April 2016 Low water levels of Pulangi River in Bulcidnon Manlupig, Karlos. 2016. Daily Brownouts reduced to 3 hours in Mindanao. and Lake Lanao in Marawi City, the main sources Available from http://newsinfoinquirennet/780146/daily-brownouts- of power in Mindanao. reduced-to-3-hours-in-Mindanao.

7 Annex 6. Technical advisory note on the increase in biodiesel blend mandate

Technical Advisory on the Increase in Biodiesel Blend Mandate from 2% to 5% 14 September 2016

The Biofuels Act of 2006 (RA 9367) was legislated to reduce the Philippines’ dependence on imported fuels and to protect public health and the environment. Pursuant to this policy, all liquid fuels for motors and engines sold in the Philippines shall contain locally sourced biofuels components. Moreover, the law specifies incentives (zero specific tax, exemption from VAT, exemption from wastewater charges, financial assistance to producers) to encourage investments in the production, distribution, and use of locally produced biofuels at and above minimum mandated blends. This Act also enables government agencies to implement programs that will encourage local production of biofuels such as feedstock1, jatropha propagation, and fuel bioethanol programs.

The Biofuels Act mandates that diesel engine fuels in the Philippines should contain a proportion of biodiesel blend. Under the Act, the Department of Energy (DOE) is authorized to increase the proportion of biodiesel blend upon the recommendation of the National Biofuels Board (NBB) and upon consideration of the domestic supply and availability of the locally produced biodiesel component. As specified in the Philippine Energy Plan (PEP) of 2013-2030, the biodiesel blend mandate was expected to increase gradually throughout the period to 5% by 2015; 10% by 2020; and 20% by 2025. Beginning at 1% blend, the mandate was raised to 2% in February 2009.

In June 2013, the NBB recommended an increase in the biodiesel blend to 5%. Consequently, the DOE requested the National Economic and Development Authority (NEDA) to study the overall impact of an increased blend on the coconut industry considering (1) the decrease in coconut production due to the severe damage inflicted by Typhoon Yolanda in 2013 on Eastern Visayas, the second largest coconut-producing region in the country; and (2) the additional setback caused by insect (cocolisap) infestation and more typhoons in 2014. NEDA then requested the Energy Policy and Development Program (EPDP) to provide assistance in the conduct of the research. In this regard, EPDP commissioned two (2) independent contractors to undertake the impact study on the effect of increasing the biodiesel blend from 2% to 5% on the Philippine coconut industry (see Briones et al., 2016). The commissioned study analyzes the economic impact on the coconut industry of an increase in biodiesel blend from 2% to 5%, as well as the environmental impact from reduced greenhouse gas (GHG) emissions and toxic air pollutants.

Economic Impact

With the use of a multi-market simulation model, the commissioned study concludes that raising the mandate from 2% to 5% will stimulate coconut production, thereby increasing the profitability of coconut farmers. Furthermore, the increase in biofuels blend from 2% to 5% will result in an increase in net farm income per hectare of 1.4% for 2016, rising to 1.6% by 2022. Projected to the total hectarage planted to coconuts, the commissioned study comes out with benefits of Php 918 million for 2016. This result is based on the “semi-open economy” model wherein, with a “constant elasticity of transformation,” increases in demand for coconut oil through the increased blend raise

1 Feedstock refers to organic sources such as molasses, sugarcane, cassava, coconut, jatropha, sweet sorghum or other biomass used in the production of biofuels. 1 the price of coconut oil and therefore copra, thus leading to increased farm incomes.2 At the same time, Philippine exports of coconut products, particularly coconut oil, will decline and diesel pump prices will increase because coconut oil prices and therefore biodiesel prices with increased blend are higher than petrodiesel prices.

The 1.4% to 1.6% increase in farm income per hectare that results from the simulation model of Briones et al. (2016) is triggered purely by the coconut output price increase, as the farm level estimates assume no adjustment in inputs and outputs. As such, this increase is not due to any gains in physical productivity or production but is the effect only of the price increase. From an economic efficiency viewpoint, therefore, the increase in farm income per hectare is not per se a net welfare gain, but simply a transfer from consumers of coconut products and diesel products to the coconut farmers.

As a matter of fact, the increase in diesel pump prices resulting from a mandated increase in the biofuels blend from 2% to 5% is likely to lead to significant welfare losses in the market for diesel itself, both in consumption and in production. For a first order estimate, with a baseline price of Php 22.45 per liter for petrodiesel and Php 40.00 per liter for pure biodiesel, the biodiesel-blended price rises from Php 22.80 per liter at 2% blend to Php 23.33 per liter at 5% blend, following the formula:

푷풄풐풎풑풐풔풊풕풆 = ( 풑풆풓풄풆풏풕푩푫)(푷풃풊풐풅풊풆풔풆풍) + (ퟏ − 풑풆풓풄풆풏풕푩푫)(푷풅풊풆풔풆풍)

where: Pcomposite is the composite price per liter of blended diesel; Pbiodiesel is the price per liter of pure biodiesel; Pdiesel is the price per liter of petrodiesel; and Percent BD is the specified biodiesel blending.

The increase of Php 0.53 per liter in the pump price will lead to some decrease in the consumption of blended diesel. The higher the price elasticity of demand for diesel (in absolute value), the larger the decrease in consumption. Table 1 summarizes the market effects of mandating the biodiesel blend from 2% to 5%.

Table 1 Effects on the Diesel Market of an Increased Blend from 2% to 5%, Biodiesel price at Php 40.00 per liter 5% blend, ƞ = 2% blend -0.25 -0.50 price petrodiesel 22.45 22.45 22.45 price pure biodiesel 40.00 40.00 40.00 price blended diesel 22.80 23.33 23.33 qnty blended (ML) 7176.41 7134.98 7052.13 qnty pure biodiesel (ML) 143.53 356.75 352.61 total loss to consumers (₽M) 3767.47 3745.66 deadweight cost of underconsumption (₽M) 10.91 32.72 deadweight cost of overproduction (₽M) 3756.57 3712.94

2 Under the usual assumption that the country is a price taker in the world market for coconut oil, an increase in domestic demand brought about by an increase in the blend would not result in any price increase; instead, the increase in domestic demand will be absorbed totally by a decrease in exports.

2 Following Briones et al. (2016), Table 1 begins with a base price of Php 22.45 per liter for petrodiesel and Php 40.00 per liter for (pure) biodiesel, yielding a composite price of Php 22.80 per liter for the 2% blend. Initially disregarding the environmental benefits from the blend that will be discussed later, the cost of raising the mandated blend from 2% to 5% may be estimated as follows. The increase in mandated blend causes the price of blended diesel to rise from Php 22.80 per liter to Php 23.33 per liter. This will induce diesel users to reduce consumption, the exact amount depending on the price elasticity of demand ƞ.

In Table 1, for ƞ = -0.25, diesel consumption falls from 7176.41 ML to 7134.98 ML per year. The total loss to consumers due the price increase is Php 3,767.47 million. The deadweight cost of underconsumption is small at Php 10.91 million (0.5*Δp*Δq). The major efficiency loss is in the deadweight cost of overproduction, amounting to Php 3,756.57 million, if the full price of Php 40.00 per liter for pure biodiesel reflects real resource cost. If this price incorporates some non- competitive profit or quasi-rent, that amount is not a deadweight loss but is merely a transfer. Nevertheless, from a social equity and distribution standpoint, the transfer is from mostly poor diesel users (public utility commuters, drivers, and operators) to the owners of biodiesel plants.3

For ƞ = -0.50, the last column of Table 1 shows that the fall in consumption is bigger, the total loss to consumers and the deadweight cost of overproduction are smaller, but the deadweight cost of overconsumption is larger compared to ƞ = -0.25.

Figure 1 below (not drawn to scale) offers a heuristic representation of the market results of raising the biodiesel blend mandate. Let point A be the initial state of X0 = 7,176.41 ML per year and P0 = Php 22.80 per liter with a 2% blend. If the mandate is raised to 5%, the blended price rises to P1 = Php 23.33 per liter. Quantity consumed will fall to X1, the magnitude depending on the price elasticity of demand. The total loss to diesel consumers is the area P0P1BA; the deadweight cost of underconsumption is the triangle ABC; and the deadweight cost of overproduction is the rectangle P0P1BC.

Figure 1 Effects on the Diesel Market of an Increased Blend

P Pmax

P1 B P0 C A

0 X X1 X0

A more complete estimation of the economic welfare effects of raising the mandated biodiesel blend should take into consideration the effects on other related markets and the existing

3 See de Gorter and Just (2009) for a full exposition of the underlying model. 3 distortions and externalities in these other markets. For example, the increase in the pump price of diesel will increase the demand for gasoline, a close substitute. To the extent that the Biofuels Act of 2006 also mandates an ethanol blend for gasoline (10% ethanol since 2012), it is highly likely that the marginal social cost of the blended gasoline is above its market price. An expansion in the consumption of gasoline due to the increase in diesel pump price triggered by an increase in the biodiesel blend mandate may therefore even add to the deadweight costs discussed above.

It should be mentioned that the price of Php 40.00 per liter for pure biodiesel may be a conservative estimate. The study of Briones et al. (2016) uses Php 50.00 per liter as base. If this were the case, the deadweight cost of increasing the mandated blend from 2% to 5% rises to Php 5,914.18 million. Is Php 50.00 per liter a reasonable price? It is hard to find online data on the “market” price of pure biodiesel. A DOE presentation reports a wide range of prices for coco methyl ester (CME), as seen in Table 2 (de Guzman, 2015). These CME price fluctuations are probably wider than petrodiesel price movements.

Table 2 Coco Methyl Ester (CME) Price Range Year Price, pesos/liter 2010 34-80 2011 57-106 2012 30-88 2013 29-60 2014 38-75 Source: de Guzman (2015)

The website http://www.ph.all.biz/biodiesel-bgg1064229 lists several Philippine companies that produce and sell biodiesel, each with the teaser, “Get latest price.” But upon clicking the button, one is asked the amount and periodicity of purchase, with a pop-up window that says, “Please introduce yourself; elaborate on the specifications and actuality of price; find out the delivery options or self-pickup, terms of payment.” No price quotation appears at all. In short, the domestic CME market is not that transparent.

Environmental Impact

One of the main objectives of the Biofuels Act is of course to “mitigate toxic and greenhouse gas (GHG) emissions.” Expected to offset the deadweight costs in overproduction and underconsumption of biodiesel discussed earlier are environmental benefits, including a sizable reduction in GHG emissions based on life cycle analysis, and substantial health benefits from reduced toxic air pollutants. Briones et al. (Table 13) calculate the reduction in carbon dioxide- 4 equivalent (CO2e) emissions at 362,610 MT for 2016 if the mandated blend is raised from 2% to 5%. This is equivalent to 1,684.24 MT of CO2e per ML of biodiesel.

Meanwhile, a recent survey of studies on the economic impact of climate change and its marginal damage costs reports a mean estimate of $25/MT as the social cost of carbon for a 3% social rate of time preference (Tol, 2013). With 3.67 MT of CO2 per MT of C, this amounts to $91.75/MT of CO2. As this is for the whole world, Gayer and Viscusi (2014) suggest prorating this to any specific country according to the country’s share in world GDP, which for the Philippines is only 0.44%.5

4 CO2e includes other greenhouse gases expressed in CO2 equivalent. 5 See Ravago et al. (2016). Briones et al. (2016) cite a United Nations Environment Programme Report (2014) that attributes only a 0.31% share for the Philippines. 4 The social cost of carbon dioxide emissions for the Philippines is therefore $0.4037/MT or Php 19.3776/MT of CO2 at an exchange rate of Php 48/$1. At 1,684.24 MT of CO2e per ML of biodiesel, the social cost of CO2e emissions is thus Php 0.0326 per liter of biodiesel. In the aggregate, Table 1 shows that for 2016, if the mandate for biodiesel is raised from 2% to 5%, for ŋ = -0.25, the increase in pure biodiesel consumption will be 213.22 ML, so that the total reduction in the social cost of CO2 emissions is only Php 7.02 million. If the country’s contribution to the global GHG cost is measured as its share in world population instead of GDP, the reduction in the social cost of carbon emissions rises to Php 25.88 million.

The health benefits from the reduction in particulate matter (PM) with the higher biodiesel blend may amount to Php 443.5 million in 2015, according to Briones et al. (Table 17), citing Vergel and Tiglao (2013). The benefits include savings in treatment cost and increased productivity and working life due to the expected reduction in morbidity and mortality with the reduction in respiratory illnesses due to cleaner air as the mandate is increased from 2% to 5% biodiesel blend. Projected to 2016 to factor in a 6.5% population and income growth, the health benefits sum up to Php 472.34 million.

Summary of Economic and Environmental Impact

Table 3 summarizes the economic, environmental, and health impacts of raising the mandated blend for biodiesel from 2% to 5%. The negative economic impact far outweighs the positive environmental and health benefits, with the net loss amounting to Php 3.26 billion for 2016 alone. The estimate of economic impact is even conservative, as it is based on a biodiesel price of Php 40.00 per liter (the Briones et al. study assumes Php 50.00 per liter).

Table 3 Impact of Raising the Mandated Biodiesel Blend from 2% to 5%, 2016 (In million pesos at current prices) Economic: deadweight cost of underconsumption (10.91) deadweight cost of overproduction (3,756.57) Environmental: saving in social cost of carbon emissions, GDP weights 7.03 saving in social cost of carbon emissions, pop'n weights 25.88 Health: benefits from reduced mortality 442.17 benefits from reduced morbidity 30.17 TOTAL (3,262.23)

The estimate of economic benefits does not include the increase in farm incomes of Php 918.09 million because, as pointed out earlier, this is not in itself a net welfare gain, but simply a transfer from consumers of coconut products and diesel products to the coconut farmers. Also, as pointed out by the simulations of Briones et al. econometric model, the increase in coconut oil prices induced by the higher mandated blend may divert hectarage away from food crops like rice and corn towards coconut for fuel. While coconut farm incomes may increase, therefore, it is likely that rice and corn consumers will be negatively affected.

Concluding Remarks

The NEDA Agriculture, Natural Resources and Environment Staff (NEDA-ANRES) has actually prepared a draft “Preliminary Assessment of the Impact of Biofuel Production on Food Security 5 and the Economy” (December 2015) that may serve as a sound basis for deciding on whether to raise the blend now or postpone the decision to the future.

The “Preliminary Assessment” begins with an examination and analysis of price trends to determine the feasibility of raising the blend of biodiesel and shows the wide gap in prices between crude oil and coconut oil in the world market. The table below updates Table 2 of the NEDA Assessment to the most recent World Bank projections. It can be seen that the ratio of coconut oil to crude oil prices (in US$/MT), while softening in the early part of this decade, rose to 3.05 in 2015 and is expected to reach an average 3.30 for 2016 to 2020. This suggests that raising the blend from 2% to 5% would lead to even higher fuel cost.

Table 4 Trends in World Prices of Crude Oil and Coconut Oil (in constant 2010 US dollars)

Crude oil, average Coconut Coconut oil/ Year oil Crude oil

($/bbl) ($/mt) ($/mt) price ratio 2000 35.48 253.63 566.03 2.2317 2005 60.88 435.14 703.48 1.6167 2010 79.04 564.98 1123.58 1.9887 2011 95.47 682.44 1588.10 2.3271 2012 97.60 697.62 1032.42 1.4799 2013 98.13 701.45 886.86 1.2643 2014 90.89 649.70 1208.84 1.8606 2015 48.04 343.38 1050.16 3.0583 2016 38.10 272.34 1208.00 4.4357 2017 45.70 326.66 1154.00 3.5327 2018 47.90 342.39 1103.00 3.2215 2019 50.20 358.33 1055.00 2.9401 2020 52.60 375.98 1008.00 2.6810 2021 55.20 394.57 964.00 2.4432 2022 57.90 413.87 921.00 2.2253 2023 60.70 433.88 880.00 2.0282 2024 63.60 454.61 840.00 1.8477 2025 66.30 473.91 802.00 1.6923 Note: Values from 2016 onwards are World Bank projections Source: World Bank Commodities Price Forecast (19 April 2016)

The NEDA Assessment also points out that the “supply-utilization projection based on the data of from the Philippine Statistics Authority/Bureau of Agricultural Statistics (PSA/BSA) indicates the likely difficulty of meeting the increased demand of coconut/copra for the proposed 5% blending rate.” Notwithstanding the optimistic production targets of the Philippine Coconut Authority (PCA), the projected surpluses would still be “not enough to cover the requirements of the proposed 5% blending rate.” Thus, even without the cost and benefit calculations given in Table 3, the relative world price trends in coconut oil and crude oil prices plus the bleak scenario for domestic coconut production scenario augur well for a postponement of raising the blend, at least in the short run.

