Averting a potential power crisis

Amid recurring power shortages in Luzon, the Supreme Court (SC) is emerging as a crucial player in addressing the country’s energy security situation. This is because a number of pending legal cases have turned the 15-member High Court into a virtual battleground of vital energy-related issues.

Thus, whatever decisions the SC will eventually hand down would have an impact in the country’s energy security in the future.

Last month, in a decision penned by Senior Associate Justice Antonio Carpio, the SC rejected power supply agreements (PSAs) signed in 2016 by the Manila Electric Co. (Meralco) with its subsidiaries or related power generation companies. Consumer groups complained that the PSAs were overpriced and failed to undergo a competitive selection process (CSP). 

As a result, the SC decision put on hold the construction of seven coal plants – located in Subic, Bataan, La Union, Batangas, Quezon and Iloilo – that could generate 3,551 megawatts (MW). Senator Sherwin Gatchalian, chairman of the Senate committee on energy, believes the decision is a major victory for consumer protection, and a welcome surprise for environmental groups and communities that have campaigned to lessen dependence on “dirty” energy.

The decision also demonstrates that the SC, now headed by Chief Justice Lucas Bersamin, is independent and not beholden to any powerful business interests.  

In yet another petition filed in June 2017, the Philippine Movement for Climate Justice asked the SC to order the Department of Energy (DOE) and Department of Environment and Natural Resources (DENR) to stop issuing permits for new coal plants. The Philippines is a signatory to the Paris Climate Change Agreement, but growth in the use of renewables and clean energy has been slow. Coal is projected to dominate, with its share in the power generation mix increasing from 47 percent in 2016, to 70 to 80 percent by 2030. 

There are other cases pending before the SC that warrant special attention as they could impact consumer welfare and energy security. 

In December 2016, the Philippine Chamber of Commerce and Industry (PCCI) asked the High Court to declare void orders of the DOE and Energy Regulatory Commission (ERC) to implement Retail Competition and Open Access (RCOA).

The RCOA is a mechanism that allows end-users to choose electricity suppliers.  Under RCOA, qualified end-users can choose to buy only from clean energy sources such as geothermal, hydro, wind, solar or natural gas.

In February 2018, a consumer group asked the SC for a temporary restraining order against the implementation of the Renewable Energy Law or Republic Act (RA) 9513, particularly its provisions on renewable portfolio standards and the feed-in-tariff. The petitioner argued that the subsidies to be given cannot be justified and would be a heavy burden on consumers.

In May 2018, the Service Contract 38 (SC 38) consortium operating the Malampaya Project asked the SC to overrule Notices of Charge issued by the Commission on Audit (COA) against the DOE and the consortium, starting in 2010. According to the COA, it was wrong for  the DOE to include the income tax of consortium members in the government’s 60 percent share of Malampaya revenues. Consequently, there was under-collection of the government’s share by more than $3 billion, reckoned from 2002 to 2017.

The Malampaya gas fuels five power plants in Batangas having a combined capacity of 3,211 MW. These plants provide 30 to 40 percent of the power needs of Luzon and have contributed immensely to energy security. The government has earned more than $10 billion from Malampaya since 2001. In 2018 alone, the government earned $766 million. By the end of August 2019, government revenues from Malampaya are expected to reach $11 billion.

In addition to judicial proceedings here in our country, there are also arbitration cases involving local power plant projects with foreign investors as partners. As they included transactions with foreign investments, the arbitration cases were lodged before the International Chamber of Commerce (ICC) and International Centre for the Settlement of Investment Disputes (ICSID). 

In April this year, the ICC arbitration tribunal voted 3-0 to affirm the position of the SC 38 consortium that   income tax forms part of the government share, and that there was no under-collection. The tribunal is composed of Yves Fortier, David Williams, and our own highly respected former chief justice Reynato Puno. In a statement, Energy Secretary Alfonso Cusi welcomed the ruling: “This victory would go a long way in giving exploration and development activities in the country a much needed and long overdue boost as investors will now have renewed confidence in our upstream gas industry.”

Speaking of Malampaya, our country’s premier source of natural gas reserves has been irreversibly depleted. There is an urgent need to explore and develop new sources of indigenous energy. Ever since the COA issued the Notices of Charge in 2010, petroleum exploration companies have stayed away due to concerns on contract sanctity and fiscal stability. So naturally, exploration activities declined and there have been no major discoveries.

In the first three years of the administration of President Rodrigo Duterte, only one petroleum service contract has been awarded. Signed in October 2018 was Service Contract 76 entered into with Ratio Petroleum Ltd. of Israel.

On Nov. 22 last year, Cabinet Secretary Karlo Nograles and Secretary Cusi launched the Philippine Conventional Energy Contracting Program (PCECP). Nograles represented President Duterte in the program. The PCECP seeks to attract investors to explore and develop indigenous oil and gas resources here in our country. The success of the PCECP significantly depends on whether the SC will reverse the questioned COA Notices of Charge.

With these pending legal cases before the SC, averting a potential power crisis clearly looming in the horizon lies in the hands of the Chief Justice and 14 magistrates. They wield the judicial power beyond the reach of President Duterte.