Monopoly in electricity supply CHALLENGES TREATING ELECTRICITY AS

COMMODITY
➢ In the twentieth century, consumers
had to buy electricity from local ➢ Electricity cannot be stored or
monopolies, which either managed treated like typical commodities
all aspects of supply or only (e.g., water or gadgets).
handled distribution, purchasing ➢ Despite advances in storage and
electricity from others. microgeneration, treating
➢ Utilities were either vertically electricity as a simple commodity
integrated, managing all stages remains technically and
from generation to distribution, or commercially unfeasible.
specialized in distribution, buying
electricity from larger, WHY IS THERE A COMPETITION IN
monopolistic providers. ELECTRICITY MARKET?
o These utilities could be ➢ EFFICIENCY AND INNOVATION
regulated private companies, Competition is expected to improve
public companies, or operational efficiency and
government agencies. innovation in technology, resulting
Private Companies: in lower costs and better services
for customers.
1. Manila Electric Company (Meralco) ➢ RESPONSE TO MONOPOLY INEFFICIENCIES
2. Aboitiz Power Corporation Monopolies were criticized for
3. Davao Light and Power Company inefficiency, unnecessary
(DLPC) investments, and a lack of
incentive to improve operations.
Public company
Competition seeks to solve these
1. National Power Corporation (NPC) challenges by creating market
discipline.
Government agencies ➢ CONSUMER BENEFITS Competition is
2. Department of Energy (DOE) expected to drive down prices and
3. Energy Regulatory Commission (ERC) improve the quality of electricity
4. National Electrification and services, providing consumers with
Administration (NEA) more choices and value.
➢ AVOIDANCE OF POOR INVESTMENTS
CONTRIBUTIONS TO ECONOMY AND QUALITY Competing companies are likely to
OF LIFE make more careful investment
choices, which lowers the chance
➢ Access to electricity distribution that consumers will face the
networks became widespread in consequences of poor investments.
industrialized nations.
➢ Technological advancements improved
reliability, reducing power outages
to less than two minutes per year Dramatis Personae
in many areas. Vertically Integrated Utilities
EMERGENCE OF CRITICISM: ➢ They own generating plants as well
Arguments against monopolies as a transmission and distribution
network. Vertically Integrated
➢ Lack of incentive for efficient Utility is a utility that owns
operation. generation, includes such
➢ Encouraged unnecessary investments generation in its regulated rates,
➢ Costs of private utility mistakes owns generation for the purpose of
passed to consumers. meeting its defined load
➢ Public utilities too influenced by obligation, has a monopoly
politics. franchise to serve load, and earns
a regulated return on its
investment in such generation.

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Examples: pricing. This setup primarily
caters to large consumers under the
1. National Power Corporation (NPC or Retail Competition and Open Access
NAPOCOR) (RCOA) framework, which was
2. Manila Electric Company (MERALCO) introduced by the Electric Power
3. Aboitiz Power Corporation (APC) Industry Reform Act (EPIRA) of
4. San Miguel Corporation Global Power 2001.
Holdings Corp. (SMC Global Power)
Examples:
GENERATING COMPANIES (GENCOS)
1. Meralco PowerGen Retail Electricity
➢ They produce and sell electrical Supply (MPower)
energy. They may also sell services 2. Aboitiz Energy Solutions, Inc.
such as regulation, voltage control (AESI)
and reserve that the system 3. Global Energy Supply Corporation
operator needs to maintain the 4. Shell Energy Philippines, Inc
quality and security of the
electricity supply. Generating Market Operator
companies that coexist with
vertically integrated utilities are ➢ Market Operator is responsible for
sometimes called Independent Power managing the Wholesale Electricity
Producers (IPP) Spot Market (WESM), which is the
marketplace for trading
Examples: electricity. The WESM allows
electricity buyers (such as
1. First Gen CorporAtion distribution utilities and large
2. Energy Development CorporAtion consumers) and sellers (such as
(EDC) generation companies) to trade
3. AC Energy Corporation (ACEN) electricity in a competitive
4. GlobAl Business Power CorporAtion environment. The Market Operator
(GBP) ensures the efficient, transparent,
Distribution Companies (DISCOS) and fair operation of this market.