In the medium to long term, a review of the Biofuels Act of 2006 is in order, as several economic studies (such as de Gorter and Just, 2009) point to the distortive effects of mandates and subsidies in addressing climate change issues. Applied welfare economics suggests that the best 6 approach to correcting a distortion is to impose taxes or subsidies so that marginal private cost is made to align with marginal social cost. In the case of GHG emissions, the appropriate action is to impose an environmental tax on the fuels that cause the emissions. The proposal of imposing excise taxes on fuels (particularly diesel) being floated by the Department of Finance (DOF) is a move in the right direction. Meanwhile, equity objective of uplifting the economic well being of coconut farmers is best met by agricultural policies that raise their productivity.

REFERENCES

Briones, R., R. Demafelis, B. Tongko, and K. Gatdula. 2016. “Economic and Environmental Analysis of the Impact of Higher-Blended Biodiesel on the Philippine Coconut Industry.” EPDP Working Paper.

De Gorter, H. and D. Just. 2009. “The Economics of a Blend Mandate for Biofuels.” American Journal of Agricultural Economics, 91(3):738-750.

De Guzman, R. 2015. “Philippine Policy on Biodiesel for Transportation and Market Experience,” powerpoint presentation at the Workshop on Higher Blending of Biodiesel (H-Fame) for Automotive Utilization In ASEAN, Bangkok, Thailand.

Gayer, T. and K. Viscusi. 2014. “Determining the Proper Scope of Climate Change Benefits.” Vanderbilt University Law School, Law & Econ. Working Paper 14-20.

National Economic and Development Authority, Agriculture, Natural Resources, and Environment Staff (NEDA/ANRES). 2015. “Preliminary Assessment of the Impact of Biofuel Production on Food Security and the Economy.”

Ravago, M., R. Fabella, R. Alonzo, R. Danao, and D. Mapa. “Filipino 2040: Energy-Power Security and Competitiveness.” EPDP Working Paper.

Tol, R. 2013. “Targets for Global Climate Policy: An Overview.” Journal of Economic Dynamics and Control 37(5):911-928.

United Nations Environment Programme (UNEP). 2014. The Emissions Gap Report 2014.

Vergel, K., and N. Tiglao. 2013. “Estimation of Emissions and Fuel Consumption of Sustainable Transport Measures in Metro Manila.” Philippine Engineering Journal 34(1):31–46.

7 Annex 7. Terminal report on the Training Course on Forecasting I. Introduction1

The Energy Policy and Development Program (EPDP) is a four-year program that aims to strengthen the capacity of the Philippine government (GPH) to formulate coherent and evidence-based policies and strategies for the sustainable, reliable, and efficient use of energy resources and technologies. It supports the national government, in particular the National Economic and Development Authority (NEDA) and the Department of Energy (DOE), in policy analysis and formulation for the energy sector. EPDP is implemented by the UPecon Foundation, Inc. through a grant from the United States Agency for International Development (USAID).

Under its Capacity Building Component, the EPDP yearly conducts an executive course for senior GPH officials and midlevel courses for GPH technical staff. The EPDP likewise conducts special training courses specifically requested by NEDA, DOE, and its bureaus.

Following the training course Introduction to Statistical Principles and Survey Data Analysis held last 25-27 November 2015, EPDP held the Mid-Level Training Course on Econometrics last 11-13 April 2016 at the UP School of Economics.

This training course dealt with econometric methods and their applications to estimation, testing, interpretation, and evaluation of economic relationships. Emphasis was given on the hands-on experience of using Stata, a widely used econometric software for data analysis.

II. Course Objectives and Content

The course objectives were:

1. Acquaint the participants with the theory and practice of modern econometrics at a level appropriate for energy practitioners and with emphasis on the application of techniques for policy analysis; 2. Equip the participants with the necessary skills and knowledge of the techniques of modern econometrics required for applied research in energy and development economics; 3. Deepen and/or broaden the participants’ knowledge and understanding of materials needed for empirical quantitative analysis of micro and macro data relevant to energy issues; and 4. Acquaint the participants with Stata and provide them with the technical proficiency of undertaking data management and statistical analyses using Stata.

The training course consisted of lecture-discussions, guided group exercises, and case presentations.

III. Program of Activities

11 April 2016 09:00 - 09:30 Registration Welcome Remarks 09:30 - 09:35 Dr. Majah-Leah Ravago EPDP Presentation

1 End-of-Event Report prepared by Ms. Charmaine Mignon S. Yalong, Capacity-Building Component Associate, with the assistance of Ms. Rochel S. Bartolay, Capacity-Building Component Administrative Assistant. April 2016. 09:35 - 09:40 Training Course Overview 09:40 - 10:00 Coffee Break GETTING STARTED: Using Stata Data Presentation Summary Measures of Data Graphs of Data, etc. (HECS) Mr. Michael Del Mundo 10:00 - 12:00 Mr. John Carlo Daquis ESTIMATION Mr. Manuel Albis Random Samples Point Estimation Some Methods of Estimation 12:00 - 1:30 Lunch Break ESTIMATION AND HYPOTHESIS TESTING 01:30 - 02:30 Interval Estimation Mr. Michael Del Mundo Hypothesis Testing 02:30 - 03:00 Coffee Break ECONOMETRIC MODELS AND ECONOMIC DATA Econometric Models Variables Basic Functional Forms Data Mr. Manuel Albis 03:00 - 05:30 SIMPLE LINEAR REGRESSION The Model Estimation of the Model Distribution of the Least Squares Estimator Properties of the Least Squares Estimator

12 APRIL 2016 08:00 - 09:00 Breakfast 09:00 - 10:00 Group Dynamics / Unfreezing MULTIPLE LINEAR REGRESSION The Classical Multiple Linear Regression Model Dr. Rolando Danao 08:30 - 10:00 Estimation of the Regression Coefficients Mr. John Carlo Daquis Distribution of the Least Squares Estimator 10:00 - 10:30 Coffee Break ASSESSMENT OF THE ESTIMATED EQUATION Goodness-of-Fit: Coefficient of Determination and the Adjusted Coefficient of Determination Significance of the Regression Coefficients: The t Dr. Rolando Danao 10:30 - 12:00 Test Mr. John Carlo Daquis Significance of the Regression Equation: The F Test Normality of the Residuals: The sk Test Exercise: Estimation using Stata 1:00 - 01:30 Lunch Break PROBLEMS IN LINEAR REGRESSION Multicollinearity Consequences, Detection, and Remedial Dr. Geoffrey Ducanes 01:30 - 03:30 Measures Mr. John Carlo Daquis Serial Correlation Consequences, Detection, and Remedial Measures 03:00 - 04:00 Coffee Break PROBLEMS IN LINEAR REGRESSION Heteroskedasticity Consequences, Detection, and Remedial Measures Dr. Geoffrey Ducanes 04:00 - 05:30 Mr. John Carlo Daquis SPECIAL TOPICS Dummy Explanatory Variables Specification Error: The Ramsey Test

13 APRIL 2016

07:00 - 08:00 Breakfast

08:00 - 09:00 Case Study Presentation Dr. Geoffrey Ducanes

09:00 - 09:10 Coffee Break Dr. Geoffrey Ducanes 09:10 - 11:30 Group Work on Cases Mr. John Carlo Daquis Mr. Michael Del Mundo 11:30 - 12:30 Lunch Dr. Rolando Danao Dr. Geoffrey Ducanes 12:30 - 02:30 Case Presentations Mr. John Carlo Daquis Mr. Michael Del Mundo 02:30 - 03:00 Coffee Break

03:00 - 04:00 Closing Ceremonies Dr. Rolando Danao

IV. Resource Persons

The resource persons were as follows:

1. DR. ROLANDO A. DANAO Professor Emeritus UP School of Economics 2. DR. GEOFFREY M. DUCANES Professor UP School of Economics 3. MR. JOHN CARLO P. DAQUIS Assistant Professor UP School of Statistics 4. MR. MANUEL LEONARD F. ALBIS Assistant Professor UP School of Statistics 5. MR. MICHAEL DOMINIC DEL MUNDO Assistant Professor UP School of Statistics

The complete profile of the resource persons are provided in Annex 1.

V. Participants

Table 1 details the breakdown of the participants according to agency while the complete directory of participants is provided in Annex 2. Table 1. Breakdown of Participants According to Agency Agency Male Female Total Department of Energy 9 10 19 Department of Trade and Industry 1 1 2 National Economic and Development Authority 0 4 4 Philippine Statistics Authority 1 1 2 National Electrification Administration 4 1 5 National Power Corporation 2 0 2 Philippine Electricity Market Corporation 2 0 2 TOTAL 19 17 36

Of the 36 participants, 52.77% were male (19 of 36) and 47.22% were female (17 of 36). Table 2 details the participants’ gender disaggregated data, with the number of person hours for the training.

Table 2. Number of Male and Female Participants and Corresponding Person Hours2 Male Female Total Particulars Freq. % Freq. % Freq. % Number of participants 19 52.77 17 47.22 36 100 Number of person hours of training 456 - 408 - 864 - completed

Other attendees. A total of nine (9) people who were not counted as official participants to the course also atttended the activity, namely: the EPDP Capacity-Building Component Advisor, four (4) resource persons, and four (4) EPDP staff.

VI. PowerPoint Presentations

Copies of the PowerPoint Presentations are provided in Annex 3.

VII. Workshop

The workshop involved group case work in the last afternoon session of the training course, where the participants were divided into 5 groups of 7-8 members each. Each group was provided with a specific case, five (5) questions to answer, and HECS data for analysis.

Dr. Geoffrey M. Ducanes moderated and provided the materials for the workshop.

Each group presented its case work at the end of the workshop. A panel composed of Dr. Rolando Danao, Dr. Geoffrey Ducanes, Mr. John Carlo Daquis, and Mr. Michael Del Mundo provided observations and recommendations on each group’s presentation.

Annex 4 provides copies of each group’s output.

2 Required information by USAID for evaluation of training courses. VIII. Pre- and Post-Course Tests

Pre- and post-course tests were conducted at the beginning and at the end of the training course to measure the amount of knowledge gained by the participants. Table 3 summarizes the results of the participants’ pre- and post-course tests.

Table 3. Results of Pre- and Post-Course Tests Last Name First Name Agency Pre-Course Post-Course Almanzor Aejay NEA 12 14 Antoni Arrianne Ada DTI 10 14 Binondo Ferdinand DOE 9 - Bitare Gwendolyn NEDA 10 11 Catayong Andrew DOE 11 13 Coligado Michael DOE 12 13 Cruz Daisy DOE 14 13 Del Rosario Christian DOE 13 15 Dela Cruz Shiela DOE 14 14 Elmaga Anabel DOE 9 11 Evangelista Rodolfo NEA 10 9 Esquilona Mara Eloiza DOE 16 16 Gabis Mary Grace DOE 14 17 Hapil Josephine NEDA 14 11 Jandusay Jovee Rose DOE 9 13 Lived Roger NPC 14 13 Llavata Alona NEA 9 12 Lodovice Rosario PSA 10 14 Marqueses Raymond Joseph PEMC 13 14 Medrana Christopher DOE 6 11 Nique Jocelyn NEDA 12 14 Panado James NEA 10 16 Olap Marc Louie DOE 12 15 Orense Mario Pocholo DTI 13 16 Quitaneg Rachel Ann DOE 11 13 Reforma Kenneth DOE 11 11 Reyes Emilyn DOE 14 12 Salcedo Jeric Kim PEMC 11 12 Santos John Carlos NEA 9 13 Sernal Noel DOE 14 12 Siruma Karen Anne DOE 15 16 Tancongco Ziggy NPC 11 11 Tandoc Lianelle NEDA 14 17 Tolentino Genevieve DOE 9 16 Tolin Ernesto DOE 7 11 Velilla Redempta PSA 10 12

Copies of the pre- and post-course tests are provided in Annex 5. IX. Summary of Evaluation

The 35 participants3 were requested to accomplish a four-part evaluation at the end of the training course, rating the following components: (1) achievement of course objectives; (2) course content and delivery; (3) evaluation of administrative and logistical arrangements; and (4) overall evaluation of the training course. The participants were also requested to evaluate the resource persons considering mastery, presentation, and teacher-related personality traits. Table 4 summarizes the average of course ratings for each component.

Table 4. Average Score for Each Course Component4 Course Component Average Score Achievement of Course Objectives 4.49 Course Content and Delivery 4.22 Administrative and Logistical 4.31 Arrangements OVERALL COURSE RATING 4.43

KEY RESULTS5

 Achievement of Course Objectives. 94.29% or 33 out of the 35 respondents believed that the training course achieved its objectives. 54.29% or 19 respondents strongly agreed (score of 5) and 40% or 14 respondents agreed (score of 4). Meanwhile, 5.71% or 2 out of 35 respondents neither agreed nor disagreed (score of 3). The average score for achievement of course objectives is 4.49 out of 5.

 Course Relevance and Usefulness. 85.71% or 30 out of the 35 respondents rated the training course as relevant to their current function and will be useful for their work. 45.71% or 16 out of 35 respondents strongly agreed (score of 5) and 40% or 14 out 35 respondents agreed (score of 4). Meanwhile, 14.29% or 5 out of 35 respondents neither agreed nor disagreed (score of 3). The average score for course relevance is 4.31 out of 5.

 Overall Course Rating. 45.71% or 16 out of the 35 respondents gave the training course an overall rating of 5 (Excellent), 51.43% or 18 out of the 35 respondents gave an overall rating of 4 (Very Good), and 2.89% or 1 out of the 35 respondents gave an overall rating of 3 (Good). The average score for overall course rating is 4.43 out of 5 (Very Good to Excellent).

 Course Strengths. The respondents commended the resource persons for being very knowledgeable of the subject matter. The participants appreciated that the resource persons all tried to put econometrics and statistics jargon in simpler terms, and taught in manner that was easy to understand for all participants. The respondents also highly appreciated that they were able to apply all the theoretical principles they learned in the exercises/case studies, which also allowed for hands-on practice of using Stata.

3 Mr. Ferdinand Binondo of the Department of Energy (DOE) was unable to accomplish the evalution form having left the training course early on the last day. 4 The evaluation forms utilized a likert scale where respondents were asked to answer in a scale of 1 to 5 (from strongly disagree to strongly agree and poor to excellent). The average score for each course component was obtained by (1) multiplying the number of respondents by the score of their chosen answer for every item; (2) adding all the products of each item and dividing by the total number of respondents to find the average score per item; and (3) getting the average score of all items to get the final score for each course component. 5 Achievement of course objectives, course relevance and usefulness, and overall course ratings are key performance indicators required by USAID. The participants also highly appreciated that the training was participated by relevant public stakeholders in the energy sector. Finally, the respondents highly appreciated that resource persons and EPDP staff were all very approachable and accommodating.

 Areas for Improvement. Some of the respondents felt that the training design should be more focused on policy analysis. While the exercises in Stata were helpful, the participants felt that the output should also be interpreted. Some of the respondents felt that the time allocated for the course was insufficient. They felt that because time was limited, some of the resource persons had to go over the topics in a hurried pace. As a result, some of the participants were not able to follow in some sessions. The respondents also felt that some important topics were not fully discussed due to time constraints and believed that the training course would have been more effective if the training was scheduled for 5 days instead of 3. A number of respondents also felt that some hands-on exercises needed more detailed step-by-step instructions for the benefit of those who were not very familiar with the computer programs used. Some of the participants requested for more individual/group exercises. In using Stata, most of the participants requested for a summary list of commands in the PowerPoint presentations so they can also practice on their own. Finally, most of the participants requested for a more spacious venue and better accessibility to power outlets, especially that the training course involved using laptops.

Tables 5, 6, 7, and 8 below present the results of the course evaluation conducted.

Table 5. Achievement of Course Objectives RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (1) (4) (5) 1. The training course provided the participants with sufficient information and technical proficiency on econometric 2 14 19 methods and their applications to estimation, testing, interpretation, and evaluation of economic relationships.

Table 6. Course Content and Delivery RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (4) (1) (5) 1. The training course was 3 20 12 organized and easy to follow. 2. The training course was suitable 1 8 15 11 for the level of its participants. 3. The training course provided an appropriate balance between 5 17 13 instruction and practice. 4. The exercises usefully 1 16 18 complemented the lectures. 5. The training course encouraged 1 19 15 participation and interaction. 6. The time allotted for the training 6 10 12 7 course was sufficient. RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (4) (1) (5) 7. The training course is relevant to my current function/class and will 5 14 16 be useful in my work/studies.

