Power rates

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February 25, 2026 | 12:00am

One of the thorniest problems we have in our quest for foreign investors is our expensive power rates. There are many reasons why we have this problem. The two top ones are: first, our archipelagic geography and second, failures in energy policy.

There is nothing we can do with our geography. But our failure to come up with energy policies that work is a continuing source of frustration among our people.

I was an early supporter of the Electric Power Industry Reform Act (EPIRA), the law that governs our power sector. Using market competition to keep power rates reasonable is a nice concept. It is better than the colossal mess with Napocor during the post-EDSA administrations.

The Cory Aquino administration failed to prioritize a viable energy program after she scuttled the nuclear plant and that resulted in massive brownouts.

FVR fixed the power supply problem by throwing a lot of money into the solution. He signed take-or-pay agreements with power companies for new power plants. FVR’s Napocor boys didn’t do a careful study of market demand and so he signed for more capacity than we needed.

The economy was so debilitated from Cory’s blackouts, bringing down power demand. We ended up paying for power we didn’t use and accumulated massive Napocor debts.

When EPIRA became law in 2001, the Power Sector Assets and Liabilities Management Corp. (PSALM) assumed Napocor’s debts of approximately $16.39 billion (roughly P834.29 billion at the time).

These obligations, including interest and other liabilities, peaked at P1.24 trillion by 2003. As of late 2025, PSALM reported it had reduced these financial obligations to approximately P260.6 billion, representing a 79 percent decrease from its 2003 peak.

Under EPIRA, putting up power plants was the sole domain of the private sector. The government cannot put up power plants. Owners of power plants cannot invest in the company running the national grid to prevent conflict of interest and vice versa.

It looks neat on paper. But after 25 years, we know better, which is why there are calls for reviewing and amending EPIRA. After all, EPIRA isn’t dogma.

Market competition didn’t work because power supply is so thin. Very few new plants are going onstream. The Napocor monopoly became a power oligopoly.

In the Luzon grid specifically, roughly 72 percent of its total capacity comes from plants that are 16 years old or older and are less reliable with frequent breakdowns further making supply unreliable.

When power supply is not enough to meet grid demand, NGCP  taps the spot market where rates are obviously high to reflect scarce supply.

The government intervened several times to cap spot market prices which negated the spirit of EPIRA’s free-market principles. Those who invested in peaking plants were shortchanged.

If private investors are looking for market signals to start building more plants, the frequent yellow and red alerts should be loud enough to scream the need for more supply.

But the government’s patchy regulation is a major deterrent. The DOE and the ERC have failed, through incompetence, to reassure potential investors it is safe to invest.

It takes five to seven years to get regulatory approval, construction and commissioning of a power plant. I remember it was so bad that then Energy secretary Jericho Petilla described the permitting process as “more difficult than building the plant itself.”

Then, the ERC failed to conduct timely rate resets, a delay that lasted over seven years for the NGCP. This failure created a “regulatory vacuum” and forced the industry to operate on outdated or interim rates.

NGCP and private distribution utilities like Meralco were forced to make multi-billion-peso investments without a final approved rate, leading to legal disputes over capital expenditure recoveries.

The lack of a timely reset was cited by the NGCP as a cause for delays in critical transmission projects. Incredibly, the ERC penalized the NGCP P15.8 million for 34 “unjustified” project delays. That’s chutzpah!

That, boys and girls, is why our power sector is as messy as it is today.

Meralco announced last week that rates will increase this month due to higher transmission and universal charges. The transmission charge for residential customers rose by P0.1975 per kWh because of a significant jump in ancillary service charges from the Reserve Market.

NGCP explains that Ancillary Services (AS) have consistently accounted for the bulk of the increase in transmission charges, often making up 45 percent to 60 percent of the total transmission rate. AS charges pay power companies, not NGCP.

While the rate for delivering power (the wheeling rate) has remained relatively stable, AS charges have surged due to the resumption of the Reserve Market and the recovery of deferred costs from previous years.

This is again why using market forces in the AS Reserve Market without considering our lean supply situation is bad for the consumer.

Before the ancillary reserve market, NGCP was forced to sign take-or-pay contracts with power generators for ancillary services. Most times, NGCP was paying for power it didn’t need which was passed on to the consumers.

It seems sensible to let NGCP put up its own BESS or battery energy storage system to take care of their ancillary needs. But some bureaucrat insisted that batteries are considered generation which NGCP cannot do under EPIRA. Battery isn’t generation. It is storage. Seeking common sense solutions is alien to the power regulators.

If BBM wants to reduce our power bills, the most obvious and quickest is to remove the “tax-on-tax” structure. Currently,  VAT is applied multiple times — from the generator to the transmitter and finally to the consumer — creating a “compounding tax” that inflates bills.

The “VAT-on-VAT” removal will give consumers immediate cost relief. The most direct legislative solution is the zero-rating of VAT on power sales.

It is easy to blame EPIRA for the power industry’s problems. But the problem is the government’s spotty regulation. There should be accountability for DOE’s and ERC’s past failures.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco