UTILITIES OF THE 21st CENTURY Introducing Competition in the Power Distribution Sector

Around the world, changes in the energy sector, particularly in the distribution segment are taking place given technological advancements as well as the world’s worry over climate change

For example, in the United States, utilities are beginning to take the threats of climate change more seriously. New York’s Reforming the Energy Vision, a plan to “rebuild, strengthen, and modernize New York’s energy system” was initiated in 2014 partly because of the devastation brought by Hurricane Sandy in 2012. This is the most comprehensive utility proceeding today with its main idea of changing the utility model so that third party service providers can come in to serve the utility’s customers by moving away from the traditional utility model and going towards a Distribution System Platform (DSP) provider

The DSP model transforms the traditional utility into something like an air traffic controller that coordinates and facilitates the deployment of distributed energy resources (DERs). This becomes the focus of the utility, which is a far cry from the traditional concept of a monopoly. The staff of the Public Service Commission (PSC) stressed that “Under the customer-oriented regulatory reform envisioned here, a wide range of distributed energy resources will be coordinated to manage load, optimize system operations, and enable clean distributed power generation.”  The primary goal of this model is to make the utility customer-centric as “Markets and tariffs will empower customers to optimize their energy usage and reduce electric bills, while stimulating innovation and new products that will further enhance customer opportunities.” 

This bold move by the New York City should not surprise us since electricity experts point out that significant transformations are causing a revolution in the way electricity is produced, distributed, and marketed. They stress that technology is giving consumers more autonomy and choice. These experts argue that we “have entered an age in which the technology-powered push and the customer-driven pull have beneficially collided.

In fact, as early as 2000, the United Kingdom (UK), already started introducing competition in the power distribution business through the Independent Connection Providers (ICPs) and licensed Independent Network Operators (DNOs), thus allowing customers to use an alternative provider for some connections work known as “contestable work.” These include but are not limited to, designing, purchasing materials to form the connection, reinforcement of the connection, and even directly connecting to the network. These tasks can be done by an Independent Connections Provider (ICP).

 Indeed, change in the energy sector has already arrived where the customer’s choice has become the paramount objective of industry players by making room for more competition in the power distribution trade. The services at the retail level become less integrated by letting the customers choose his/her source of power, battery storage, Heating, Ventilating and Air Conditioning (HVAC) energy efficiency systems, and other similar value services.

 The innovation will come from the ability of technology to combine customer data to Smart grids, microgrids, local generation, and storage, among others. Experts assert that the primary distribution channel for services will be online and the energy retailing price will hinge on innovative digital platforms.  In their view, these are the developments and trends that are coming and they will be coming soon.

 For David Cane, former CEO of NRG Energy, the confluence of green energy and computer technology, deregulation, cheaper natural gas, and political pressure, is threatening the existing utility system. His opinion is that the grid will increasingly become irrelevant as customers move towards decentralized homegrown energy. Home automation will become king. Crane further argues that “When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter.”

 Given all these developments, it, therefore, no longer inconceivable to think of two, or even more distribution utilities in one geographical area in the Philippines. These utilities need not perform the same functions.  As distribution services have been unbundled, e.g., metering as separate business units, distribution utilities can compete on which among them can connect the fastest and cheapest to the distribution grid.

It is no longer impossible to have two, or even more distribution utilities in one geographical area in the Philippines

 The utilities can also compete on how much each supports home automation or distributed generation like rooftop solars. As pointed out recently by Google’s Chief Technology Advocate, Michael T. Jones, companies like Google can develop the service where “all electronic devices (to) talk about their power needs to an aggregator, and you can have a power auction for each one.”

 Technology is now available to connect reading and billing of meters to bills payment through the mobile phone.  All these services have developed because of technology.

 Even in constructing power grids in the distribution sector, one can have overhead wires, or underground ones, depending on the requirements or needs of the customers. Smart transformers connected to a Supervisory control and data acquisition (SCADA) platforms can fine tune the needs of customers.

 Unfortunately, unless competition is introduced in the Philippines distribution sector, it will take a long time for the Filipino consumers to enjoy the benefits of the 21st Century.  The distribution sector has long been in the abyss of lethargy induced by a monopolistic structure, running counter to the cornerstone of Energy Power Industry Reform Act (EPIRA), which was crafted to introduce competition within the power sector. In particular, a guiding principle of the Distribution Sector is that it is a business affected with public interest. This objective of competition and guided by the principle of public interest required the unbundling of business activities as provided in Rule 10 of the Implementing Rules and Regulation (IRR) of the EPIRA.

 It has traditionally been thought that because of the nature of the distribution business, this sector, and the Transmission Business, are natural monopolies. This was probably true in the past, but technologies have developed over the past few years thus making this view no longer true. As argued above, technological change has brought in innovation, creativity, and access to the masses. It has also brought down costs – the mobile business is a clear example. It is not, therefore, a theoretical argument that technology will bring down cost. That is a fact.

 We cannot reach the goal of empowering the Filipino power consumer unless change comes in now. Distribution utilities’ vision should always be proactive and aligned with the varying needs and load profile of a dynamic consumer.  This may be reflected in the flexible design of a distribution system that instantaneously addresses the power demands and delivers the preferred sources of power to the customers. A sophisticated consumer-centric designed system encourages the proper management of electricity usage, which translates into savings on prices and resources.

 To illustrate this point, let us take the case of a distribution utility and how it handles system loss. Currently, the task of managing systems loss at almost 20% seems like an insurmountable challenge. However, the introduction of smart meters and automated billing and payment systems can bring this down to a more manageable level at about 14% thus bringing down rates for the consumers, which translates into savings of about PHP 0.15/kWh. And this is just the initial and rough calculation.

 The above is just an example how a much better equipped, and better-financed utility can bring down costs of the electricity consumer. In the medium term, replacement of aging wooden poles and overworked transformers will further push down systems loss and thus power rates. Finally, because of a strong balance sheet and excellent knowledge of the power market, the cost of generation can also be brought down.

 Plus, competition is always beneficial for consumers because more players in the market will always result in cheaper goods and services.  Hence, consumers should be able to choose between service providers like distribution companies so that distribution companies can no longer just “pass on” any cost that they think they are traditionally entitled. While the Energy Regulatory Commission (ERC) will approve the rates, ultimately it will be the consumer who will choose.

 Opening up our distribution system for more competition will also pave the way for more use of cleaner forms of energy. It would be ideal to have distribution companies who will have intelligent systems to accommodate renewable energy sources. Such a move will then give the consumers a choice to go for greener forms of power and help us in our goal of saving our environment. After all, making our power grids responsive to climate change will be another area of transformation and competition.  With typhoons becoming an even more frequent phenomenon in the country and elsewhere in the world, change has to come in designing, building and managing power distribution networks.

 Making drastic changes in the way we distribute our energy locally is a win-win solution for all of us. We give consumers autonomy and more choices, we lower our electricity bills, and we help save our environment by paving the way for more RE use.

 Indeed, significant changes are needed. And we need them soon.


 Institute for Local Self-Reliance, https://ilsr.org/u-s-power-grids-days-numbered/



 Schwieter, N, and Flaherty T., “A Strategist’s Guide to Power Industry Transformation,” https://www.strategy-business.com/article/00355?gko=9fa18



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