Table 7. Evaluation of Administrative and Logistical Arrangements RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (4) (1) (5) 1. The room was an appropriate venue for the training course and 1 3 18 13 the facilities were adequate. 2. The training course kits distributed were helpful and 1 13 21 facilitated the participants’ learning. 3. The food and drinks served were 18 17 sufficient and satisfactory. 4. The accommodations provided 5 16 14 were convenient and comfortable. 5. The transportation provided was 9 17 9 convenient and comfortable.

Table 8. Overall Course Rating RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) OVERALL RATING OF THE TRAINING COURSE 0 0 1 18 16

EVALUTION OF RESOURCE PERSONS

A. Dr. Rolando A. Danao

RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter  Ability to exhibit knowledge of subject matter.  Ability to inject current developments relevant to the topic. 2 14 19  Ability to balance principles/theories with practical applications.  Ability to answer participants' questions on the subject matter. 2. Presentation of Subject Matter  Preparedness of speaker  Ability to arouse interest 1 4 12 18  Ability to organize materials for clarity and precision  Ability to use appropriate instructional materials 3. Teacher-Related Personality Traits 2 5 14 14  Ability to establish rapport

 Dr. Rolando A. Danao obtained an average score of 4.49 out of 5 for mastery of the subject matter, 4.34 out of 5 for presentation, and 4.14 out of 5 for ability to establish rapport for an overall average of 4.32 out of 5.

B. Dr. Geoffrey M. Ducanes

RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter 2 9 24 2. Presentation of Subject Matter 2 13 20 3. Teacher-Related Personality Traits 2 15 18

 Dr. Geoffrey Ducanes obtained an average score of 4.63 out of 5 for mastery of the subject matter, 4.51 out of 5 for presentation, and 4.46 out of 5 for ability to establish rapport for an overall average of 4.53 out of 5.

C. Mr. John Carlo P. Daquis

RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter 3 14 18 2. Presentation of Subject Matter 3. Teacher-Related Personality Traits 3 14 18

 Mr. John Carlo P. Daquis obtained an average score of 4.43 out of 5 for mastery of the subject matter and 4.43 out of 5 for ability to establish rapport for an overall average of 4.43 out of 5.

D. Mr. Manuel F. Albis

RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter 14 21 2. Presentation of Subject Matter 15 20 3. Teacher-Related Personality Traits 1 16 18

 Mr. Manuel Albis obtained an average score of 4.60 out of 5 for mastery of the subject matter, 4.57 out of 5 for presentation, and 4.49 out of 5 for ability to establish rapport for an overall average of 4.55 out of 5.

E. Mr. Michael Dominic C. Del Mundo

RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter 14 21 2. Presentation of Subject Matter 15 20 3. Teacher-Related Personality Traits 15 20

 Mr. Michael del Mundo obtained an average score of 4.60 out of 5 for mastery of the subject matter, 4.57 out of 5 for presentation, and 4.57 out of 5 for ability to establish rapport for an overall average of 4.58 out of 5.

X. Recommended Training Courses

The respondents were requested to list down their recommended courses for succeeding EPDP trainings. Below are their responses.

Recommended Training Courses 1. Forecasting Methods 2. Short-term and long-term forecasting 3. Comparative analysis of project cost 4. Identification of policy issues and policy gaps 5. Database management and other database-related courses 6. Statistics course for beginners 7. SPSS software training ANNEXES

Annex 1 Profile of Resource Persons Annex 2 Directory of Participants Annex 3 PowerPoint Presentations Annex 4 Output of Group Case Work Annex 5 Pre- and Post-Course Tests Annex 8. Terminal report on the Executive Course on Competition and Regulation in the Philippine Power Sector and session highlights A I. Introduction1

To foster a steady stream of technical and advisory support to the Philippine energy sector, EPDP organizes training courses aimed to create a pool of skilled practitioners in government who may be engaged to conduct energy policy development and program design.

In 2015, EPDP conducted an Executive Course on Competitive Electricity Markets designed to provide an understanding of the essential elements of competitive electricity markets with specific reference to the Philippine wholesale electricity market and its operations.

On 16 September 2016, EPDP held an Executive Course on Competition and Regulation in the Philippine Power Sector at Oakwood Premier Joy Nostalg Center, Ortigas, Pasig City. This executive course dealt with theories of competition and regulation, and their applications in the Philippine power sector. The course also served as a platform for discussions on striking a balance between competition and regulation policies; Philippine electric power industry regulations vis-à-vis the EPIRA implementation; and the importance of a competition law.

II. Course Objectives and Content

The course objectives were:

1. Acquaint the participants with the theories of competition and regulation, and its applications in the power sector at a level appropriate for energy practitioners; 2. Build better understanding and appreciation among GPH officials/officers on issues relating to competition and regulation in the Philippine power sector; and 3. Provide recommendations on how to strike a balance between competition and regulation given the current structure of the Philippine power sector.

III. Program of Activities

TIME TOPIC 08:00 - 08:30 Registration Welcome Remarks Dr. Majah-Leah Ravago, EPDP 08:30 - 08:45 EPDP Presentation Program Director Competition and Regulation: Theory Dr. Raul V. Fabella, Professor 08:45 - 10:15 and Practice Emeritus, UPSE 10:15 - 10:30 Coffee Break Philippine Power Sector Atty. Gloria Victoria Yap-Taruc, 10:30 - 12:00 Competitiveness Pre- and Post-EPIRA Commissioner, ERC

1 End-of-Event Report prepared by Ms. Charmaine Mignon S. Yalong, Capacity-Building Component Associate, with the assistance of Ms. Rochel S. Bartolay, Capacity-Building Component Administrative Assistant. 30 September 2016. 12:00 – 01:30 Lunch Break The Philippine Competition Act: Atty. Johannes Benjamin R. 01:30 - 03:00 Advancing Competition in the Power Sector Bernabe, Commissioner, PCC 03:00 - 03:15 Coffee Break Striking a Balance between Competition Dr. Raul V. Fabella, Professor 03:15 - 04:45 and Regulation in the Philippine Power Sector Emeritus, UPSE 04:45 – 05:30 Evaluation 05:30 – 07:00 Light Dinner

IV. Resource Persons

The resource persons were as follows:

1. DR. RAUL V. FABELLA Professor Emeritus UP School of Economics 2. ATTY. GLORIA VICTORIA C. YAP-TARUC Commissioner Energy Regulatory Commission 3. ATTY. JOHANNES BENJAMIN R. BERNABE Commissioner Philippine Competition Commission

The complete profile of the resource persons are provided in Annex 1.

V. Participants

Table 1 details the breakdown of the participants according to agency while the complete directory of participants is provided in Annex 2.

Table 1. Breakdown of Participants According to Agency Agency Male Female Total Department of Energy 1 2 3 Department of Trade and Industry 1 0 1 National Economic and Development Authority 2 4 6 Philippine Statistics Authority 0 2 2 National Electrification Administration 2 0 2 Philippine Competition Commission 3 4 7 Energy Regulatory Commission 2 3 5 National Power Corporation 2 0 2 Philippine Electricity Market Corporation 2 3 5 Senate Economic Planning Office / Office of 2 0 2 Senator Sherwin T. Gatchalian Joint Congressional Power Commission / Congressional Policy and Budget Research 2 1 3 Department TOTAL 19 19 38 Of the 38 participants, 50% were male (19 of 38) and 50% were female (19 of 38). Table 2 details the participants’ gender disaggregated data, with the number of person hours for the training.

Table 2. Number of Male and Female Participants and Corresponding Person Hours2 Male Female Total Particulars Freq. % Freq. % Freq. % Number of participants 19 50 19 50 38 100 Number of person hours of training 152 - 152 - 308 - completed

Other attendees. A total of 23 people who were not counted as official participants to the course also atttended the activity, namely: EPDP Agreement Officer’s Representative from USAID, EPDP Program Director, Deputy Program Director, three (3) resource persons, a representative from the USAID B-LEADERS, three (3) professors, and thirteen (13) EPDP staff.

VI. PowerPoint Presentations

Copies of the PowerPoint Presentations are provided in Annex 3.

VII. Summary of Evaluation

30 respondents accomplished the four-part evaluation at the end of the executive course, rating the following components: (1) achievement of course objectives; (2) course content and delivery; (3) evaluation of administrative and logistical arrangements; and (4) overall evaluation of the executive course. The participants were also requested to evaluate the resource persons considering mastery, presentation, and teacher-related personality traits.

Table 3. Average Score for Each Course Component3 Course Component Average Score Achievement of Course Objectives 4.27 Course Content and Delivery 4.26 Administrative and Logistical 4.47 Arrangements OVERALL COURSE RATING 4.27

KEY RESULTS4

 Achievement of Course Objectives. 96.67% or 29 out of the 30 respondents believed that the training course achieved its objectives. 30% or 9 respondents strongly agreed (score of 5) and 66.67% or 20 respondents agreed (score of 4). Meanwhile,

2 Required information by USAID for evaluation of training courses. 3 The evaluation forms utilized a likert scale where respondents were asked to answer in a scale of 1 to 5 (from strongly disagree to strongly agree and poor to excellent). The average score for each course component was obtained by (1) multiplying the number of respondents by the score of their chosen answer for every item; (2) adding all the products of each item and dividing by the total number of respondents to find the average score per item; and (3) getting the average score of all items to get the final score for each course component. 4 Achievement of course objectives, course relevance and usefulness, and overall course ratings are key performance indicators required by USAID. 3.33% or 1 respondent neither agreed nor disagreed. The average score for achievement of course objectives is 4.27 out of 5.

 Course Relevance and Usefulness. 83.33% or 25 out of the 30 respondents rated the training course as relevant to their current function and will be useful for their work. 43.33% or 13 out of 30 respondents strongly agreed (score of 5) and 40% or 12 out 30 respondents agreed (score of 4). Meanwhile, 16.67% or 5 out of 30 respondents neither agreed nor disagreed (score of 3). The average score for course relevance is 4.27 out of 5.

 Overall Course Rating. 30% or 9 out of the 30 respondents gave the training course an overall rating of 5 (Excellent), 66.67% or 20 out of the 30 respondents gave an overall rating of 4 (Very Good), and 3.33% or 1 out of the 30 respondents gave an overall rating of 3 (Good). The average score for overall course rating is 4.27 out of 5 (Good to Excellent).

 Course Strengths. The respondents appreciated that the topics covered in the training course were relevant and commended the resource persons for being very much involved in and knowledgeable of the subject matter. The respondents expressed that the dialogues among officials/officers from the GPH provided more opportunity to directly discuss the issues in the Philippine power sector. The respondents also complimented the executive course for being well-organized and structured.

 Areas for Improvement. Some of the respondents felt that more specific examples and illustrations from the resource persons were necessary for clarity and better understanding of the subject matter. One of the respondents stated that case presentations or a study on actual transactions relating to agreements could have been beneficial to test the “competitive elements” in the power sector. Another respondent also felt that the lunch break could have been minimized to an hour instead of an hour and a half to maximize the afternoon session and for the program to finish earlier. One of them also expressed that the tables could have been arranged in a way that participants from the back portion of the conference hall could still read the slide presentations in front.

 Other Recommendations from EPDP Team. It would be beneficial to have a synthesis of the discussion at the end of the course, to be conducted by a moderator engaged by EPDP. The synthesis can also serve as an input to a Technical Advisory Note, which may serve as an output of the Executive Course. To encourage early attendance, breakfast may be served instead of morning snacks.

Tables 4, 5, 6, and 7 below present the results of the course evaluation conducted.

Table 4. Achievement of Course Objectives RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (1) (4) (5) 1 The executive course facilitated for better understanding and appreciation of issues relating to 1 20 9 competition and regulation in the Philippine power sector. Table 5. Course Content and Delivery RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (4) (1) (5) 1 The executive course was 21 9 organized and easy to follow. 2 The executive course was suitable for the level of its 1 22 7 participants. 3 The executive course encouraged 1 19 10 participation and interaction. 4 The time allotted for the executive 1 22 7 course was sufficient. 5 The executive course is relevant to my current function and will be 5 12 13 useful in my work.

Table 6. Evaluation of Administrative and Logistical Arrangements RATING Strongly Strongly CRITERIA Disagree Neutral Agree Disagree Agree (2) (3) (4) (1) (5) 1. The room was an appropriate venue for the training course and 15 15 the facilities were adequate. 2. The course kits distributed were helpful and facilitated the 1 16 13 participants’ learning. 3. The food and drinks served were 15 15 sufficient and satisfactory.

Table 7. Overall Course Rating RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) OVERALL RATING OF THE ACTIVITY 1 20 9

EVALUTION OF RESOURCE PERSONS

A. Dr. Raul V. Fabella RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter  Ability to exhibit knowledge of subject matter.  Ability to inject current developments relevant to the 11 19 topic.  Ability to balance principles/theories with practical applications.  Ability to answer participants' questions on the subject matter. 2. Presentation of Subject Matter  Preparedness of speaker  Ability to arouse interest 15 15  Ability to organize materials for clarity and precision  Ability to use appropriate instructional materials 3. Teacher-Related Personality Traits 2 13 15  Ability to establish rapport

 Dr. Raul V. Fabella obtained an average score of 4.63 out of 5 for mastery of the subject matter, 4.5 out of 5 for presentation, and 4.43 out of 5 for ability to establish rapport for an overall average of 4.52 out of 5.

B. Atty. Gloria Victoria C. Yap-Taruc RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter 2 16 12 2. Presentation of Subject Matter 1 3 16 10 3. Teacher-Related Personality Traits 1 4 15 10

 Atty. Gloria Victoria C. Yap-Taruc obtained an average score of 4.33 out of 5 for mastery of the subject matter, 4.17 out of 5 for presentation, and 4.13 out of 5 for ability to establish rapport for an overall average of 4.21 out of 5.

C. Atty. Johannes Benjamin R. Bernabe RATING Very CRITERIA Poor Fair Good Excellent Good (1) (2) (3) (5) (4) 1. Mastery of the Subject Matter 2 17 11 2. Presentation of Subject Matter 3 16 11 3. Teacher-Related Personality Traits 3 16 11

 Atty. Johannes Benjamin R. Bernabe obtained an average score of 4.3 out of 5 for mastery of the subject matter, 4.27 out of 5 for presentation, and 4.27 out of 5 for ability to establish rapport for an overall average of 4.28 out of 5.

VIII. Recommended Training Courses

The respondents were requested to list down their recommended courses for succeeding EPDP trainings. The lone suggestion was conducting a training course on renewable energy. ANNEXES

Annex 1 Profile of Resource Persons Annex 2 Directory of Participants Annex 3 PowerPoint Presentations SESSION TITLE AND Regulation and Competition in Far-from-Frontier Economies RESOURCE PERSONS Dr. Raul V. Fabella (UPSE/EPDP)

DATE 16 SEPTEMBER 2016 PREPARED Shirra de Guia and BY Rainier Ric de la Cruz

SUBJECT MATTER/ISSUE

Many economies mainly rely on the market mechanism as the engine for growth. However, the market is not always perfect and there are instances wherein this mechanism fails due to the unbridled pursuit of self-interest by agents resulting in a social outcome inferior to the best feasible outcome given taste, technology and resources. When this occurs, government intervention may be an appropriate response, though noting that a market failure is a necessary but not a sufficient condition for government intervention.

When this need for government intervention arises, then the state may use two instruments, regulation and competition policy, to address the market failure. Regulation works best when institutions are strong and in cases where market dominance is natural. Meanwhile, competition policy is more appropriate when institutions are weak and market dominance is artifactual or created through legislative action. Regulation and competition policy when implemented properly may solve market frailties.

HIGHLIGHTS OF THE PRESENTATION

DR. RAUL V. FABELLA

 Discussions on regulation and competition policy should not take place in a vacuum and must be situated in their proper context, that is, in both time and space. In this presentation, the specific context is the Philippines as a far-from-frontier economy.

 Frontier economies and far-from-frontier economies (FFFE) differ in two aspects, namely, technology and institutions. Frontier economies, mostly OECD members, have state-of-the-art technology and advanced institutions while FFFEs are usually comprised of less developed countries, which lag in both dimensions. Growth in frontier economies is driven by innovation in production driven by firms, while FFFEs rely on imitation innovation. To converge with frontier economies, far-from-frontier countries need to close the gap between these two dimensions (e.g. the acquisition of new equipment from investments).

