Can ERC meet expectations?

The recent public hearing conducted by the Senate committee on energy was literally an “enlightening” opportunity for neophyte Senator, world-boxing champion Manny Pacquiao to shine where he is least expected to do so. While he obviously grappled with technical terms spewed out by technocrats during the Senate hearing, Pacquiao showed he could also think out of the box unlike some technocrats around him in that public hearing.

As a matter of fact, the boxer-turned Senator gave the best logical and most popular proposal to amend certain provisions of the Electric Power Industry Reform Act (EPIRA) to benefit us household consumers, including industrial users of power. Pacquiao wanted to remove the “systems losses” among the items of the costs being charged in our monthly electric bills. 

At the same hearing, Department of Energy (DOE) Secretary Alfonso Cusi informed the Senators the DOE has taken the bold move to consider tapping the Malampaya funds. In a bid to help the new administration fulfill the promise of cheaper electricity, Cusi said the “sacred” Malampaya funds would be tapped to partly pay off stranded debts and stranded costs that are being passed on as universal charges to hapless electricity consumers in the country.

If Cusi and the new team at DOE pull this off in the face of legal hurdles, customers just might find some relief in the steep prices of power in the local market. The move, in effect, could write off the universal charges portion of the monthly electricity bills.

Cusi appears to have a strong supporter in the other half of the tandem that is supposed to drive the change in the power sector. This other half is Energy Regulatory Commission (ERC) Chairman Jose Vicente Salazar.

Salazar was the first to point out “there is much wisdom in (Cusi’s) proposal” and that tapping the Malampaya funds “could be a near-term solution to the issue of power rates.”

Salazar and the ERC are also in a frantic search for solutions. The challenge that the agency faces is two-fold: One, can it push the reforms in the power sector in the face of an apparent strong opposition? And secondly, can it measure up to the expectations of a public clamoring for better deals and better treatment from the players in the power industry?

The reality and the burden of stranded debts have not escaped the ERC. As we speak, the agency is reportedly under strong pressure to rule on three pending petitions from the Power Sector Assets and Liabilities Management Corporation (PSALM).

This is the very entity mandated by the EPIRA to sell the assets of the state-owned National Power Corporation (Napocor) and handle its huge financial obligations.

PSALM now wants the ERC to approve its petition for it to recover some P70 billion in stranded debts. If the ERC okays the plea, that would be P70 billion more to pass on to customers in the years to come.

In the face of this dilemma, Salazar said the PSALM plea “has to be studied meticulously and with a lot of caution since the petition concerns pass-on charges.”

“The case will have to be evaluated on the basis of reasonableness and affordability,” Salazar pointed out. The ERC head’s statement has created much hope that customers can be spared from having to shoulder the burden of past debts.

It may also have raised expectations that could put the agency’s resolve to test.

In fairness to the ERC, it appears bent on pursuing the mandated power sector reforms and has begun it on the right foot – starting the reforms within the agency itself.

Talks within the power industry indicate that Salazar had initiated changes in the ERC described by disgruntled parties as “bloody.” We presume this means some heads rolled in the wake of an apparent “internal cleansing.”

According to reports, certain personalities were replaced in an apparent effort to remove the “internal clout” of certain powerful external interests which had allegedly influenced the decision-making processes in this regulatory agency.

Observers also noted that Salazar has been hiring young lawyers to beef up the resources of the ERC. It appears that the agency has been undermanned for a long time. If this is true, then the fresh talents Salazar has brought to the ERC should be able to help get rid of impressions that the agency takes too long to make decisions.

More important, Salazar’s moves should help address concerns that the so-called “regulatory capture” is present in the industry the ERC is supposed to oversee. “Regulatory capture” is a sign of government inutility and happens when business and political interests dominate the very industry the agency is supposed to regulate.

“Regulatory capture” is anathema to public interest especially when it is present in an industry like the power sector that has just emerged from a virtual monopoly.

The global view is that the tendency among private business interests to achieve “regulatory capture”can be prevented by competition. When the giants in the business compete against each other for market share, their ability to dominate is checked. Only one factor is left to dominate the playing field and serves to define every move made by industry players: customer satisfaction.

If reports of the internal cleansing at the ERC are true, then that is a good move. That should mitigate if not debunk altogether impressions that “regulatory capture” is still a reality in the power sector.

The alleged internal cleansing initiated by Salazar should diminish the influence that powerful interests have on the ERC’s decision-making processes.

The two reform measures we earlier mentioned should also help – the Competitive Supply Procurement (CSP) process and the Retail Competition and Open Access (RCOA) policy.

CSP, as explained in our previous columns, compels power distributors to bid out their power supply requirements among power generators. RCOA diminishes the so-called “captive market” and expands the size of the electricity market that is allowed to choose which power company to buy their electricity from.

In advancing these two reforms, ERC as the regulator is relinquishing its regulatory powers to a competitive environment. Customer choice and satisfaction becomes the ultimate “regulator.”

Does the ERC have what it takes to make this happen?

Salazar has taken the first important steps. Let’s see if he meets the expectations.