Flip-flopping again?

Most often, haste makes waste. And in the case of recent resolutions issued by the Energy Regulatory Commission (ERC) to the power industry sector stakeholders, it may even be going against the grain of free market principles that our democracy espouses.

Understandably, the government’s regulatory agencies in the power sector — the Department of Energy and the ERC — are under intense pressure to make the 15-year-old Electric Power Industry Reform Act (EPIRA) work, specifically to realize a free market system in the supply of electricity throughout the country.

The law’s intent, echoed throughout the seven years when its was being debated in the 1990s, had all been about dismantling the decades-old state monopoly of the power generation sector, and easing it towards a free market regime.

For the consumer, it was meant to solve the recurring brownout problems and high electricity cost that was notably spawned by the inefficiency of the government-owned and - operated National Power Corp.

Well, both problems are still around, although there is admittedly the presence of a better power generating industry now that the government, notably the NPC, and the Power Sector Assets and Liabilities Management Corp. (PSALM), have marginal and diminishing holdings.

As for electricity prices, the Philippines still has one of the highest rates in Asia, next only to industrialized Japan, which has not only burdened Filipino consumers but has also largely impeded the survival of the country’s manufacturing industry and acted as a deterrent to investors setting up their businesses here.

Public interest

Perhaps, in response to public pressure, where some sectors have strongly called for the repeal – not just amendment – of the EPIRA, the ERC recently issued three resolutions that have become the subject of a legal pleading by Meralco for review and recall.

Meralco, the country’s biggest electricity distribution company, argues in a briefing paper that both ERC Resolution Nos. 10 and 11, and parts of ERC Resolution No. 5 are “highly anti-competition” and “deny the consumers the right to choose” their own electricity supplier.

For ERC, however, the three resolutions are intended to facilitate the realization of a true retail competition and open access (RCOA) regime, where end users that are part of the contestable market will be able to choose who will supply their electricity.

A contestable market or customer, in contrast to one that is captive, is defined as an electricity consumer that has the prerogative to choose its electricity supplier.

In particular, Resolution No. 5 issued March 8, but which took effect a month after, required all parties interested in supplying electricity to the contestable market to secure a retail electricity supplier (RES) license, while all direct utilities (DUs) aspiring to become a RES will be subjected to restrictions.

In Resolution No. 10, which took effect May 28, the ERC removed the “local RES” in the list where RCOA rules apply and provided a schedule that will force the migration of contestable customers to a RCOA environment.

In Resolution No. 11, direct utilities were disallowed to retail electricity to the contestable market. Further, it stipulated that all local retail electricity suppliers should wind down their operations in three years once the rules take effect.

Also, a 30 percent market cap on retail electricity suppliers of the total average monthly average peak demand of their customers was imposed. It likewise prohibited the local RES from supplying more than 50 percent of the capacity requirements of their affiliate contestable customers.

Voided existence

Meralco says the three resolutions have technically voided the existence of local retail electricity suppliers that have been set up by distribution utilities, but which in previous resolutions by ERC were approved and given licenses to operate.

Meralco, as an affected distribution utility, claims that the local retail electricity supplier it set up in 2011 (and approved by ERC) would incur “significant and irreparable damage” not just on its operations, but also to Meralco, other retail electricity suppliers, and their customers. Meralco’s local RES is MPower.

Changing the rules

In its petition before the court, Meralco also asked for the nullification of a DOE circular, issued in June 2015 and which took effect July 1 of the same year, that prohibited distribution utilities like Meralco from supplying electricity through the RES beyond its franchise area.

Meralco disagreed with the DOE circular’s directive for all local RES to desist from entering into new contracts or to renew any existing ones, and to serve existing contracts until the expiration dates.

Meralco noted the DOE circular, as well as the ERC resolutions, are clearly in conflict with previous resolutions and regulations issued over a period of more than 10 years. In its case pleadings, Meralco pointed out the recent directives of the government were without legal basis and were contrary to the general intent of the EPIRA.

Over and above the legal implications of the recent rulings by the DOE and ERC, Meralco pointed out these would remove the competitive environment that has been shaping up, and which ultimately would negate the intention of EPIRA to lower electricity prices.

For example, by disallowing direct utilities, and even electric cooperatives, to supply electricity to contestable consumers, there would ultimately be a reduction in the number of players in the market that would be able to supply electricity at more competitive prices.

Meralco’s petition contained a strongly worded paragraph: “The prohibition, in the guise of ‘promoting free and fair competition’ wants to, with one sweep, remove local RESs like MPower out of the picture, to their prejudice, and to the detriment of the 50 percent portion of the contestable market who have voluntarily and intelligibly chosen to contract with MPower for their energy supply. It is only meant to curtail the market share of MPower in the contestable market.”

According to government records, MPower accounts for about 50 percent of the market share of the contestable market within its franchise, or 18 percent of the total market nationwide.

Other retail electricity suppliers in the list included Trans Asia Oil & Energy Development Corp. (nine percent), Aboitiz Energy Solutions (four percent), Advent Energy Inc., Team (JPhils.) Energy Corp., and Direct Power Services Inc., (with three percent each), Ecozone Power Management Inc. (two percent), and others (four percent).

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