 The relationship between competition and innovation is usually explained by the Inverted U hypothesis which, according to Aghion (2002), posits that at the initial stages of development, new entrants will increase competition and innovation, however, as the number of firms increases, the level of competition and innovation will reach its peak and investments will then decline due to the diminished gains from innovation. Hence, an optimal number of firms must be determined to maximize this relationship. A monopoly (one dominant firm) is not optimal because there is little incentive to innovate. On the other hand, perfect competition (many firms) is also suboptimal because the returns to innovation are too diffuse and firms will not be able to afford the investment cost. Following Schumpeter, a small number of large firms will be the optimal solution.  The market is the engine for growth while the state acts as the enabler of the market. When there is a market failure, then the state can use the following tools to heal the frailty of the market, either through regulation or competition policy. The instrument to be used depends on the type of the market failure:

o If the market failure is a moral hazard case, then this could be healed through regulation. To illustrate, the fishing game example demonstrates how the state can intervene through the use of statutes to influence the market in reaching the Pareto Optimum. However, it is worth noting that the combination of the penalty, cost, and enforcement of the statute is critical in the intervention. A poor combination of the three could make the market failure worse. In addition, competition policy should not be used in this case since the use of the said policy would only result in another market failure known as the tragedy of the commons. o Another type of market failure is the case of the monopoly. Here, both regulation and competition policy could be used. For natural monopolies, imposing a price cap will lower the price and increase the consumer surplus. Meanwhile, for artificial/legal monopolies, lifting the franchise and allowing new entrants will lead to an increase of the consumer surplus.

 Regulation should be used when market dominance is natural, that is, the monopoly results from economic laws and not through legal barriers (e.g. water distribution). Usually, a franchise is granted to a firm in order to attract entry of firms when there are missing markets or to avoid waste of resources due to the nature of the market. On the other hand, competition policy should be employed when market dominance is artifactual, that is, when the monopoly is enabled through a) an act of the state (franchise) without scale economies (PLDT in 1980’s, NASUTRA as sugar monopsonist during Marcos era) or b) collusion/cartel.

 Meta-market failures occur when properly functioning markets produce an outcome considered as deficient from the perspective of the meta-social welfare function. For example, a perfectly competitive market’s Pareto efficient outcome may however be very unequal (Piketty Inequality). In this case, only regulation will work (e.g. Piketty’s taxation or Tobin tax).

 It is important to mind the institutional context when advocating for interventions. For instance, the Philippines is considered to have weak institutions, and in this regard, it is more effective to implement light-handed interventions. In contrast, if the economy is known to have strong institutions, such as Japan, then heavy-handed interventions would more likely succeed.

 The market for influence and interest group lobbying will lead to restricted markets. The Olson effect shows that small cohesive groups beat large diffuse groups in the market for influence.

 The East Asian miracle is usually thrown as an argument against competition policy since the East Asian economies attained rapid growth and convergence even without competition policy. However, the East Asian success was not an industrial policy story but was mainly due to strong institutions. For the EA model, institutions are far more important than the policies. Hence, for weak institutions, it is better to use competition policy to enable the markets to grow since regulation will not likely work.

Q&A DISCUSSION

Mr. Jedison Sta. Ana (ERC): Can you enlighten us about the Piketty tax/Tobin tax?

Dr. Raul V. Fabella: According to the Piketty thesis, when left alone, market economies will lead to greater inequality in terms of wealth and income. If inequality is not stemmed, then this will threaten the viability of capitalism. However, government can respond to this by imposing wealth taxes and higher income taxes for the rich. The Tobin tax is a tax on movements of capital across borders. Here, part of the gains in capital flows should be taxed to solve the development problems.

Mr. Jedison Sta. Ana (ERC): I think that’s what we’re getting into, especially with the new policies from the Department of Finance.

Dr. Raul V. Fabella: I agree with some of the proposed policies. Abolishment of the VAT on the elderly should be seriously considered. Senior citizen privileges are comparably high in the Philippines. We should make policy more targeted. Reduce discount to 10% which is a more acceptable level.

Atty. Raphael M. Lotilla: You talked about the historical part. We had the earliest implementation of the anti-trust law. Perhaps because of the EA model, we did not impose anti-trust regulations. Why is it that during the American period, anti-trust was not implemented despite the strong institutions?

Dr. Raul V. Fabella : The Sherman Anti-trust Act was enacted in 1890 but the implementation was spotty. The strength of the US economy in the gilded age was due to the activities of the robber barons; each robber baron had a senator representing him, and successful anti-trust suits were very few. It was only after the implementation of the 1914-1915 Federal Anti- Trust Act did the activity take off again. In the Philippines, perhaps the Americans felt that the country was a far-from-frontier economy. In addition, the most important problem faced by the country that time was the case of missing markets rather than lack of competition, hence anti-trust was not applicable.

---END--- EPDP LECTURE SERIES HIGHLIGHTS REPORT

SESSION TITLE AND Philippine Power Sector Competitiveness Pre- and Post EPIRA RESOURCE PERSONS Gloria Victoria C. Yap Taruc (Commissioner, Energy Regulatory Commission)

DATE 16 SEPTEMBER 2016 PREPARED David Joseph U. Anabo BY Shirra Jazel L. De Guia

SUBJECT MATTER/ISSUE

The Philippine power sector has undergone structural changes with the implementation of the Electric Power Industry Reform Act (EPIRA) and its goal of making the electric power industry more competitive. Despite having made various efforts, the Energy Regulatory Commission (ERC) still sees multiple challenges going forward, especially in transmission and in distribution.

GLORIA VICTORIA C. YAP TARUC

 The lecture is arranged as follows: 1) history of Philippine electric power (PEP) industry, 2) industry structure before and after EPIRA, 3) the Energy Regulatory Commission (ERC), and 4) steps undertaken by the ERC when it comes to competition in the PEP industry

 The history of the Philippines is intertwined with the history of the PEP industry. From the 1890s to the 1960s, it was led by the private sector. There was only a short segment when the government was active in the PEP industry.

 MERALCO started as a railway company and a provider of electric service, and was established in 1903. The war damaged its electric rail asset, leading them to focus instead on electric power service in the lode center of Manila.

 The lode center of Manila where there was a private distribution utility was likewise held true in other areas in the archipelago like Davao, Cebu and Iligan. These are the private distribution utilities that operated in their own respective poblacions. Likewise, there were areas that were not energized. In our area, there was an electric company owned by the private sector. It had its own generator and provided its own distribution lines; however, hours of coverage were very limited. We had our generator; same goes with businesses. There were businesses that had their own generator. It’s also closely intertwined with politics.

 In 1936, the National Power Corporation (NPC) was established for hydraulic power. This was capital intensive, but there was a dearth of capital in the Philippines at that time. It could have been the Americans who could have put it up, but it was the Philippine government that tried to put in hydraulic power. In the 1960s, to address rural electrification, the Electric Administration was created, but it did not answer the needs of our citizens from the fringes

 In 1969, National Electrification Administration (NEA) was put into office. It was mandated to provide technical and financial help to electric cooperatives. I think the first electric cooperative was somewhere in Mindanao (MORESCO), which was started by then Vice President Emmanuel Pelaez. The president at the time was President Ferdinand Marcos  There were several changes in NPC. It had capital infusion in 1936 and was given authority to borrow funds that carried sovereign guarantee to strengthen its capital structure.

 In 1972, Martial law was imposed and Presidential Decree No. 40 (PD 40) was issued. PD 40 allowed NPC monopoly over the generation sector. It was also at that time when NPC negotiated for the acquisition of the generating assets of MERALCO for $1.1 Million. Prior to that, MERALCO was linked to the electric power industry. 1903, it was the Americans who owned MERALCO (for the first 40 years), and sometime in the 1960s, it was bought by the Lopez family. The Lopez family, because we did not have a developed capital market which developed mortgage indentures and had a capital funding road show in Wall Street.

 MERALCO in the 1960s became the first Philippine company that reached the 1 Billion mark. When Martial Law came, most of the public utilities were acquired by Government. It seems that paying $1.1 Million was the fee that was paid by NPC in order to acquire the generating assets of MERALCO pursuant to the mandate of PD 40. PD 40 also allowed NPC to go into the distribution to the electric cooperatives.

 PD 40 granted monopoly powers to NPC as it now concentrated all generation and transmission and ownership and development rights to the entity.

 Prior to 1987, NPC built the Bataan Nuclear Power Plant (BNPP). It was supposed to address our requirement for electricity supplies, but when 1987 came, it was shelved after the Aquino administration assumed into office due to allegations of corruption and because there was not a safety measure in light of the Chernobyl incident.

 In 1987, President Cory Aquino issued EO 215 which allowed private corporations, cooperatives and other similar associations to construct and operate generating plants subject to the Rules and Regulation formulated by NPC. Before, it was only the NPC that was responsible for constructing for generation and transmission. EO 215 allowed the entry of the private sector. Initially, the belief of NPC was that it only had sole authority to build; to enter into contracts. But because there was a delay in the approval of NPC contracts, we were experiencing a dearth of supply at that time

 In 1987 - 2001, there was a power crisis during Aquino-Ramos regime. We experienced brownouts. We had electricity only until 9:00. Between 9:00am-4:00pm, there was no electricity. At that time, government employees were allowed to go home early because it was inefficient to work without electricity.

 The electric power crisis was addressed by the Ramos regime using the Electric power crisis act. The act allowed them to modify procurements of foods and services and the manner of contracting. At that time, we were also experiencing the aftermath of the Marcos years. We were experiencing burdening debt.

 NPC’s debt carried sovereign guarantee, and government can no longer sustain payments for the obligations of NPC. At the same time, during the Ramos years, we entered into several IPPs that contained the minimum off-peak contracts. These were done under the assumption that the economy was going to grow – but it did not happen. Because of this, we were saddled with payments for unconsumed energy.

 All of these served as the bedrock for the legislators to think of how to improve the PEP industry. NPC’s bankruptcy -> growing sentiment toward privatizing NPC assets, and restructuring the electricity industry -> Enactment of EPIRA  Prior to the EPIRA, generation and transmission was held by NPC, and was distributed to our electric cooperatives and DUs all the way to the consumers. Post- EPIRA in 2001 divided the sector into four sectors. Generation and Supply were open and competitive, whereas transmission and distribution were regulated as they are natural monopolies. The structure is now Generation -> Transmission is now held by the National Grid Corporation of the Philippines (NGCP) after being awarded the concession sometime in 2007; WESM [PEMC] as market operator -> Distribution Utilities (DUs) -> Captive Consumers.

 Some ask why there is a need for WESM. I think we need to explain, coming from the PEP, how the industry is now structured – since there are still a lot of misconceptions. They say WESM should not be put in place, but I think WESM should be in place in a restructured industry. Before, when there was only a single buyer, where NPC was the generation provider and transmission provider, yes, maybe you don’t need a market operator. It was really government monopoly over generation sector. There wasn’t going to be any difficulty in dispatching. NPC would have a portfolio that it would dispatch. Due to the privatization of NPC assets as a result of EPIRA, there is a need for an entity that would now prioritize who should be dispatched. This is WESM. It is a necessary consequence of EPIRA.

 As part of EPIRA, the ERC’s mandate was expanded. It now covers rate fixing, consumer protection, safety and reliability standards, and competition.

 For rate-fixing, rates must be such that it allows for the recovery of just and reasonable costs and reasonable returns to enable the entity to operate viable. It’s a balance in the interest of the consumer and the interest of the investor.

 ERC fixes rates to be charged by entities regulated as a common carrier. NGCP, transmission and distribution are considered common carriers, and the ERC fixes the rates accorded to them. Before, RORV was the rate methodology used, but in 2003, ERC adopted the Performance Based Regulation (PBR) for the transmission wheeling rate, and in 2004, in adopted PBR for the private distribution utilities. In the case of electric cooperatives, the commission is adopting the benchmarking and the cash-based methodology for the off-grid area.

 For distribution, we are using PBR for the private distribution utility, and the RSEC- WR for the electric cooperatives, basically through the benchmarking method, but for the off-grid areas, we are using the cash-based methodology. We approve bilateral contracts entered into by DUs with generation companies, and for those capital expenses required of a DU outside of what has been submitted in their regulatory compact in the PBR period, there are times they would have certain capex which would fall under force majeure - that is likewise submitted to the approval and evaluation of the Commission.

 We are also in charge of providing the rate for the Universal Charge (UC). UCs are part of restructuring the industry and the components of which are for the payment of the standard debt and standard contract costs. There is a provision in the EPIRA when it comes to standard contract costs of eligible DUs. I think this will come on the latter part when we have full implementation of Retail Competition and Open Access (RCOA). We also provide universal charges for missionary electrification for the SPUG areas managed by NPC. These are for the off-grid areas like Palawan, Mindoro, Romblon, Masbate, etc. Rates in these areas are subsidized. They do not pay the total cost of generation. Part of what is not paid by them from the total generation charge forms part of the UC that is a non-bypassable charge paid by all on-grid users. It’s a subsidy.  Under the Renewable Energy (RE) Law, we also provided for the rates of the Feed- In-Tariffs (FIT). This is to incentivize the growth of renewable energy especially for the emerging technology. This is also similar to a universal charge. This is determined by the ERC, and is applicable for a period of 20 years

 Consumer protection is being done by the ERC, and we have actually issued our Magna Carta for residential electricity consumers. We approve meter types and meter shops that calibrate meters, and the monitoring of technical and non-technical Systems loss.

 Regarding Safety and Reliability Standards, under the EPIRA, the Commission provided with the assistance of the Distribution Management Committee and the Grid Management Committee. They serve as our technical arm and they help us in evaluating the safety and reliability standards that must be put in place

 With respect to competition, under Section 45, the ERC is mandated to promote competition, encourage market development, ensure customer choice and penalize abuse of market power. Even with the existence of the new Philippine Competition Authority Act, the mandate of the ERC under Section 45 has remained intact. This is the basis used by the Commission when it imposed several limitations on DUs acting as a local rep. As mentioned by Prof. Fabella earlier, we were hailed to the court regarding RCOA. The Commission did the regulatory intervention, but as possibly observed by Prof. Fabella, we have weak institutions. The regulator is gung-ho on putting regulatory intervention to provide the level playing field, but we have other areas of Government that we also have to contend with like the Judiciary.

 Before EPIRA, it was basically a monopoly of Government for transmission and generation. Before your rate was a flat rate, without knowing the components of the rate. By virtue of EPIRA, we have now identified the components of your rate. (Generation – 50%; Transmission – 10%; Distribution, Supply and Metering – 10%- 12%; Non-Production Costs – 23%)

 Removal of Cross-Subsidies within a Grid between Grid and our classes of customers. The only subsidy left aside from the one for the off-grid would be the lifeline rate and the senior citizens’.

 When privatization of NPC assets was commenced, ERC had the role of rate translation once it was already sold to the private sector and they enter into power supply agreements. NPC assets can be categorized into transmission and sub- transmission assets, generation, and IPP contracts. Transmission assets that have already been spun off through a concession agreement: the National Grid Corporation of the Philippines.

 The government corporation that holds the bulk of the NPC is now the Power Sector Assets and Liabilities Management Corporation (PSALM). This is also tasked to manage the standard debt and standard contract costs and the universal charges.

 The role of the ERC with respect to the WESM spot market, opened in June 2006 are as follows: 1) responsible for the approval of the price determination methodology, 2) responsible for the putting up of the offer cap which started initially at 62, a decision made by the tripartite composed of the Department of Energy (DOE) Secretary which was then headed by Sec. Popo Lotilla, when the amount of 62 as the offer cap was put in place. Initially, that’s the start of the market. Then, sometime in December 2013, we lowered the offer cap to 32, and also to address the spike in the market, the volatility in the market, and also to mitigate the spike, we put in a secondary bid cap. This was really aimed at protecting the interest of the consumers.  Competition is also self-competition. In order to foster competition in the natural monopoly, the Commission put in place Performance Based Regulation (PBR) for the transmission in 2003, and 2004 for the Private DUs. For the electric cooperatives, we also termed it as a mini-PBR. Electric cooperatives are those serving outside Metro Manila, on-grid and off-grid areas, are non-stock, non-profit entities owned by the consumers. There were criticisms against the return on rate base (RORB) because of information asymmetry and possible gold plating, so around 2004, the Commissioners then with the help of consultants, adopted a different rate methodology (PBR). The criticisms against PBR centers on determination of the Regulatory Asset Base (RAB). The determination of the RAB is critical in tariff setting. The Commission had done its part in studying how to value the RAB. We initially adopted the OD-RT method, but we are now studying along the lines of rolling forward the RAB. PBR is a recognition that a trade-off exists between the service for quality at which electricity is supplied and the cost for providing service.

