Restructuring the Electricity Industry: Competition, Regulation and Distribution Issues…

The economy-wide impact of the restructuring of electricity industry
makes it an important area for continuing study. This paper looks into
the proposed restructuring of the electricity industry, to be
accomplished through legal reform, from three perspectives. First, the
paper examines the restructuring from the standpoint of the legal
conception of the government-nongovernment distinction obtaining in the
Philippines. Second, the paper examines the proposed restructuring from
the viewpoint of economic efficiency. Finally, the paper examines the
restructuring from an institutional approach, that is, from the
viewpoint of the legal rules obtaining and the participants in the
industry, particularly the investors, the regulators, and the consumers.

(Restructuring
the Electricity Industry: Competition, Regulation and
Distribution Issues in Legal Reform)

A bill to restructure the electric power industry awaits finalization in the Bicameral Conference Committee of Congress1.
Under the said Power Bill, the government plans a radical restructuring
of the electric power industry. It intends to fully dismantle its
monopoly, presently exercised through the National Power Corporation
(NPC), over the generation of electric power. The NPC will privatize
its generation assets, and entry in power generation will be
liberalized. Power transmission, while still owned by the government,
will be operated by a private operation and maintenance concessionaire.
The government also aims that end users will be free to choose their
supplier of electricity. Delivery from the supplier to the end user
shall be made feasible by giving suppliers open access to transmission
and distribution lines, for a fee that will
be fixed by a regulatory agency.

The restructuring of the electricity industry, to the extent that it
will affect the price of electricity, and the participation in and
growth of the industry, will no doubt impact on the whole economy.
Producers and consumers alike use electricity. The expansion in
production and consumption spurred by economic growth and the increase
in population will mean greater demand for power in the future. Demand
for power is expected to grow at an average annual rate of 8.9 percent
up to the year 2009, with growth rates increasing progressively. The
power industry, currently consuming energy equivalent to 75 million
barrels of fuel, will be utilizing the equivalent of 153 million
barrels or twice the amount of fuel by 20092.

The economy-wide impact of the restructuring of electricity industry
makes it an important area for continuing study. This paper looks into
the proposed restructuring of the electricity industry, to be
accomplished through legal reform, from three perspectives:

First, the paper examines the restructuring from the standpoint of the legal conception of the government-nongovernment3
distinction obtaining in the Philippines. The proposed deregulation and
privatization of a big section of the electricity industry is not an
isolated move. It follows a very visible path of scaling down the scope
of government activity beginning in the 1980s. Does the conception of
the government nongovernment distinction in Philippine law and
jurisprudence clash with or warrant such marked shift in the actual
scope of government activity?

Second, the paper examines the proposed restructuring from the
viewpoint of economic efficiency. The hypothesis is that the
restructuring is dictated by considerations of economic efficiency. The
old structure has its efficiency logic, but this no longer obtains
under present conditions. Thus the need to restructure. In this
context, the analysis will touch on the changes in technology and
market forces that alter the efficiency outcomes of alternative
industry structures.

While an efficiency analysis appears straightforward, its implication
on the analysis of the development of law is significant. It supports
the thinking that the law has fundamentally an economic logic, that is,
efficiency considerations dictate how the law evolves. In turn, the
discussion of the law-economic efficiency nexus will serve to enrich
the analysis of the legal conception of the government-nongovernment
distinction in the Philippines.

Finally, the paper examines the restructuring from an institutional
approach, that is, from the viewpoint of the legal rules obtaining and
the participants in the industry, particularly the investors, the
regulators, and the consumers. The analysis looks into the likely
behavior of industry participants given their interests and relative
power. The outcomes from the workout of the relationship will
expectedly revolve around the
distribution of costs and benefits within and among the relevant industry participants.

The institutional approach then joins issues on the efficiency approach
in the analysis of the development of law. It locates the explanatory
factor of legal development not solely on efficiency considerations,
but also on the conflict of interests and the interplay of relative
power of relevant participants. Hopefully, the final result is a fuller
analysis of the legal conception of the government-nongovernment
distinction in
the Philippines.

1 Throughout the paper, the author shall make reference
to a draft Bicameral Conference Committee Report titled "An Act
Ordaining Reforms in the Electric Power Industry, Amending for the
Purpose Certain Laws and for Other Purposes", hereinafter referred to
as the Power Bill. Copies of this draft were distributed to
participants in a Bicameral Conference Committee consultative meeting
held at the Claro M. Recto Room of the Philippine Senate on 16 February
2001.
2 Department of Energy, Philippine Energy Plan 1996 to 2025, http://www.doe.gov.ph/PEP_Demand.htm
3 The author originally intended to use the phrase
"public-private distinction." However, for purposes of understanding
the trend towards the scaling down of government activity, the word
"public" as used in the Constitution does not prove very useful as it
is used in different contexts. Often it pertains to the whole body of
people, as distinguished from those of a particular class or individual
(e.g., public safety, public concern, public use). It sometimes
connotes ownership by the state. (e.g., public domain, public funds).
At other times it is used to refer to government (e.g., public sector).

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