➢ They own and operate distribution Examples:

networks. In a traditional 1. Philippine Electricity MArket
environment, they have a monopoly CorporAtion (PEMC)
for the sale of electrical energy 2. Independent Electricity MArket
to all consumers connected to their OperAtor of the Philippines
network. These companies manage the (IEMOP)
local electricity infrastructure,
such as power lines, substations, The Independent System Operator(ISO)
and transformers, ensuring reliable
electricity supply within their ➢ An ISO would normally own only the
service areas. computing and communications assets
required to monitor and control the
Examples: power system. An ISO usually
combines its system operation
1. ViSAyAn Electric CompAny (VECO) responsibility with the role of the
2. DavAo Light and Power CompAny operator of the market of last
(DLPC) resort.
3. MORE Electric and Power CorporAtion
(MORE Power) Examples:
4. Subic EnerZone Corporation
1. National Grid Corporation of the
Retailers Philippines (NGCP)
➢ Retail electricity market allows Transmission Companies
certain consumers to choose their
electricity provider, offering ➢ Transmission Companies own
flexibility and competitive transmission assets such as lines,

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 cables, transformers and reactive Challenges:
compensation devices. They operate
this equipment according to the • Limited Choices
instructions of the independent • Affordability
system operator. An independent • Service Reliability
transmission company (ITC) is a
transmission company that does not Examples of Small Consumers:
own generating plants and also acts
as an independent system operator. • Residential Users: These are
individual households that use
Examples: electricity for everyday needs such
1. NAtional TrAnsmission as lighting, cooking, heating,
CorporAtion (TrAnsCo) cooling, and powering appliances.
2. Philippine Power TrAnsmission • Small Businesses: These include
CorporAtion (PPTC) small retail shops, restaurants,
offices, and other small commercial
The Regulator establishments that have relatively
low electricity consumption
➢ It is a governmental body compared to larger industries.
responsible for ensuring the fair
• Low-Consumption Users: Any consumer
and efficient operation of the
whose electricity usage does not
electricity sector. It determines
qualify them as a " contestable
or approves the rules of the
customer " (customers who can
electricity market and investigates
choose their electricity supplier
suspected cases of abuse of market
under the Retail Competition and
power.
Open Access [RCOA] framework).
Examples:
Large Consumers
1. Energy Regulatory Commission
(ERC) • They often take an active role in
electricity markets by buying their
Small Consumers electrical energy directly through
the market. Some of them may offer
➢ Their participation in the their ability to control their load
electricity market usually amounts as a resource that the ISO can use
to no more than choosing one to control the system. The largest
retailer among others when they consumers are sometimes connected
have this option. directly to the transmission
Characteristics of Small Consumers: system.

➢ REGULATED RATES Characteristics of Large Consumers:

➢ SINGLE SERVICE PROVIDER ➢ HIGH DEMAND
➢ METERING ➢ ELIGIBILITY FOR RCOA
➢ SUBSIDIES AND LIFELINE RATES ➢ SPECIAL TARIFFS
Advantages: ➢ ENERGY MANAGEMENT
Advantages:
• Regulated Rates
• Lifeline Rates for Low-Income • Cost Savings
Households • Supply Flexibility
• Simplicity and Convenience • Risk Management
• Consumer Protection Challenges:
• Access to Net Metering
• Complex Contracting
• Easier Access to Service Upgrades
• Price Volatility
• Regulatory Compliance

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Examples of Large Consumers: market position is more likely to
invest in research and development.
• Industrial Plants - Factories, This can lead to new products and
manufacturing plants, and heavy better production methods, which
industries that require significant can eventually benefit customers.
amounts of electricity for their
operations. Disadvantages
• Institutional Users - Universities, ➢ Higher Prices: In a monopoly, such
hospitals, and other large as a single electricity provider in
institutions with substantial a region, consumers often face
energy needs. higher rates.
• Commercial Establishments - Large ➢ Lower Quality: A monopoly has
shopping malls, hotels, office little reason to improve its
buildings, and other commercial products or services because there
facilities that consume a are no competing options.
considerable amount of power. ➢ Price Discrimination: In the
Philippines, a monopolistic
electricity distributor might
Models Of Competition charge different prices based on
the location or type of consumer.
Model 1: Monopoly
Model 2: Purchasing Agency
➢ When a single company, a
“monopolist”, dominates a sector or ➢ It is the transitional stage
market thus there’s only a single between a traditional monopoly
option for consumers to choose utility and a competitive
from. electricity market.
➢ A monopolist is a price maker; it ➢ A market structure where a central
has the ability to set the price of entity, known as the “purchasing
a good. agency”, acts as an intermediary
➢ There’s only a single supplier of between electricity producers and
electricity or any other electrical distributors or consumers.
related products or services in a
given region (“service territory”). Examples:
➢ Consumers only have a single option 1. National Power Corporation (NAPOCOR
of supplier or provider or NPC)
Examples Advantages
1. Meralco ➢ Promotes Competition: Encourages
2. National Grid Corporation of the IPPs to compete, potentially
Philippines lowering electricity costs.
Advantages ➢ Stable Energy Supply: Aggregates
power from multiple sources,
➢ Stable Prices: Without competition, ensuring reliability.
there are no price wars that can ➢ Easier Regulation: Central control
cause big changes in prices. This helps with price and compliance
stability can benefit both oversight.
businesses and customers by making ➢ Supports Renewables: Enables more
prices more predictable. efficient integration of renewable
➢ Cost Efficiency: with Large-Scale energy into the grid.
Production: Monopolies can produce
large amounts of a product at a Disadvantages
lower cost per unit. If the company ➢ Monopoly Power: The purchasing
is fair, it might pass these cost agency holds too much control,
savings on to customers. limiting competition.
➢ More Money for Innovation: A
monopoly that is secure in its

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➢ Regulatory Risks: Poor management ➢ Transmission Constraint - Physical
could lead to inefficiencies or limitations of the transmission
price increases. grid can hinder competition.
➢ Potential Corruption: ➢ Price volatility - Spot market
Centralization may foster prices can be volatile, leading to
favoritism or lack transparency. uncertainty for consumers and
➢ Inflexible Pricing: Prices may not generators.
reflect market changes,
disadvantaging consumers. Regulatory Considerations:

Model 3: Wholesale Competition ➢ Market oversight: Regulators play a

crucial role in ensuring fair
➢ In this model, competition occurs competition and preventing market
at the wholesale level, where manipulation.
generators sell electricity to ➢ Transmission access: Regulators
retailers and distribution must ensure equitable access to the
companies or directly to large transmission grid.
consumers. Largest consumers are ➢ Consumer protection: Regulators may
often allowed to purchase need to implement measures to
electrical energy directly on the protect consumers from price spikes
wholesale market. and other market risks.
Examples: Model 4: Retail Competition
1. Manila Electric Company (MERALCO) ➢ It refers to a system where
2. Aboitiz Power Corporation consumers have the power to choose
their electricity supplier instead
Key characteristics of the Wholesale
of being tied to a single,
Competition
government-regulated utility.
➢ DECENTRALISED GENERATION - Any In a retail competition model for
generating companies can compete to electricity markets, several key
supply electricity to the market components and participants work
➢ SPOT MARKET - A real-time trading together to create a competitive and
platform for electricity efficient market. Here’s the main
➢ MARKET-BASED PRICING - Prices are parts of this model:
determined by supply and demand
➢ TRANSMISSION SYSTEM - A network to 1. Generation Companies (Genco) -
deliver electricity from generators Companies that produce electricity,
to consumers. including power plants, renewable
energy providers, and independent
Advantages: power producers.
2. Wholesale Market Transmission
➢ Efficiency - Market forces drive
System - A marketplace where
efficiency, as generators seek to
electricity is traded in bulk
minimize costs and consumers seek
between generators and retailers or
to maximize value.
large consumers.
➢ Innovation - Competition can
3. Retailers - Companies that purchase
stimulate innovation in generation
electricity in bulk from generators
technologies and market structures.
or wholesale markets and sell it to
➢ Consumer choice - In some cases, consumers.
consumers may have a limited choice 4. Retail Market Distribution Network
of retailers, leading to greater - Delivers electricity from the
competition. wholesale market to end-users, such
Challenges of Wholesale Competition as residential, commercial, and
industrial consumers. It ensures
➢ Market Power - Large generators or that the physical delivery of
retailers may have market power, electricity is managed effectively
limiting competition.