 Service quality is regulated by ERC under the following means: o Efficiency thru review of the Annual Revenue Requirement (ARR). Before PBR, whenever we determine the ARR, we only looked at ‘used’ and ‘useful’. Under the PBR, we have another filter, which is that the regulator asks what is an efficient and prudent extent on the part of the regulator to have employed, for example a sub-station with this particular specification, as opposed to another sub-station? Why buy Mercedes vs Toyota assuming that they give the same utility? – need to explain this to the regulator. o Service Quality thru setting of performance standards. A regulated entity under the PBR would promise things like turn-around time for applications and length of interruptions. These are measured to test their efficiency in the rendition of their service. If they do not comply with what they promised during the regulatory compact, they are penalized.

 The Philippines’ total installed generating capacity continued to grow by 4.6% from 2014 to 2015, with an equivalent 821 MW increase. Still, coal has the largest share. When ERC was able to put in place the FIT, we saw the growth of the renewable energy in the form of wind and solar. This is likewise in tandem with the DOE as DOE is the entity responsible for the setting of the installation targets. As the regulator, we would also like to coordinate the best that we can with DOE with respect to the setting of the installation targets. The reason is that the FIT rate is getting higher with the provision of higher installation targets. Note that in the first round of FIT, we only had 50 MW for solar, but now, we have an addition of 450 MW.

 The major players based on the annual report of the market in 2014 are still San Miguel, Aboitiz, First Gen, PSALM, and Semirara Mining and Power Corporation. In terms of concentration, it is still moderately concentrated.

 Regarding competition safeguards provided for under the EPIRA, regulatory interventions accorded to the ERC include putting market share limitations, cross- ownership provision, and sourcing of energy from your allied companies (as in the case of MERALCO and San Bueneventura, and San Miguel and ALECO).

 We promulgated our own competition rules in 2006. For monitoring; safety standards and reliability, the Commission issued in 2013 rules to govern the monitoring of reliability performance of generating units and transmission business. We are currently developing a performance card. During the December 2013 incident, a high percentage of outages that resulted in the price spike. This is also a question of monitoring the schedules of the outages. With respect to the schedule of outages, it rests with DOE and NBPP as they are the ones in charge of the Brief Operating Management Protocol that is laid out annually and reviewed quarterly.  Inasmuch as we would like to push the reliability standards, we are still in the course of developing a score card regarding the efficiency of the plant. While we issue Certificate of Compliance (COC) before a generating company is able to operate, if this is done, the technical evaluation is done when it renews or applies for a COC. Along the way, whether or not it performs well is something that we need to develop. We received news such as boiler tube leaks, but we can only rely on their logbook. The Commission is developing a scorecard in order to give them a grade – to ascertain their efficiency – considering that inefficient plants more often than not increases the cost of electricity.

 To promote competition under the RE law, we put in the FIT. The FIT rate was based on a cost of a representative project, is technology-specific, and is guaranteed 20 years duration. The FIT allowance as of date is around P 0.124/kWh. This is attributable to the additional 450

 One of the major concerns in implementing the FIT is the penetration limits. This is the concern of the transmission company. If you would note in the Visayas region, particularly in Negros, you’ll see a lot of solar plants operating in Negros, but they are not able to deliver because of constraints. There is only a 450 HVDC line connecting Luzon and Visayas, and there is a rate on how to dispatch it. There are times when production of the solar plants is constrained.

 RCOA is one of the critical aspects that the Commission is focused on. Inasmuch as the Commission wanted to provide regulatory intervention, it was prevailed upon by the players. In fact, there is a pending case in the Regional Trial Court (RTC) of Pasig. Just for the record, the Commission does not recognize the ruling of the RTC of Pasig because we take the position that it is only the Supreme Court (SC) who has jurisdiction to halt the implementation of EPIRA, and RCOA is one of the pillars of EPIRA.

 Challenges in implementing RCOA includes slow migration of consumers to the contestable market , market concentration, and displaced Contract Capacity Energy arising from the migration of Contestable Customers to the Contestable retail market.

 The makeup of the contestable market as shown by data from PEMC shows that MERALCO has 55%. The next, Aboitiz, is only 13%. The contestable market is about 19%. Out of 19%, 55% of that is occupied by MERALCO. Quoting Sec. Popo, 2001 EPIRA was put into place, but MERALCO’s franchise was extended sometime in 2003 or 2004, and it even has an enlarged franchise. It was in 2003 that the franchise of MERALCO was enlarged, and it accounts for 55% of the energy sales in the Philippines. 46% of the GDP is generated within its franchise area, and data from MERALCO’s disclosure to the PSE shows that 60% of Philippine manufacturing output is generated within its franchise area.

 With this kind of set-up, we did put a regulatory intervention. Under EPIRA, MERALCO, or any DU for that matter doesn’t need to secure a license in order to supply their contestable market. Having seen that, we tried to level the playing field by saying that this is just a transitional arrangement, but it does not mean that is a vested right. By virtue of that, we issued the resolution sometime in March disallowing a local Retail Energy Supplier (RES) to operate within the contestable market, giving it three years to wind out, but they’re not prohibited from creating their own RES-DU affiliate. This is because of the possibility of cross-subsidy within the firm. It would be in the best interest to have a separate juridical entity. The local RES is functionally related to a separate juridical entity, so you’ll not really know whether or not the contestable are being subsidized. Those are the ills that we wanted to address in our resolution. We were not as successful as we were hailed to court. Q&A DISCUSSION

DR. MAJAH-LEAH V. RAVAGO Does the regulator not recognize the RTC?

GLORIA VICTORIA C. YAP TARUC As far as the Commission is concerned, the RTC does not have jurisdiction over us because the ERC issued the resolutions (particularly on revised licensing and market share cap, etc.) in the implementation of the RCOA, a pillar of the EPIRA. Under Section 78 of the EPIRA, it says that it is only the Supreme Court that can halt the implementation of the EPIRA. That is the legal position that the Commission took. That is why, whenever there is a hearing, we say that the RTC does not have jurisdiction over us. The lower court, the RTC, insisted that they had jurisdiction over us, so we filed a position before the Supreme Court, questioning the actions of the judge. We have likewise submitted the motion to inhibit the judge.

DR. RAUL V. FABELLA You mentioned the gridlock in transmission, especially Negros? There is a problem here that NGCP, where the concession contract seems to mandate that expansion or upgrade of transmission is the role of NGCP, and ERC approving it, will then allow NGCP to raise the transmission tariffs. It seems to me that for really large projects like upgrading the Negros- Cebu-Leyte submarine connection, as well as possibly Negros-Zamboanga connection which is not there yet. If we wait for NGCP to do that, and for ERC to approve it, the wait will be really long. My position in such upgrading is that the Government should just spend money. After all, there is some fiscal space in the Government now. They can just turn over the asset to be managed by the NGCP. What is the position of the ERC on this?

GLORIA VICTORIA C. YAP TARUC First, I’d like to clarify that the Transmission Development Plan (TDP) is made by the NGCP, and it is assisted likewise by TransCo. After the TDP is made by them, it is submitted to the DOE for approval, and forms part of the national policy. After that, the TDP is translated into an application by the NGCP before the Commission, whether it be contained in their PBR submission, or in an emergency capex that they really need to do.

I think there should be a closer coordination between Government agencies and NGCP when it comes to capital infrastructure. I say this because the problem is that when it reaches the ERC, and the ERC sees that there are issues with affordability of the price, there are times it might slash on some of the capex of NGCP which are already contained in the TDP. On hindsight, and perhaps for the future, it might be good if ERC is already onboard not wearing a regulator’s hat, but providing guidance in saying the cost might be too prohibitive; the affordability concerns might not be addressed here.

With respect to why there are gridlocks, it’s not only confined to DOE; to the ERC, but likewise to the different departments of Government. Note that in the Batangas area, they are friendly to the generating companies. You see a lot of generating companies being magnetized in the area of Batangas. They have a friendly local Government. Also, I think in Negros, the conversion of the land. Under the charter of DOE, I think it’s Section 23, it may act as an alter-ego of the president, calling an inter-agency committee that will take a look at energy projects. With respect to local Governments, sometimes, putting up a power plant you even need to talk to the barangay. If the barangay official is not aligned with the mayor, then you don’t get the permit. The parochial politics should also be addressed maybe by having one person in Government, a conductor who steers the process. Perhaps the DOE secretary can be the captain of the ship in putting together different agencies of Government so that the policies could be more or less aligned, and also to do away with approval processes.

DR. RAUL V. FABELLA Is it to your understanding that transmission assets can be procured only through NGCP? GLORIA VICTORIA C. YAP TARUC Because of the franchise, it can be interpreted that way, but the option you were saying earlier, is it possible for Government to put in the transmission facilities? Maybe we can ask TransCo since it is actually the owner of the facilities if it can put up the facility, then turn it over to NGCP for the operations and maintenance, and also maybe for the payments of the facility. The economic ownership is actually with NGCP during the duration of the concession agreement, and after the concession agreement is over, the Government buys back at fair market value of these assets. The concession agreement is only until 2025, and subject to renewal. I don’t know how it will be renewed; whether or not there’s going to be a direct negotiation or if it’s going to be a privatization in the same manner that Government did before where its franchise is good for 50 years. In fact, that’ the risk that NGCP is looking at. It only has a concession agreement good for 25 years, although its franchise is for 50 years.

DR. RAUL V. FABELLA Let me just clarify. NGCP does not own the assets, right? It manages it. It’s a concession.

GLORIA VICTORIA C. YAP TARUC The economic ownership is theirs, and it will be turned over to Government after.

DR. RAUL V. FABELLA Yeah, and that means that the Government does not have to pay NGCP when it is turned over because the asset has already been paid for by the increase in tariffs.

GLORIA VICTORIA C. YAP TARUC There is a terminal value, but the terminal value will count likewise what has been paid for in the form of tariffs. So there’s a terminal value, and there’s a computation for that

SOLFICAR P. PESCUELA (PSA): I would like to refer to the slide on the cross-ownership. I know that the ERC is monitoring the market share limitation, but I would like to flag the NGCP franchise, which I feel is usually overlooked, as the NGCP franchise allowed generation to have a 1% stake in NGCP, as opposed to what EPIRA said.

I was wondering if the ERC has been monitoring that aspect in terms of shares that generation companies might have with NGCP. Although it is just 1%, but there are several exemptions provided there.

GLORIA VICTORIA C. YAP TARUC You are actually right. The franchise is actually law right? It emasculates EPIRA to a certain extent when it comes to the ownership. To my knowledge, we have not had a formal study on that. Although there are a lot of stories floating around; some GenCos may have ownership also. We can take a look at that.

FELY JABRON I just want to clarify, for as far as we know TransCo has been renamed to NGCP. Am I correct?

GLORIA VICTORIA C. YAP TARUC Before, NPP held generation and transmission. When EPIRA came into being, there were many several corporations put in place. PSALM managed the assets and liabilities of NPP, TransCo received the NPP’s transmission facilities that got spun off. TransCo is a Government-owned and controlled corporation. In 2007, TransCo, under its mandate from EPIRA to have a concession; to privatize the operations and management by way of concession agreement, Government undertook a privatization process, headed by DCAM, and after the privatization, the winning bidder was NGCP. TransCo is still the owner of the facility, but is not operating it. At the end of the concession agreement, it will all be turned over to TransCo. MYLENE C. CAPONGCOL EPIRA’s objective includes encouraging competition in generation. We had experienced the difficulties of one generator interconnecting to the grid. This is a 600MW, and we all know that whenever Sual goes offline, we get always get an ‘alert’ from the NGCP. Maybe this is one area where the incumbents are using some kind of technical or commercial issues that hinders the operation of a generating asset. If this is the case for other areas, then we’ll be having a problem encouraging more generators. Another issue is the commercial banks. They are really asking too much from a generator.

GLORIA VICTORIA C. YAP TARUC I just want to add that generating companies nowadays is that they themselves put up a dedicated point-to-point. These dedicated point-to-point applications are submitted to the Commission. For as long as there is only one generating company that will be using it, it will not be turned over to the NGCP, although it is operated by the NGCP.

Our approvals would say that in the event that these are turned over to NGCP subject to optimization. Eventually, these should have been put in place by NGCP, but they did not put it up, so it is the generating companies that put it up. In the long run, these should all form part of the RAB of NGCP. So, when it now forms part of the RAB, that will also widen the base and increase the transmission costs. Tempering of the transmission costs may be done with a wider billing determinant with more users; population growth.

ATTY. RAPHAEL M. LOTILLA I think the transmission concessionaire is the biggest monopoly in the country. I think there’s a mismatch between the ability of Government transmission planning and transmission regulation. As I see it, ERC’s focus is really more on generation, and yet, the biggest monopoly actually has less regulation than is desirable. That is why I proposed last time that Government can make use of both the planning and the regulatory sides of both TransCo and PSALM as counterparties to the concession agreement. Right now, I think that both PSALM and TransCo feel they are mandated or have responsibilities in managing the concession contract.

The concession contract, as Commissioner Taruc pointed out, has been modified in parts by the franchise, which is a law passed by Congress, but to the extent that the concession contract as modified by the franchise has to be managed by somebody, then PSALM and TransCo should be drafted to perform those responsibilities, or at the very least, to provide those resources.

Right now, to the extent Grid Management Committee is dependent budget-wise on NGCP to provide. It’s a case where the regulated entity is the one providing the resources to support the mechanism that is supposed to supervise it. We can’t operate this way. Government, as Dr. Fabella pointed out, has surplus, and should provide the money. If we can’t provide it through the budget, it can raise it through the corporate mechanism; which are TransCo and PSALM, and then these resources will be made available to ERC and DOE. I think it is a matter of harnessing these two. We need consultants both domestically and abroad, but the budget of ERC will not be able to afford those. We will have to beg again with the development partners. It is a multi-billion dollar industry, and then you have a lynchpin which is the biggest monopoly. That’s the only way we can do it efficiently.

GLORIA VICTORIA C. YAP TARUC I don’t think we can do something about the concession agreement; TransCo’s role has certainly been emasculated in terms of the planning of the transmission development

ATTY. RAPHAEL M. LOTILLA But that’s with DOE now, and that’s why DOE also NEEDS those resources for planning. It cannot be the case where NGCP just submits the plan to Government and to the regulator during the regulatory period. There must be a way for DOE to plan on its own independent of NGCP, then it can give instructions to NGCP on how to lay out the transmission lines, at what pace, and if necessary, provide additional funding or determine other ways of constructing transmission lines

GLORIA VICTORIA C. YAP TARUC It should really be Government dictating. It would seem that the initial output is from NGCP, and more often than not, whatever NGCP submits gets a go. Maybe Government should have a more active role in saying that “You have been given the franchise to operate and maintain and to improve the facility, and based on our own assessment, you are supposed to put in transmission facilities along this area. That would now be the role of DOE.

ATTY. RAPHAEL M. LOTILLA Yes, and if needed, and Government can come in to finance the gap between what is really due for the financial returns of NGCP as a concessionaire, and the levels of transmission fees we are willing to pass on to consumers. I think this is where we can have a push.

DR. MAJAH-LEAH V. RAVAGO Going back to the issue of RCOA. I think you showed in one of your slides, it was 55% for Luzon and Visayas because we don’t have a market yet for Mindanao. I think a better way to look at how competition with regards to retailing is proceeding is to look at the franchise area of say, MERALCO as you are looking at the competition in the franchise area anyway.

I think from the data of PEMC we have looked at, about 20% of customers only are under customers, or are already contestable customers – 80% are captive. In that 20% of contestable customers, 11% is served by MERALCO in their franchise area. So, it’s like 80% is captive, and 11% of the 20% is also served by MERALCO. So, I wonder where the competition is going in that respect, because it’s still MERALCO.

Another thing, when we went to a PEMC open house, contestable customers also raise the issue that the suppliers are becoming like taxi drivers. It’s supposed to be that they are fighting over the customers for the RCOA, but in this case, it is the suppliers who are choosing whom to supply. I guess, like what they said, it depends on the load profile of the customer. As an example, Megamall has now BPOs on top of it, so its load profile is somewhat constant. Suppliers like this, unlike a manufacturing company that only operates 8:00am – 5:00pm where suppliers won’t have anyone to supply at night. So, what is the perspective of the ERC on this, and how do we proceed?

