of coal is not seen as risky financially (unlike oil with its highly volatile prices) there is a large environmental downside to this policy that could become important if policies to reduce greenhouse gas emissions become important under international pressure.

On **_access_** , urban electrification has been high (relative to other developing countries) throughout the period and reached 96 percent by 2016. It is notable that as a result of EPIRA and the establishment of a regulator, distributors face financial disincentives for failure to respond in a timely fashion to requests for service from households. Waiting times for connection have steadily decreased. Rural electrification increased from 40 percent to 86 percent during the post EPIRA period. The geographical configuration of the Philippines (an archipelago consisting of more than 7,000 islands of which nearly one-third are inhabited) presents difficulties for reaching as yet unserved households. The Electricity Cooperatives, supported by NEA, have made steady progress in increasing rural access.

**_Affordability_** for most households is still determined by government regulated tariffs because retail competition as yet affects only the largest consumers. Households at the lowest 40 percent of Gross National Income per household would have to spend 7.4 percent of income to purchase the national average amount of electricity available at an average tariff of $0.17/kWh in 2017. To purchase 30 kWh a month at the average tariff charged of $0.11/kWh would cost $3.1, equivalent to 1.3 percent of income for these poorest households.  On both measures the average tariff for the Philippines is one of the highest in the sample and also in the region.<sup>23</sup> In part this is because several of the countries in the study subsidize electricity, whereas the Philippines does not use subsidies. Other reasons for the high prices include the existence of high price contracts signed at times of supply shortages, and the imposition of several taxes and charges, as well as the existence of inefficient operations. It is notable that the poorest consumers, who use very little electricity, are facing considerably lower tariffs, implying a cross subsidy between consumer classes. Further improvements in affordability can be expected with the onset of retail competition and the replacement of the old high-cost contracts.

On **_operational and commercial efficiency,_** the performance of the selected distribution utility and of a large cooperative have been good. T&D losses have declined to a level which is comparable with good practice, and collection rates have been near 100 percent. Other indicators of performance which are built into the regulatory framework, such as the average frequency of interruptions (SAIDI), average duration of interruptions (SAIFI), and time to make a new connection have all improved in recent years. However, there is concern that these improvements have been achieved at excessive cost with utilities gold-plating their programs.

**_Cost recovery and financial viability_** have been largely satisfactory—tariffs have covered operating costs plus debt service and principal repayment, and have nearly covered operating costs plus the full, average weighted cost of capital. Cost have declined since 2013 due mainly to declining fuel costs, and the negotiation of lower cost supply agreements. The expiration of most

> 23 See: M. Thomas, 2014. Spotlight on the WESM. www.lantaugroup.com/files/ppt_wesm_mt.pdf

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