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 while allowing consumers to choose time-of-use pricing, depending on
their electricity suppliers. their consumption patterns and
5. Consumers - End-users of preferences.
electricity, including residential,
commercial, and industrial Privatization
customers ➢ In the context of electric power
➢ In a retail competition model for supply, privatization refers to the
electricity markets, the focus is transfer of ownership and
on allowing consumers to choose management of electric power assets
their electricity supplier rather and services from the public sector
than being locked into a single (government or stateowned entities)
utility provider. Only the largest to private individuals or
consumers choose to purchase energy companies.
directly on the wholesale market. ➢ The primary law that grants and
Most small and medium consumers regulates the privatization of the
purchase it from retailers, who in electric power supply sector is the
turn buy it in the wholesale Electric Power Industry Reform Act
market. of 2001 (EPIRA). Officially known
➢ In this model, the “wires” as Republic Act No. 9136, EPIRA is
activities of the distribution the key piece of legislation
companies are normally separated designed to reform and restructure
from their retail activities the Philippine electric power
because they no longer have a local industry.
monopoly for the supply of
electrical energy in the area EPIRA
covered by their network. In this
model, the only remaining monopoly ➢ Section 47 (a). This subsection
functions are thus the provision mandates the privatization of the
and operation of the transmission assets of NPC, which includes its
and distribution networks. power generation assets,
transmission assets, and other
Advantages: properties.
➢ Section 47 (b). This subsection
➢ Increased Consumer Choice - outlines the functions of PSALM,
Consumers have the ability to including the responsibility for
choose from a variety of managing the privatization process
electricity suppliers and plans, and handling the financial
allowing them to select options obligations of NPC.
that best fit their needs,
preferences, and budgets. Reasons:
➢ Potential for Lower Prices -
Competition among retailers can ➢ Financial Constraints
drive prices down as suppliers ➢ Debt Reduction
compete to attract and retain ➢ Consumer Benefits
customers. ➢ Efficiency
➢ Innovation - Suppliers are ➢ Regulatory & Structural Reforms
motivated to innovate and ➢ Infrastructure Development
differentiate themselves by
offering new products, services,
and technologies.
➢ Encouragement of Efficiency -
Competitive pressures drive
suppliers to operate more
efficiently, both in terms of cost
and energy use.
➢ Flexibility - Consumers can select
from various contract terms, such
as fixed rates, variable rates, or

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 Competition and Privatization Competition Enhancing the Benefits of
Privatization:
Competition Privatization
➢ Promotes ➢ Involves ➢ Competition among private firms can
efficiency and transferring amplify the efficiency gains
innovation in government- expected from privatization. Firms
the owned power striving to outperform competitors
electricity assets to may drive innovation and further
sector. private reduce costs. Benefit the
➢ This can be companies. competitor.
seen in ➢ This often
Challenges and Risks:
wholesale and leads to
retail markets increased ➢ MONOPOLISTIC OUTCOMES:
where investment in privatization can lead to
generators and infrastructure monopolistic or oligopolistic
providers and markets where a few private firms
compete. technology. dominate.
➢ Drives cost ➢ Private ➢ REGULATORY OVERSIGHT: Proper
reductions, ownership can regulatory is essential to ensure
encourages drive that privatized entities do not
cleaner efficiency exploit their market power.
technologies improvements,
and empowers but impacts on REGULATION OF PRICES
consumers to consumers can
➢ The regulation of electricity
choose their vary.
prices is primarily overseen by the
electricity ➢ Regulatory
Energy Regulatory Commission (ERC).
supplier. oversight is
The ERC is responsible for ensuring
➢ Requires crucial to
fair pricing, promoting
effective protect the
competition, and protecting
regulation to public
consumer interests within the
prevent anti- interest and
electricity sector.
competitive maintain
➢ Section 43: This section grants the
behavior and service
ERC the authority to regulate the
ensure quality.
rates and charges for the supply of
reliability.
electricity. It establishes the
➢ The relationship between
ERC' s role in ensuring that
privatization and competition is electricity prices are fair, just,
closely intertwined but distinct,
and reasonable.
each playing a different role in
➢ Section 45: Rate and Tariff
shaping the dynamics of a market.
Setting: This section outlines the
PRIVATIZATION AS A PRECURSOR TO process by which the ERC approves
COMPETITION: the rates charged by electric power
industry participants, including
➢ Privatization often precedes the generation, transmission, and
introduction of competition. distribution companies.
Facilitating Competition ➢ Section 43(e): This provision
specifies that distribution
➢ Market Entry: Privatization can utilities are subject to ERC
facilitate the entry of new players regulation to ensure that their
into the market. pricing structures and service
➢ Regulatory Framework: Regulatory levels meet regulatory standards
bodies must create and enforce and provide fair value to
rules that prevent monopolistic consumers.
practices and promote fair
competition.