The Market Testing of Power Supply Agreements: Rationale and Design Evolution in the Philippines

Fabella, Raul (2016): The Market Testing of Power Supply Agreements: Rationale and Design Evolution in the Philippines. Forthcoming in: Electricity Policy in the Philippines: Generation, Institutions, and Prices No. Stand-alone book to be published by the University of the Philippine Press (2019)

Abstract

We first set out the rationale for the emerging policy of the Competitive Selection Process (CSP) which mandates market testing the Power Supply Agreements (PSA) of Distribution Utilities in the Philippines. It will potentially address several possible market failures such as connected dealings (“sweetheart deals,” in common parlance) with proprietary GENCOS, lack of incentives for DUs to procure at lowest cost, abuse of market power by large GENCOS in certain localities, etc. It will also potentially lighten the regulatory load of the Energy Regulatory Council (ERC) by replacing the burdensome and politically-sensitive accounting method of evaluating PSAs. It may also attract additional generation capacities by new players. Lower generation cost―and finally, lower prices for consumers―is also a possibility, but not guaranteed. We then discuss the evolution of the design of the CSP over the last two years and how the simplest and best modality was finally arrived at.

• Item Type: MPRA Paper
• Language: English
• Keywords: competitive selection, power supply contracts, market failures, outsourcing to market
• Subjects: K - Law and Economics > K2 - Regulation and Business Law; K - Law and Economics > K2 - Regulation and Business Law > K23 - Regulated Industries and Administrative Law

References

Del Mundo, Rowaldo, 2014, “Understanding and Reducing Power Rates in the Philippines,” Center for Integrative Development Studies (CIDS), University of the Philippines.

Fabella, Raul, 1993, “Consumer Resistance and Monopoly Behavior under Franchise Contestability,” Public Choice 76 (1993): 263-271.

Hayek, Friedrich, 1991, The Fatal Conceit: The Errors of Socialism, The University of Chicago Press.