![]() ![]() Economics professor Smith’s paper “Currents of Competition in Electricity Markets” noted that “Regulation has been applied far too broadly to the electric power industry. The monopoly is legally created and is a clear illustration of Nobel Prize winner Vernon Smith’s point that regulators have encouraged monopoly in electricity markets. Plus, in the Philippines, only one entity is allowed to distribute in a franchise area. The Senate bill proposing to classify electricity distribution as a public utility is a testament to that fact. I share the views of the authors of the paper when they said that we can easily confuse legal monopolies with natural monopolies. The study noted that the policy approach to natural monopoly is still highly recommended by economists today. The policy was to offer exclusive rights to serve and combine it with cost-based regulation. ![]() The paper entitled “Will distributed energy end the utility natural monopoly” stressed that natural monopolies thrived as policymakers embraced the idea of providing power at a lower cost to consumers by giving a single firm a legal monopoly and regulating power prices to recover costs. ![]() He invested in large turbines and boilers and connected such generators with many customers. It’s when a single entity is technologically capable of serving an entire market at lower costs rather than having multiple firms serve the same market.Īccording to a paper by Electricity Daily, it was more than a century ago when Samuel Insull, considered a legend in exploiting new technologies, masterfully demonstrated how a single firm could offer power at a much lower cost than the combined multiple small power companies. It is a market condition Legislating it as such is tantamount to legislating the law of supply and demand.Ī natural monopoly exists because of either powerful economies of scale or high start-up costs in specific industries. These three include Water Works and Sewerage, Transmission of Electricity, and Distribution of Electricity, which will be covered by the 60-40 rule on foreign ownership.īut my question is, must electricity distribution be considered a natural monopoly? A “natural” monopoly cannot be legislated by Congress. Only three main industries will be treated as public utilities as they are argued as a natural monopoly. Under the bill, public utility will be treated as a mere subset of public service. The 1987 Constitution does not define “public utility” and thus limits the allowed foreign investments in various sectors. Senate Bill No 1441 seeks to amend the Public Service Act to define the difference between “public service” from “public utility.” The amendment will lift nationality restrictions in the investment in areas of transportation, power generation, and supply, telecommunication, and broadcasting, among others. In his last State of the Nation Address (SONA), President Rodrigo Duterte asked Congress to pass priority bills including the proposed amendments to the Public Service Act. ![]()
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