GLORIA VICTORIA C. YAP TARUC The manner of contracting is less with the end-user and the RES considering price is deregulated. What the ERC has done so far is we issued those resolutions to level the playing field. What has been quarantined by the TRO is actually the one of MERALCO as a local RES. The problem with MERALCO as a local RES is that it occupies a very large space – 55%. Most of the load centers of manufacturing are within the MERALCO franchise. That’s why they would like to remain with MERALCO. The problem is that remaining in MERALCO; we would have less retail electricity suppliers who would go into the picture. So far, what we did is that even existence of that case, we have been licensing a lot of RES in the hope that we would have more players who can offer their services to end-users.

DR. RAUL V. FABELLA I’ll give an example of a particular candidate for contestable market that opted to stay with MERALCO – and that is IRRI. IRRI wanted to become a contestable consumer and they looked at various suppliers like Aboitiz, but then they look at quality of supply – not only the price – and they decided that IRRI’s banks are sensitive to fluctuations, so they decided to stay with MERALCO. So, here is a case where there really was a consideration on the part of the consumer, and they realized that the quality of power was more stable with MERALCO, and that was why they stayed. So maybe some of these things are for considerations that are really economic. MALE 1 (PEMC) I think there is some misinformation on how supply and distribution is related. If Supplier A will be using MERALCO as its distributor, then the quality that MERALCO will give to Supplier A should also be consistent with the quality if MERALCO should choose another supplier.

GLORIA VICTORIA C. YAP TARUC It is the same - what Manufacturing A and Manufacturing B in terms of reliability. Most contestable customers say that it is not my business. The only thing that is important is that if my cost of electricity is 20%, then I want to manage it to the extent of 20%. They don’t want to go into more robust negotiations. Maybe it depends on the customer. Though, there are also firms that really want manage their resources. They get their own RES and some even buy on their own. So, it also depends on the level of sophistication and need of the customer.

HELEN VALDERAMA I’d like to find out if there has been a resolution to the 2013 price spike issue? I’m sure it was a difficult investigation, but I’m wondering if you can share with us what the difficulties have been to correct market abuses. Since up to now, if I’m not mistaken, there’s no resolution; there’s no closure to the issue.

GLORIA VICTORIA C. YAP TARUC The investigation has already been completed. Our investigating units have already filed a case for anti-competition. 13 respondents, including MERALCO. Inasmuch as we wanted to proceed with the case, there were several pleading filed by them. These are motions pending before us, and we will be resolving these motions soon.

You ask what the challenges were when we put in the regulatory intervention. It was difficult on our part to look for that deregulated price. If we were to use the Administrative Price Determination Methodology (APDM) already in place, it would only account for the previous four weeks, prior to the December 2013 incident, but prior to that, the supply was already getting tighter. So we could not tell ourselves that that was already a normal supply. So, we made ourselves creative. We backtracked a little and said that for the previous 9 months, it would have at least represented normal pricing; normal supply. That’s why we came up with a 6.425 price, I think.

At the same time, it was subject for a motion for reconsideration, which we denied. After our denial for their motion of reconsideration, they also brought cases before us, now pending before the Court of Appeals. So, aside from the Supreme Court case, where they filed a petition under Rule 55 for perverted use of discretion on the part of the Commission to have allowed the staggering of the rate, we are still facing a Court of Appeals case regarding the imposition of the regulated price. Thank God the case filed against us before the Ombudsman has already been dismissed. EPDP LECTURE SERIES HIGHLIGHTS REPORT

SESSION TITLE AND The Philippine Competition Act: Advancing Competition in the Power RESOURCE PERSONS Sector Atty. Johannes Benjamin R. Bernabe (PCC Commissioner)

DATE 16 SEPTEMBER 2016 PREPARED Rica C. Santos BY David Joseph U. Anabo

SUBJECT MATTER/ISSUE

This session discussed the Philippine Competition Act, and how its passage and, later, the creation of the Philippine Competition Commission, will effectively promote efficiency and ensure market competition in the Philippine power sector.

 Why should we care about competition law? This law operationalizes a mandate in the constitution, almost 30 years since 1987. The application of the law is so comprehensive. It covers all matters of business activities and as consumers, all of us stand to be affected by the way that this law will be implemented. With these, it is imperative to understand and appreciate this law.

Historical Context of the Competition Law  It is not true that we did not have a competition law before. It just so happened that it was enshrined in a fairly specific statute, which is more popularly known as the Revised Penal Code. It is a compilation of all the books of statutes and criminal law provisions, as enshrined in the two books of the Penal Code. There’s a particular section there, Article 186, which provides the prohibitions and the liabilities arising from the legal restraints of trade. This particular provision’s origin can be traced to the Sherman Act of the United States. This Revised Penal Code has been in place since 1930, during the American period, the colonial government at that time simply adapted the provisions of the Sherman Code into our Revised Penal Code. In the 85 years that it existed, one would think that there would be a lot of cases where these records of proceedings that would appear in our casebooks which show rulings of the Supreme Court on matters affecting competition. However, there’s only one case that has been decided by the Supreme Court, which pertained to two operators of bus lines in the Northern part of Luzon. Why is this so?  One possible reason is, being a criminal statute, to be able to find someone liable for a criminal offense, would require proof beyond reasonable doubt. In the Revised Penal Code, the liability imposed for violating Article 186 was the equivalent of roughly USD 5 or Php 200. There’s a scale, it goes up to Php 2,000 and imprisonment of up to six years. If you were a fiscal at that time and you want to marshal your resources prosecuting meaningful offenses, would you go after violators of the competition provision?  Another thing to bear in mind, there have been a number of special laws or statues scattered about our statute books, which seek to penalize anti-competitive acts or behavior. You will find it in the Cheaper Medicines Act, the Price Act, special laws dealing with specific industries. While those were in place, there has been very few cases, where actual liability has been imposed on entities which may have violated these special statutes, notwithstanding the fact that they have been in place for 10-20 years.  The very first initiative filed in the legislature on the comprehensive competition law was made in 1993. Given that the thrust of the Ramos administration was to grow the economy and expand business opportunities, having competition law in place in the early 90s to punish near monopolization of an industry, that kind of legal initiative would probably be seen as contrary to the aspirations of that particular administration. The initiative to have a comprehensive competition law lacked appreciation. From 1930s to 1990s, we were hard put to come up with this critical piece of competition legislation.  If you look at the structure of the Philippine economy, especially in the last 20 years, you will find that to a large extent, many of the industries are dominated by a few entities. If that is the economic context, is it not the time to have a comprehensive competition law in place?  If you look at the trajectory of how international best practices evolve, almost all countries have begun or are beginning the process of implementing competition law. In ASEAN itself, Cambodia is the only one that has not yet implemented competition law.

The Philippine Competition Act  With all these factors in mind, there’s a strong argument for a competition law to be enacted. In August 2015, we finally had the Philippine Comprehensive Competition Act enacted and signed into law. It tries to discipline behavior in the markets. Broadly speaking, there are three categories which are sought to be disciplined by the PCA. The first relate to anti-competitive activities. Anti-competitive agreements include: cartels or price-fixing agreements, bid-rigging output limitation, and market allocations. The extent to which they can substantially lessen or prevent competition determines if they can be ruled as anti-competitive agreements. The second broad category relate to abuse of dominant position, which include predatory pricing, imposing barriers to entry, and tying agreements. Predatory pricing, for instance, happens when dominant players price match to drive new entrants out of the market, then ratchet up the price to recoup incurred losses. The third type related to anti- competitive mergers and acquisitions.  There are some preliminary considerations that have to be borne in mind. First, in implementing the PCA, we should disabuse ourselves of the notion that there are hard rules. There are no precise applications of what are strictly prohibited except for a few particular circumstances. Many times, contextual analysis or the rule of reason meaning you look at the entire set of circumstances surrounding an activity should be examined before you make a determination that an act is necessarily prohibited or not. Another important consideration is that to test whether an act substantially lessens or restricts competition. We take into account the social benefits and weigh it against the social costs of that activity. Another consideration, in the old initiatives, monopolies were prohibited on a per se basis. Now, reflecting the new thrust of progressive jurisdiction, bigness is not necessarily bad. You may even be a monopoly in the market for as long as it does not conduct itself in an abusive manner, it will not necessarily be penalized or subject to liability under the PCA. In case of mergers and acquisitions, they will only be prevented if they prevent competition in a substantial manner. If you juxtapose this in relation to the rules of EPIRA where you have cross- ownership requirements where there are percentages of what you are allowed to own if you are already into the DU business, those are specific to EPIRA, those percentages do not apply in PCA. That said, there are certain thresholds, for instance, when are we supposed to ascertain whether a particular market share is tantamount to a dominant position, the law itself provides that on a preliminary disputable --presumption basis — 50% would be regarded as dominance, but that is so far as percentages apply in the PCA.  Though the PCA is all-encompassing, there are a few exceptions. For instance, trade associations which are intended to maintain quality standards in a particular sector, are exempt from the application of the PCA. Secondly, collective bargaining agreements where employees’ unions are certified for the purpose of negotiating with their employers, are not covered by the PCA.  For anti-competitive agreements, there are three types which are sought to be prescribed by the PCA. The first type relates to those agreements which are between and among competitors and are per se prohibited. For instance, restricting competition as to price, also known as price-fixing, and bid-rigging. Bid-rigging—how does it relate to the government Procurement Act (RA 9184)? RA 9184 already punishes any kind of bid-rigging or any fraudulent activity in the process of supplying services to government entities. Our perspective is that, insofar as the GPRA provides criminal penalties for both government officials and private stakeholders involved in bid-rigging, GPRA continues to apply. However, insofar as there are administrative liabilities which arise from the same kind of activity where bid-rigging are concerned, one would argue that even if GPRA imposes an administrative penalty, it should not preclude the PCC from its ability to impose similar administrative penalties for bid-rigging. The reason is, the harm that is being caused in the administrative penalties imposed under the GPRA is different from that of the PCC.  The second type of anti-competitive agreements relate to those between and among competitors which have the object or effect of substantially preventing, restricting or lessening competition. The law enumerated a couple of examples: a) Setting, limiting, or controlling production, markets, technical development, or investment, b) Market allocation.  The third type of anti-competitive agreements are those which are not covered by the first two. Those agreements may not necessarily be between competitors (say, between a generator and distributor, in the context of the energy sector), and have the object or effect of substantially preventing, restricting or lessening competition. There are exceptions: a) those that have a contribution to efficiency where there is improvement in the production or distribution of goods or services, or b) those promoting technical or economic progress while allowing consumers a fair share of the resulting benefits, may not necessarily be deemed a violation.  It is crucial to understand who are competitors in a market. The law does not define who are competitors, rather it defines who are not competitors. We have adopted what the European Union has provided in their regulations, and that is, if you are part essentially of a single economic entity, you are under common control with another entity/ies, have common economic interests, and cannot act independent of each other, then those entities cannot be considered as competitors.  The next category that is sought to be disciplined by the PCA is abuse of dominant position. We must first define dominant position and in what market, which brings us to the concept of relevant market. There is no hard and fast rule of defining what a relevant market is. Oftentimes, it is a case by case analysis of a particular set of conditions. Another important aspect is that relevant market has a geographical element to it. Once you’ve determined that there is dominant position in a relevant market, then we can apply these enumerations of what constitutes abuse dominant position. Some of these overlap others, and it must be noted that there are some exceptions for each: a) predatory pricing, b) imposing barriers to entry, c) tying arrangements, d) price discrimination, e) Imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what forms goods or services may be sold or traded, f) Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied, g) Directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisher-folk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers.  The third broad category relates to mergers and acquisitions. These are not necessarily prohibited. Some would say that the PCA just adds another layer of bureaucracy and red tape for business. Looking at international best practices, practically all competition authorities have some sort of power to review mergers and acquisitions. The PCA has also tried to come up with procedures intended to facilitate approval of mergers and acquisitions. We have made sure that the process is expedited with timing. We have to complete our reviews within a period of 90 days, otherwise, the review is deemed terminated and the submission for review of mergers and acquisitions is deemed approved. We have worked on providing nexus thresholds. Instead of subjecting all M & As for review, only those with assets in excess of Php 1 billion and revenues are generated from these assets, are subject to compulsory notification and a corresponding review.

How the Competition Law Relates to the Energy Sector  The provisions that embody this relationship are found in three sections of the PCA. The first one lays out the relationship with sector regulators. In laying out this relationship, the PCC shall have an original and primary jurisdiction in the enforcement and regulation of all competition-related issues. If or when an issue involves competition, then the PCC would have “dibs” on adjudicating this issue.  What would happen if the issue involves both the regulator and the PCC? Among the sector regulators, ERC has the most explicit mandate on competition, in contrast to the NTC and the Securities and Exchange Commission for example. The ERC does because of what EPIRA and its rules on competition. When the law was being legislated, a more elaborate approach to this was being proposed. A section says that the agencies, referring to the ERC and PCC, should enter into memorandums of understanding, which however was deleted as it might be ruled as unconstitutional in the legislative sense. So now we have Section 32 which says that the entities which have a competition mandate or those sector regulators concerned should work hand- in-hand with the PCC to ensure that the aspirations of promoting competition protecting consumers are ensured. The Commission, when exercising its jurisdiction, should consult with the sector regulators.  The ERC is specifically mentioned in the list of powers and functions of the PCC, where it states that, the power to intervene or participate in administrative and regulatory proceedings require consideration of the provisions of this act, that are initiated by, for instance, the ERC. There’s a Memorandum of Understanding to be executed between the PCC and ERC that aims to establish collaboration between said agencies.  Some of the difficulties in trying to reconcile with EPIRA and PCA are probably because in the repealing cause of the PCA, the only functions of the ERC that were explicitly repealed pertain to Section 43U on the functions of the ERC under EPIRA. Section 43U states: “The ERC shall have the original and exclusive jurisdiction over all cases contesting rates, fees, fines and penalties imposed by the ERC in the exercise of the above mentioned powers, functions and responsibilities and over all cases involving disputes between and among participants or players in the energy sector.”  There is a DOE directive recently for the ERC and PCC to look into the power shortage which occurred in July 2016. In the Senate investigation on the matter, both the respective Chair of the ERC and PCC came out with the statement that the agencies are collaborating on conducting a fact-finding inquiry into the matter. Logically, that is the best way forward. You have a body with an expertise on the energy sector and the other one makes a factual determination of basis for any legal action.  Another area of complementarity between PCC and the ERC, in harmonizing the PCA and EPIRA, is in terms of establishing congruence between PCA and competition rules of EPIRA and its IRR provisions on Anti-Competitive Behavior and Unfair Trade Practices. Participants in the energy sector must be provided with better guidance and clarity by coming up with a uniform set of elements which would consist of anti-competitive behavior. Q&A DISCUSSION 1. Q (Dr. Fabella): Transmission is managed by NGCP. If an outside player says, “Here is a stretch of transmission between Negros and Zamboanga. I can construct it for a lower price.” Is that possible under a concession contract? Is the concession contract anti-competitive in that sense?

A (Atty. Bernabe): I’m assuming that the concession contract is exclusive in nature and that exclusivity is embedded there by government mandate?

Comment: Actually, it’s not just a concession contract but they actually get an exclusive franchise.

A (Atty. Bernabe): This would fall under one of those situations mentioned earlier where the perceived anti-competitive behavior of an entity actually arises from an issuance by a government authority, in the sense that there are two entities involved here—a private entity and the government. I would imagine that the entity which signed on behalf of the government is not the GOCC, but an actual government agency. Going by the definition of what constitutes an entity under the PCA, and the definition covers any private entity but it excludes the government. This particular arrangement you have referred to would not be necessarily seen as anti-competitive because one of the parties is not a covered entity under the law. What is the cure for that? PCC is also mandated to have a review of all the different government issuances and come up with a recommendation that those which have an anti- competitive impact be (unintelligible) and that is one way to ensure that restrictions are eliminated from the market.

2. Q (Dr. Fabella): Since this is a franchise, would there be revision of the law?

A (Atty. Bernabe): I would imagine that will be necessary.

Comment (Commissioner Taruc): If cost is the concern, when NGCP proposes a Transmission Development Plan, it goes through a consultative process to ensure that it captures the infrastructure that is needed. We have to apply that with the ERC on a certain regulatory period and that goes through a public hearing. We also need proof from them that they also procured in the least cost manner for the project construction, when they make the submissions. There are minimum requirements.

Comment (Dr. Fabella): NGCP is a private corporation. Submissions would therefore take into consideration the bottom line of the company. Public infrastructure involves more than that, it also considers the social benefits. NGCP will not be able to take that into consideration. The grant of exclusivity seems to be frail from the viewpoint of public welfare.

Comment (Atty. Bernabe): The granting authority in this case is Congress.

