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End ERC’s regulatory capture

The Energy Regulatory Commission (ERC) is supposed to look after electricity consumers after power pricing was placed under the tender mercies of EPIRA’s pretend free market. But unfortunately, the ERC is a captive of the private entities it is supposed to regulate.

Regulatory capture at the ERC is not likely to end soon. P-Noy succumbed to the pressure of a large power company and appointed a 75-year old accountant from Cebu as one of ERC’s commissioners. This potentially gives the Cebu-based power company a direct channel to influence the commission’s decisions.

Published reports also suggest that this same power group is angling to get another ERC position, no less than that of the chairman. The current head is set to end her term in July.

The Malacañang legal staff was reported to have been asked to make an opinion on whether a current commissioner can serve the full seven year term of the chairman, or if the years she served as a commissioner would have to be deducted. This commissioner is the niece of a high Malacañang official also identified with the same Cebu-based power group.

Power industry sources I have talked to expressed uneasiness over these developments that give a competitor a regulatory advantage. Epira, it was pointed out, requires a level playing field and these appointments go the other direction.

The appointment of the 75-year old accountant was found strange by industry sources. The electricity spot market is a recent development and rather complex. What ERC needs are young professionals in the field of Big Data Analytics and Energy Economics. It is clear P-Noy himself does not understand what the job requires.

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An appointee recommended by an industry participant will raise suspicions his/her patrons are getting a heads up on prospective regulatory decisions. Why is it that Malacanang finds it so difficult to understand the simple concept of conflict of interest at Customs, and now at ERC?

For instance, the ERC is yet to render a decision on violations of the “must offer” rule that caused the outrageous power rates spiral a year and a half ago. The Cebu power company is supposedly on top of the list of violators that must pay a hefty fine (as in the hundreds of millions). How can this new commissioner go against the power company that got her the job?

Of course, vested interests can be expected to protect their interests, by among others, recommending ERC appointments. The problem is with the appointing authority, P-Noy himself, for giving in to a vested interest in total violation of his own Daang Matuwid.

This Cebu power group became big during the Arroyo administration because of the owner-family’s close friendship with PGMA. It is ironic that P-Noy who wastes no opportunity to blame his problems on PGMA, is continuing his former economics teacher’s favoritism of the power firm. Indeed, the more things change, the more they remain the same.

If it hasn’t yet dawned on P-Noy, the ERC should be seen by the public as trustworthy and devoid of any conflict of interest. The ERC must not only be seen as competent, but also serves the interest of the public above those of the private companies it regulates.

The past administration disregarded public expectations for the agency. PGMA appointed an unqualified political ally as chair. SC Justice Marvic Leonen by questioning the ERC chair during the en banc hearing, showed the commissioner’s lack of competence on the very law that created her agency.

We expected P-Noy to be different from PGMA, but unfortunately, he too is very susceptible to vested interest influence. How will a compromised ERC now rule on issues raised by electricity consumer groups?

The website of the consumer group, Matuwid na Singil sa Kuryente Consumer Alliance (MSK) points out it had submitted to the ERC its proposed rules for the open competitive bidding of bilateral power supply contracts by distribution utilities like Meralco who passes on the generation charge to the electric consumers.

According to MSK, it has filed a petition with the ERC that pointed out why such a transparent bidding is essential: “actual generation cost data on Meralco’s buying prices showed that there are 20-to 30-percent difference in the higher selling rates of affiliated generation companies and truly independent and non-affiliated generators.

“For 2014, the premium price paid by Meralco to affiliated generators amounted to P13.68 billion a year. This is the compelling reason and irrefutable fact that it is inimical to the interest of Filipino consumers to continue allowing negotiation of contracts with sister companies or affiliated generators.”

MSK wants to propose changes in the contracting rules for generation supply. MSK is proposing to achieve a P3 per kwh reduction in Meralco’s retail rates to residential and commercial consumers.

For consumers to be protected, MSK thinks the distribution utility must assure contracted supply through open competitive bidding of a minimum 97 percent of its forecasted capacity and energy for base-load, intermediate power and 80 percent of their peaking, and reserve power.

Right now, Meralco merely says we have to pay more for our electric bills because the generation cost has risen. But how the generation cost was computed is so opaque that consumers are expected to accept it by faith.

Obviously, only a truly independent ERC that is not captured by the companies it regulates can make daring decisions to protect consumers.

Indeed, there are many instances when ERC must make bold initiatives. Take that 1-MW solar power installation at the roof of SM North EDSA of Leandro Leviste. It turns out Leviste cannot sell the power produced directly to SM even if SM can use the installation’s total production.

SM’s supply contract with Meralco does not allow SM to buy directly from the solar power producer. Leviste must sell to the grid and claim a subsidy from consumers (you and me) in the form of FIT or feed in tariff. Leviste should be able to sell directly to SM at the same price he sells to the grid but without the consumer subsidy.

This is an example of how ERC was quick to penalize consumers with the FIT subsidy. On the other hand, ERC seems unable to require Meralco to allow a change in its contract with SM so it can buy 1-MW out of the 8-MW that it needs at North EDSA and save the consumers the FIT.

Given that electricity consumers in this country had been heavily burdened with the region’s highest electricity rates, we need a proactive ERC with the foresight to tweak its rules to give consumers a break.

Generating companies and distribution utilities should not be too aggressive in demanding favors from government that make ordinary consumers feel oppressed by the combined forces of government and big business. They should moderate greed for profits.

It is in the interest of big business like the big power generators to help make the economy competitive and grow. We have to enlarge the pie which cannot happen with our high power rates.

It takes a long term view and a robust social conscience for this inclusive growth to happen. Our country’s social and economic fabric will continue to tear if our economic elite behaved as if nothing matters but their own interests. Soon, everyone becomes the loser as the social compact disintegrates and the resulting breakdown of order threatens our personal security.

It is no secret that big business cannot always be expected to act in a socially responsible manner. Government must not be shy to tilt the balance in favor of ordinary consumers. It was wrong for P-Noy to favor a power company at the expense of power consumers.

I could be imagining, but I thought Sec. Petilla was on the right path of trying to level the playing field in the power industry. Too bad P-Noy was susceptible to vested interest pressure. I see Petilla’s resignation showing he would have none of that.

The biggest test is yet to come. Will P-Noy appoint the right person to head ERC in July, one who is not beholden to a power company or the power industry? Or will he appoint someone recommended by the Cebu power company again? Or from another power company for that matter?

For someone who is not running for re-election, I am at a loss on how to explain the recent politically inspired decisions of P-Noy… from Sevilla to Petilla. He could have decided in favor of the common consumer rather than the power generators who are now telling their annual stockholders’ meeting how they are raking in outrageous profits under P-Noy’s watch.

As P-Noy winds down his term, he has to end ERC’s regulatory capture. But he may not have what it takes to stand up for the consumers. Sad.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

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