Comment (Commissioner Taruc): Maybe we can ask from Usec Mylene. I think it also has to do with the nature of the industry, on whether or not having more than one player would be beneficial to the consumers at large, or just a single one that’s regulated would be the best? In terms of taking into consideration the archipelagic nature of our country, the infrastructure that needs to be put requires one-grid policy for transmission.

Comment (Usec Mylene): The nature of the transmission is monopoly. We’re an archipelagic country, and duplicating facilities would be costly on the part of the consumers. That’s the reason why it’s heavily regulated.

Comment (Dr. Fabella): The Negros-Zamboanga connection that I’m talking about does not exist. In a sense there is no bar against an outside player because this is not covered by a scale economy argument of exclusivity.

Comment (Usec Mylene): One of the conditions for the concession is a new franchise, for the system operator. I think it is a matter of enforcing what is in the transmission development plan of the NGCP. The ERC has already provided support for the conduct of the feasibility study. It’s not easy to put up projects, particularly in Mindanao.

Comment (Commissioner Taruc): Dr. Fabella mentioned more particularly, with reference to the Visayas-Mindanao connection, which means Luzon, Visayas, and Mindanao will be interconnected. That falls into the purview of the one-nation one-grid policy, wherein the mandate is still with NGCP. For them to do that, first they have to apply with ERC, for the approval of the feasibility study. After that, they will submit the budgetary requirements for the actual construction, which goes through public hearing. More than the issue of monopoly is the fact of how NGCP can be compelled to do that in spite of certain socio-politico-economic constraints and challenges.

3. Q (Dr. Ravago): DOE circular 2015, 607-14 says that the DOE endeavors to maintain 30% share of renewables, coming from the 2014 Power Statistics where the RE share is just 25% of the fuel mix. It may eventually be mandated for the generation sector to have that 30-30-30-10 fuel mix (30% coal, 30% renewable, 30% natural gas, 10% others). It was presented earlier by Commissioner Taruc that after EPIRA, the generation sector has already been privatized. If this fuel mix becomes mandated, wouldn’t that be anti-competitive in a sense? Because we’re imposing the supposedly competitive generation sector to have that mix?

A (Atty. Bernabe): It’s subject to debate. First, it falls within the purview of government issuances, which as stated earlier, probably are not subject to PCA in a sense that it cannot be prohibited. It is something that the PCC is mandated to advise the government agencies on the propriety of, mindful of promoting the objectives of competition. Another element that has to be taken account is the fact that, to an extent it relates to another objective of the government, that it’s trying to achieve regulation, and that has to be balanced with promoting competition. The number of policy objectives that the government has to pursue, depends on which one has a preferential leg on the ladder given the current circumstances. I would not suggest that the PCC would necessarily be the priority policy objective.

4. Q (Dr. Mendoza): unintelligible A (Atty. Bernabe): We won’t come in. even if we do, we wouldn’t want to wade in on everything. We have to weigh, whether or not, given the meager resources of the PCC if it’s wise for us to use those resources, and to determine whether there is real public interest involved.

5. Q (Dr. Ravago): If we mandate that 30-30-30-10, it would be detrimental to the consumers because of the price. In the long run, we don’t know. Suppose PCC would not come in, would you personally think that mandating that mix would be anti- competitive? The generation sector is already competitive, so if we mandate something in an already competitive sector, is it conflicting?

A (Atty. Bernabe): One school of thought would probably argue that it tends to favor those that already have a strong renewable energy portfolio, and those who have a preponderance of generating capacity, they would naturally be at a disadvantage. It’s like a legal barrier to entry for those who are invested in fossil fuel technology. I am not in favor of PCC wading in.

6. Q (PEMC): How are we treating the installed capacity limits of (unintelligible) in relation to the merger notification? Will PCC also review? How do you view unfair price? You have a presumption in the PCA that if you fall within a certain threshold for a certain industry, then you have to notify before any merger or acquisition? Under Section 25 of the EPIRA, there are already market share limitation. No generation company can own 25% of the installed capacity in a single grid, or 30% in the entire national grid (grid referring to Luzon, Visayas, and Mindanao).

A (Atty. Bernabe): Insofar as monitoring and ensuring compliance with the percentage caps of ownership defined under EPIRA, that is clearly within the mandate of the ERC. The thresholds under which entities notify the PCC of proposed mergers and acquisitions, are vastly different. It’s different because we’re looking at it from a competition person. What we would like to watch out for is a situation where a merger or acquisition will result in a concentration of market power that will presumably result in a substantially lessened competition. What we’ve done is to establish certain transaction value thresholds. These are proxy for what might constitute that level of market concentration that will limit competition.

Comment (PEMC): The 25% and 30% thresholds of the EPIRA are actually competition(?). In the electricity market, even with smaller market share, you can be a price setter. We just don’t rely on HHI for analysis because it’s too static. We look at pivotal suppliers and price setters, which may have smaller market shares. In that sense, it’s not very regulatory. Any acquisition of installed capacity will never go to the PCC, it will always be ERC, even if it affects competition.

A (Atty. Bernabe): I had a contrary feedback who said that given the nature of investments in the energy sector, all transactions will probably need to be notified because of the fairly low threshold. Unless we come up with rules that exempt from the notification requirement, acquisitions of ordinary assets for the conduct of business, the kind of facilities and equipment that are being acquired, will need to be notified to the commission. For the purposes of mergers and acquisition in the industry, given the nature of the industry and cost of the assets involved, it’s more than likely that any M&A will need to be notified to the commission because of the PhP1 billion threshold. The 25% and 30% caps do have a competition element in them, but we think this is one of the powers of authority invested in the ERC, which will better suit to be implemented. So why duplicate something that they are fairly competent with.

Unfair pricing is deliberately undefined in the law. I don’t think the IRR or any guidelines that we come up with will necessarily define what is unfair. In paragraph G, section 15 earlier, that is something that will be a challenge to implement. If the situation warrants, we will have to deliberate on a case-to-case basis.

7. Q (Usec Mylene): Just a question on whether this falls under the competition issue. As we all know, retail competition and open access has been implemented and those contestable customers have to secure a retail supply contract with licensed retail electricity suppliers. The contract, I believe, is internal to both—it doesn’t come to the ERC for approval—but there is a confidentiality clause that the contestable customer is not allowed to disclose, even with the government. What is the remedy for this? We cannot evaluate the competitiveness or the effectiveness of the retail competition as it falls under EPIRA. We don’t know the basis of the contract.

A (Atty. Bernabe): The problem is the lack of transparency. It’s a bit challenging for me to see where the PCC or the PCA can be evoked unless there is a supposition that there is something anti-competitive about the agreement. If there is something that is constitutive of anti-competitive agreement, then I suppose that is somewhere that PCC can wade in. In terms of transparency issues, anything that would make it an anti-competitive agreement will make it under the purview of the PCA. I’m not certain that we can impose transparency obligations on that contract. The PCC is actually developing rules on leniency which would allow one party to become a whistleblower, so that’s a way that we can wade in.

Q (Usec Mylene): There is also another case in which the RES is in the process of offering to the contestable customer. There is a mandatory requirement for all the contestable customers to contract a retail supplier. Somehow, the contestable customers are trying to find out that in trying to contract RES in compliance with the regulatory issuances. One common practice among the retail suppliers is that before they offer the price and volume to the contestable customer, they make them sign a confidentiality clause. That prohibits us from assessing what really is the problem in the retail competition. There are allegations or complaints that they cannot find a retail supplier, but we’re blind as to assessing the situation.

A (Atty. Bernabe): What’s useful is if we sit-down with you and try to structure how it all works, where the possible areas of intervention PCC might have. We’d welcome an opportunity to understand the situation better.

8. Q (Dr. Ravago): A clarificatory question on abuse of dominant power in a relevant market. In relation to the power sector, the RCOA, would you say that the relevant market would be the franchise area? RCOA, we’re unbundling the function of the distributor, say Meralco, its role as a distributor versus role as supplier. We compare the supplier business in the franchise area.

A (Atty. Bernabe): That would be a logical starting point

Q (Dr. Ravago): Meralco can also be a supplier under a franchise area because that would be separate from its distributor franchise area. In that sense we’re not going to analyze the RCOA in terms of competition, it’s just the franchise area.

9. Comment (Name not given): A possible focus that the PCC and the ERC could look at is the barriers to entry. There are actually barriers to entry, like the availability of information, commercial agreements between affiliate companies. These are existing but are not specified in the current competition rules, except for the threshold limitation identified in the EPIRA. There are reports that the deregulated rate of Meralco with the captive consumers are actually lower than the retail supply contracts the suppliers have, which is against the spirit of competition.

Comment (Atty. Bernabe): In terms of what constitutes barriers to entry, will probably be developed later on. We’d like to have an ex-ante determination of this. EPDP EXECUTIVE TRAINING SESSION HIGHLIGHTS REPORT

SESSION TITLE AND Balancing Competition Policy and Regulation in the Power RESOURCE PERSONS Sector Dr. Raul V. Fabella (UPSE/EPDP)

DATE 16 SEPTEMBER 2016 PREPARED Rainier Ric de la Cruz and BY Rica Santos

SUBJECT MATTER/ISSUE

Market failures occur when the unbridled pursuit of self-interest by agents results in a social outcome inferior to the best feasible given taste, technology and resources. A market failure is a necessary but not a sufficient condition for government intervention. In instances when state intervention is required, the government must choose between regulation or competition policy. Different eras led to competing policies depending on the prevailing paradigm. During the Gilded Age, competition policy was more predominant in the form of the Sherman Anti-Trust Act, leading to a minimal state and maximal firm model. After World War II, the Commanding heights model prevailed and the state owned most of the basic industries, including the power sector. A shift in policy was again experienced in the 1980’s during the Thatcher-Reagan era when the state “retreated”, leading to more privatization and less regulation. In the Philippines, many of the basic industries have already been privatized and are only subject to regulation by sectoral regulatory agencies (ERC, PCC, etc.) and many state-sanctioned monopolies (NPC, PLDT) have been broken up in favor of more competition.

HIGHLIGHTS OF THE PRESENTATION

DR. RAUL V. FABELLA

 The impact of competition or anti-trust laws on macroeconomic outcomes is not apparent, until these laws are lodged in an independent competition agency, which is what the Philippine Competition Act (PCA) created. What is important is the effect of the independent competition agency with respect to macroeconomic outcomes.

 Even under the American regime, there was already an antitrust law. During the post-WWII era, the consciousness was that the paramount economic problem was not abuse of power, but missing markets. There was no big firm that was abusing its prerogatives; in fact, there was no firm at all. In order to attract entry by these firms, you had to grab anti-competitive prerogatives. Giving franchise is one way of attracting players to enter an underdeveloped market. The awareness at that time determined the level of implementation of antitrust laws. In Japan, when antitrust laws came into contact with promotion and industrial policy, antitrust laws invariably lost out.

 Capacity building and industrial policy was the thing to do at that time, which made sense. When the problem is missing market, then the likely remedy will have an anti-competitive aspect to it. The East Asian success is not an industrial policy story. Why are we having a competition policy instead of industrial policy? Industrial policy where strong interventions worked was invariably supported by strong institutions. But where industrial policy was supported by weak institutions, industrial policy created disasters. Strong interventions like industrial policy readily becomes translated into rent quagmires.  There are two eras and environments that are of interest to remember. First is the Gilded Age, which was from 1875 to 1900. This was when the United States caught up and overtook Europe and also the age of the Robber Barons. It embraced what was known as the Minimal state/Maximal firms, under the rubric of laissez faire. The private sector built and owned power and infrastructures like railroads and shipping ports, all privately-owned. It also spawned what are known as the “trusts”. There was a proliferation of trusts in the US about this time, among them are the sugar trust, tobacco trust, and steel trust. Many of these agglomerations and powerful groups had no scale economies support, so they were in a sense, artificial. Hence, the Sherman Antitrust Act was created. The act itself was hardly used until the passage of the fair trade act. An independent implementation agency was created and that started the real activity of competition policy in the US. Contrast that with post-WWII model, the “Commanding Heights Model”, where the state owns large basic industries. The name of the model refers to Vladimir Lenin, and that time everyone looked at Russia for a model. All large strategic and basic industries were nationalized. The party that pushed the Commanding Heights regime was the Labor party in the United Kingdom. At the time, social policy goals were paramount; there was tremendous fear of market failure. The government was viewed as benevolent.

 The Philippines followed the post-WWII model. The power sector was owned and operated by the state (NPC). In the 1980s, the landscape changed completely, because with Thatcher, the consciousness was not about market failures but about government failures. Those basic, large industries that were nationalized were bleeding the economy. Government failure exists when the government intervention does worse than the market failure, in other words, you are better off with letting the market be. Thus, deregulation and privatization, neoliberalism and the Washington consensus.

 Right after WWII, the tradition that was dominant was the Structure-Conduct- Performance (SCP) and the use of per se rules to limit abuse of market power. So if you are 70% of the market, for example, you are in violation.

 When the Chicago tradition came into the picture, in the 1970s, they thought that regulation was captured by various strong lobbyists’ private interests. Therefore, regulation was not the way to go. If there is such a thing as dominance, then facilitate entry and contestability. There was a more assertive rule for reason. There was forbearance for size.

 The Schumpeterian-Evolutionary school bases economic progress on innovation and entrepreneurship. A small number of large firms are needed to continue reinvesting in new processes and new innovations. Again, a forbearance for size. There is a belief in the ability of the market to discipline dominant market players.

 The question posed by Coase (1937) on where the state ends and where the market begins was largely decided in favor of markets, resulting to a retreat of the state. The triumphs of competition enhancement in the Philippines are largely the lifting of state-sponsored anti-competitive rules. The Oil Price Stabilization Fund in energy was one of the largest state-sponsored monopolies. Now, our energy industry is already competitive. OPSF may be the main reason for our bad infrastructure as it ate up so much of the fiscal resources. The state was the sole importer of crude and dictated pump prices. This was deregulated and privatized. This is one of the biggest reasons why we have today a fiscal space, when OPSF went. In the telecommunications industry, PLDT was also a state-induced monopoly. Services were provided by a sole supplier protected by a franchise. It was deregulated. First, the government imposed a service area scheme but it was not sustainable. Finally, we have the EPIRA. NPC was eating up fiscal resources. EPIRA had teething problems but restored fiscal health. All these are government- initiated anti-competition structures. In the power sector, generation and distribution are effected by huge scale economies and fixed costs.

 Most regulations in the Philippines are largely lodged in sectoral regulatory agencies. Many agencies also have industry promotion and safety net provisions or mandates. Promotion goals frequently express themselves as entry barriers. For example, the negative list of DTI, measured capacity, franchise, and import monopoly for NFA. Safety net provisions are largely extended by distorting the market. For example, tariff-free import for coops, and NFA.

 The Magsaysay Doctrine says that those who have less in life will have more in law. This doctrine is still served by subversion of competition.

 Promotion and safety net provision by subversion of competition may have made sense in the past when the fiscal health was perennially bad. With improved fiscal health, we can be more flexible and more efficient.

 Safety net goals may be better served by approaches less subversive of competition, especially when you have some fiscal space. If you have some fiscal space, safety net provisions are better served by direct additional cash transfers.

 The Philippines has a small fragmented power market of 12,000 megawatts, with Mindanao isolated and Visayas tenuously integrated with Luzon. Market Integration always results in more stable supply and lower prices. The Pan-Philippine Grid is thus a pro-competitive project.

 Another issue that must be studied is the feed-in tariff. FIT subsidies are largely determined through Congressional lobbying. We should consider auctioning FIT. Subjecting it to competition will benefit consumers. The Philippine Competition Commission should weigh in on this issue.

 Germany has already felt the pain of FIT and has decided to auction it. This is no longer an isolated policy issue considering the efficiency of new renewables. Germany has a new policy which provides that its industrial sector be partly exempted from FIT to maintain competitiveness. This is something to think about for the Philippines. We can shift charges from industry to services and the National Treasury, or the global fund.

Q&A DISCUSSION

Female 1: In strengthening the independence of our institutions like the ERC and the PCC, how strongly would fiscal autonomy be as a factor? Do you think it is an important element to strengthen the independence of our institutions?

Dr. Raul V. Fabella: I already mentioned the importance of independent agencies. If fiscal autonomy makes them even more independent, I’m all for that. I think, for example, we are spending too little money on regulation, but if it has to come from one place, better to have it from an independent source. But how do you do that? MWSS, for example, gets its budget from collections by Manila Water and Maynilad, not the Treasury. How do you structure an independent budget? Chairman Arsenio Balisacan (Philippine Competition Commission): The wisdom of separating the budget of regulatory agencies has to do with avoiding potential conflicts of interest (e.g. NFA). There is an incentive not to forgo collections, and the law is trying to avoid this. We can remove this possibility for PCC. But, how do you keep revenues without distorting incentives for regulatory agencies? On the other hand, the downside of PCC always going to Congress is that they may slash the budget when faced with adverse interests.

Dr. Majah-Leah V. Ravago: In addition to what you said about the Pan-Philippine Grid, we also have to emphasize the appropriate capacity. Because right now, Visayas and Luzon are connected, but there are congestions. NGCP does have a plan to have that parallel connection to increase the capacity, and to have a loop in case of natural disasters, so they can still deliver power through the loop system. NGCP has a process that they have to go through in securing approval of the plan before they can implement the plan.

Dr. Raul V. Fabella: The loop is an idea but I think we have to learn to walk before we run. Just completing the grid is good enough for the moment, we shouldn’t stop it. But currently, we are struggling to complete the connection.

Mr. Nico Borromeo (Office of Sen. Gatchalian): My question is about the FIT. It has been established that the prices of renewable energy have been falling down. Grid parity is now seen as a matter of when, not if. From my understanding, the FIT is there to promote investment in the renewable energy sector with the assumption that it won’t have the FIT. But we’re seeing that if we wait it out, it might be possible that the renewable energy itself will become competitive without us doing anything but just wait it out. Why are we doing the FIT? What’s your opinion on that?

Dr. Raul V. Fabella: It’s a promotional policy. The technology is progressing rapidly and prices are coming down rapidly. I think that the best interim policy is auction. The decrease in prices will become resources for the general public. I would like to see the FIT disappear. Then we’ll have neutrality across the fuel mix space. You get to the grid if you are lowest cost. But at the moment, additional FIT incentives, I think, should be subject to auction. We can’t really do anything about the FIT because it’s contracted for 20 years. So for example, for the cogeneration of bagasse, price per kWh is Php 2, what they are getting now is Php 6.50. So that is why they are interested in using bagasse in Negros. The reason is the payback period is 4 years. Once they get the FIT certified, in the next 20 years they will get a lot of money.

Commissioner Johannes Bernabe (Philippine Competition Commission): Just to help put a context, and use a perspective coming from the Geneva’s International Centre for Trade and Sustainable Development, the genesis of that is really the climate change imperative. There is a compelling need to mitigate climate change. Part of the solution that the international policy community came up with was to examine the range of options, and one of those is to encourage countries and communities to develop the renewable energy sector. You can approximate such objective by providing subsidies for investments in renewable energy, trying to have sustainable energy portfolios, and proper mix of power-generating capacities. It just so happened that we chose a number of these instruments in the Philippines. It’s a question of various policy objectives that the government wants to pursue. This FIT was pursued in response to the fact that the Philippines is one of the most vulnerable countries to climate change. There are a lot of concerns with regard to how to implement FIT, moving forward, in view of the varying organic changes in our economy. Dr. Raul V. Fabella: It is rather disconcerting that if you look at the pledges to the climate change effort, the US pledged about 35% reduction of carbon emission, Japan 26% reduction. Everyone is at about 30% reduction; we were at 70% reduction. What were we trying to do?

Commissioner Johannes Bernabe (Philippine Competition Commission): I was part of the negotiating team advising the Philippine Climate Change Commission. Looking at it from an international policy community perspective, the Philippines was trying to take a leadership role in terms of showing this is what we’re going to do. We want other countries to follow suit. We are a climate change vulnerable economy but we are prepared to set aside the fact that other developed countries have contributed to climate change far more than we did, but we will take a proactive initiative in this.

Chairman Arsenio Balisacan (Philippine Competition Commission): Poverty may actually be the greatest contributor to climate change. One of the least cost interventions that can be pursued is family planning for poor countries.

Dr. Majah-Leah V. Ravago: We agree that there are concerns about the environment. If you rank the source of emission, it’s really transport. So if you rank the instrument to address the environmental concerns, in terms of the instrument that we are using, it may not be the best. We can still contribute to addressing environmental concerns by doing more conservation through the use of energy resources on the demand side rather than the supply side, and then promoting more competition is also another instrument. Population management would also be another instrument that may be better than FIT. It’s not that we are not concerned about the environment but we just have to balance it with our development goals.

---END--- Annex 9. EPDP users and visitors between 11 May to 27 September 2016

Google Analytics data covering 11 May 2016 – 27 September 2016 Page engagements on 26 September 2016 Annex 10. EPDP Newsletter Vol. 2 No.1

EPDPThe official newsletter of the Energy Policy and Development Programnews (EPDP) Volume II • Issue 1 July 2016

The 3rd EPDP Program Steering Committee Meeting was held on 4 May 2016 at the office of the National Economic and Development Authority in Ortigas Center. The EPDP Lecture Series Brings Philippine Energy meeting, chaired by Socio-economic Planning Secretary and NEDA Director-General Emmanuel Esguerra, was a venue for updates among EPDP PSC members Department of Energy Secretary Zenaida Monsada, UPecon Foundation chair Orville Solon, and USAID Environment Director Jeremy Gustafson (representing USAID Philippines Director Susan Brems) on various energy-related concerns and the ways EPDP can help address Sector Discussions to a Wider Audience these issues and provide further support to the Philippine government. Also in attendance EPDP Conducts were NEDA Deputy Director-Generals Rolando Tungpalan and Rosemarie Edillon; DOE Undersecretary Mylene Capongcol, Assistant Secretary Patrick Aquino, and Econometrics Course for Director Jesus Tamang; and USAID representatives Rebecca Carter and Gil Dy-Liacco. PH Energy Professionals In support of its objective to strengthen the capacity of the Philippine government to formulate coherent and evidence-based policies and strategies towards sustainable and efficient energy use, a training course on econometrics was conducted by the EPDP last 11-13 April 2016 at the University of the Philippines School of Economics and University Hotel. UP President Dr. Alfredo Pascual visits the EPDP booth during the UP Knowledge Festival held from 17-19 April 2016 at the Taal Vista Hotel in Tagaytay City. The event, with the Building on the Introduction to Statistical Principles theme “Utak at Puso para sa Bayan,” gathered the UP system’s top scientists, researchers, and Survey Data Analysis course conducted by and artists in order to forge stronger interdisciplinary collaborations among themselves, and to cooperate towards effectively showcasing their outputs to media and the general EPDP last 25-27 November 2015, the course public. The amount of new knowledge that has been generated from different research projects calls for a venue where we can communicate the important applications, covered modern econometrics and their application significance, and relevance of UP’s research and creative work to Philippine society. to energy issues and development. In March 2016, the EPDP Lecture Series was launched. The second lecture, on April 18, hosted economist In attendance were 36 employees from the The bi-monthly classroom-type discussions on various Roehlano Briones and biofuels expert Rex Demafelis who Department of Energy, Department of Trade and energy issues in the Philippines seek to better inform the presented their draft paper (co-authored with Bernadette Industry, National Economic and Development general public on the Philippine energy sector and its Tongko and Kristel Gatdula) on “The Impact of Higher- Authority, Philippine Statistics Authority, National challenges as well as opportunities. Led by experts in the Blended Biodiesel on the Coconut Industry of the Electrification Administration, National Power field, the lectures gather energy professionals, policy Philippines.” Requested by the National Economic and Corporation, and Philippine Electricity Market makers, academics, students, advocates, and other Development Authority (NEDA), the study aims to help Corporation. stakeholders to join the discussions, further their inform policy-making decisions towards a cleaner, more knowledge, and explore how these issues factor into the sustainable Philippines by assessing the economic and The lecture-discussions, guided group exercises, growth of the country. environmental impacts of increasing the blend of and case presentations were conducted by EPDP biodiesel in engine fuels from 2% to 5%, as under the Fellows Rolando Danao and Geoffrey Ducanes of The series commenced on March 31 with the lecture Philippine Energy Plan 2013-2030, the target is 5% for the UP School of Economics; and Manuel Albis, “Energy: Power Security and Competitiveness,” which is 2015. Michael del Mundo, and John Carlo Daquis of the largely based on the paper “Filipino 2040 | Energy: Power UP School of Statistics. Representatives of EPDP, headed by Program Director Dr. Majah Ravago, paid a courtesy Security and Competitiveness” by EPDP Program Director On April 28, Director Jesus Tamang and Director Irma call to Socio-economic Planning Secretary and Director-General Emmanuel Esguerra Majah Ravago and EPDP Fellows Raul Fabella, Ruperto Exconde of the DOE led the first of two EPDP lectures of the National Economic and Development Authority (NEDA). The topics covered were: the confirmation of PSC Alternate/Focal Persons of NEDA, the EPDP-International Food Alonzo, Rolando Danao, and Dennis Mapa. The lecture on Philippine Energy Planning. “Energy Planning: The A follow-up course on forecasting will be held on Policy Research Institute (IFPRI) workshop, the collaborative IFPRI-EPDP-NEDA-DOE- 11-13 July 2016. PCC Research Project, and NEDA’s plan on the technical papers of “Ambisyon Natin gave way to a lively discussion among speakers and Philippine Energy Plan and the Power Development Plan” 2040.” The NEDA Director-General sits on the program steering committee of the EPDP. participants about topics like the generation, transmission, presented the DOE’s Philippine Energy Plan (PEP) 2012- and distribution of power; electricity charges; and 2030, which aims to develop a secure power sector renewables and other energy sources. Among the and more efficient and sustainable energy system in the This newsletter (Energy Policy and Development Program) is made possible by the generous support of attendees were UP President Alfredo Pascual and country. the American People through the United States Agency for International Development (USAID). EPDP is a four-year Program implemented by the UPecon Foundation, Inc. The contents of this newsletter are the representatives from DOE as well as members of the sole responsibility of the EPDP Team and do not necessarily reflect the views of USAID, the United States UPecon Foundation Government, or the UPecon Foundation, Inc. power generation, transmission, and distribution industry. Prof. Ruperto Alonzo of the UP School of Economics and Atty. Teresa Ira Maris Guanzon of EPDP’s Policy plans, and programs in helping achieve the national goals Component delivered on May 19 the lecture “Assessment of economic efficiency, inclusive growth and equity, and of the Philippine Power Sector Policy Landscape.” They enhanced environmental quality. EPDP Class Conference Creates Environment examined the adequacy of the country’s energy policies, to Foster Future Energy Professionals EPDP Lecture Series EPDP hosted three class conferences for the students of Balanquit. EPDP Fellow Raul Fabella also provided his 11 August 2016 The Market Testing of Power Supply Agreements the UP School of Economics, reinforcing the former’s role insights on possible improvements. in helping increase the capacity of the academe in 25 August 2016 Philippine Energy Planning Part 2 managing energy-related programs and issues. The environmental impact of economic advancements 15 September 2016 Macro-Micro Level Linkage of Energy and Poverty was the consistent theme among the studies presented Students of ECON 199 presented their theses during the by the Resource and Environmental Economics (ECON 29 September 2016 Power Supply first conference held on 2 May 2016 at the University of 172) class. The evaluators were EPDP Program the Philippines Diliman. EPDP Fellows Ruperto Alonzo, Director Majah-Leah Ravago, Adoracion Navarro, and Rolando Danao, and Sarah Daway from the UP School of Connie Bayudan-Dacuycuy. Economics, and Dennis Mapa, Manuel Albis, and Michael del Mundo from UP School of Statistics served as The hope is that these UP Economics undergraduates, evaluators. having been exposed to issues in the Philippine energy EPDP Research Workshop Endeavors sector, will pursue further studies and careers that Renewable sources of energy was the common thread contribute to the industry. among the research papers of students from ECON 198 New Research Activities and ECON 172 who presented on 16 May 2016. Guest evaluators assessed the research papers submitted by the students prior to the conference as well as the presentations of their studies during the conference.

The Energy Economics and Policy (ECON 198) class proposed policies that can potentially address prevailing economic issues of the country’s energy sector. The panel for this class was composed of EPDP Fellows Rolando Danao, Ramon Clarete, Laarni Escresa, and Romeo

Research is a critical pillar of EPDP. On April 4, EPDP fellows shared their ideas during the EPDP Research Workshop held at Microtel, UP Technohub in Quezon City.

The workshop served to update EPDP’s research agenda and validate emerging needs and priorities of the Philippine energy sector. The fellows also discussed Editorial Staff proposed research undertakings for the program’s second year based on the EPDP research agenda, internal market integration with emphasis on grid Contributors which will feed into the policy development, capacity management policies and regionalization of plans. Jean Marie Isabelle Lau Wang Dr. Majah-Leah Ravago building, and awareness-building components of the These priority topics were identified via EPDP’s J. Kathleen Magadia EPDP Program Director program. It also took up points raised during the Policy continued engagement with NEDA, DOE, and other Mari-An Santos Nedheline Barquin Suite B2-003 Centennial Bldg., Concordia Workshop held in February. stakeholders. EPDP NEWS is published by the Energy Albarracin Hall, E. Jacinto St. corner C.P. Policy and Development Program (EPDP). Garcia Ave., University of the Philippines, The discussions were led by EPDP Program Director The third Research Workshop is in accordance with the The information in this newsletter are Layout Nedheline Barquin Diliman 1101 Quezon City, Philippines Majah Ravago. Energy topics that emerged as top research component’s mandate of generating provided by EPDP’s research, capacity Email: [email protected] priority are optimal fuel mix modeling; electricity cost conceptual foundations to support the discussion of building, policy, and communications Editorial Coordinator components. Mari-An Santos Energy Policy and Development Program comparison within and outside the Philippines; and energy issues and policy formation. Annex 11. Evaluations of the lectures

1. Philippine Energy Planning Part 2: Transmission Development Plan and Distribution Development Plan 25 August 2016

Based on the four-part evaluation accomplished by the participants, on a scale of 1 (Poor) to 5 (Excellent), the lecture was rated as follows:

Average Key Areas Notes Rating Overall Rating 4.18 out of 5 27.27% gave the lecture an overall rating of (Very Good) 5 (Excellent), 63.67% gave an overall rating of 4 (Very Good), and 9.1% gave an overall rating of 3 (Good). Achievement 4.27 out of 5 All respondents believed that the lecture of Objectives achieved its objectives. 27.27% of the respondents strongly agreed (score of 5) and 72.73% agreed (score of 4). Relevance and 4.38 out of 5 All respondents rated the lecture as relevant Usefulness to their current function and will be useful for their work. 54.55% of the respondents strongly agreed (score of 5) and 45.45% of the respondents agreed (score of 4). Content and 4.38 out of 5 Delivery Administrative 4.73 out of 5 and Logistical Arrangements

2. Value Added Tax and Cost of Doing Business: What Contributes More to Electricity Tariffs in the Philippines 08 September 2016

Based on the four-part evaluation accomplished by the participants, on a scale of 1 (Poor) to 5 (Excellent), the lecture was rated as follows:

Average Key Areas Notes Rating Overall Rating 4.45 out of 5 48.28% of the respondents gave the lecture (Very Good an overall rating of 5 (Excellent), 48.28% to Excellent) gave an overall rating of 4 (Very Good), and 3.45% gave an overall rating of 3 (Good). Achievement 4.55 out of 5 All respondents believed that the lecture of Objectives achieved its objectives. 55.17% of the respondents strongly agreed (score of 5) and 44.83% agreed (score of 4). Relevance and 4.55 out of 5 All respondents rated the lecture as relevant Usefulness to their current function and will be useful for their work. 55.17% of the respondents strongly agreed (score of 5) and 44.83% agreed (score of 4). Content and 4.53 out of 5 Delivery Administrative 4.52 out of 5 and Logistical Arrangements

3. The Role of Power Prices in Structural Transformation: Evidence from the Philippines 21 September 2016

Based on the four-part evaluation accomplished by the participants, on a scale of 1 (Poor) to 5 (Excellent), the lecture was rated as follows:

Average Key Areas Notes Rating Overall Rating 4.47 out of 5 52.94% of the respondents gave the lecture (Very Good an overall rating of 5 (Excellent), 41.18% to Excellent) gave an overall rating of 4 (Very Good), and 5.88% gave an overall rating of 3 (Good). Achievement 4.55 out of 5 All respondents believed that the lecture of Objectives achieved its objectives. 58.82% of the respondents strongly agreed (score of 5) and 41.18% agreed (score of 4). Relevance and 4.55 out of 5 Most respondents rated the lecture as Usefulness relevant to their current function and will be useful for their work. 58.82% of the respondents strongly agreed (score of 5) and 35.29% agreed (score of 4). Meanwhile, 5.88% neither agreed nor disagreed. Content and 4.41 out of 5 Delivery Administrative 4.68 out of 5 and Logistical Arrangements