DOE, ERC: Safeguards in place to prevent market abuse

Posted at 02/11/14 6:03 PM

MANILA – Generation companies and distribution companies are subject to the rules and regulations of the Energy Regulatory Commission (ERC), and may face appropriate sanctions when found violative of the same and the Electric Power Industry Reform Act (EPIRA) of 2001.

These were some of the arguments raised by the Department of Energy (DOE) and ERC during the continuation on Tuesday of oral arguments at the Supreme Court (SC) into several petitions against Manila Electric Co.’s (Meralco) unprecedented P4.15 per kilowatt per hour (kwh) rate hike.

Assistant Solicitor General Vida San Vicente, representing the DOE, and Atty. Francis Saturnino Juan, representing the ERC, told the high court that the ERC did not surrender its regulatory power to Meralco and, in fact, is in the thick of an ongoing investigation into Meralco's challenged rate adjustment.

"Generation and supply companies are subject to ERC rules to prevent market abuse and an anti-competitive [climate]... and if found in violation of EPIRA or its IRR, appropriate sanctions [are meted]," Vicente stressed.

Part of these rules is the review by the ERC of all power supply contract agreements between distribution firms and their suppliers, she pointed out.

On the part of the ERC, Juan said that Meralco's questioned rate adjustment was based on the Automatic Generation Rate Adjustment (AGRA) mechanism or automatic pass-through mechanism, but still subject to post-verification by the ERC.

Juan pointed out that Meralco's December 5, 2013 letter to the ERC "is not a rate application" but a notice for the staggered implementation of the P4.15 per kwh rate adjustment.

On the same breath, Juan said that ERC's Dec. 9 resolution was "not a rate approval."

Amid allegations from petitioners and the public alike of a possible collusion among industry players that led to the unprecedented rate hike, ERC is investigating this and has yet to come up with its findings, he added.

"All these allegations the ERC will be looking into, but last Dec. 9 these allegations were not raised," Juan told the high court.

The DOE and ERC stressed that safeguards are in place to ensure that there is no market abuse in the energy sector, which include the distribution utilities' monthly reportorial requirement.

Both agencies argued that the Agra mechanism did not negate the ERC's powers, and that there is "no reason for surrender of ERC functions due to Agra."

Therma Mobile counsel Roderico Puno, meanwhile, said neither Therma Mobile nor Meralco benefitted from transactions before the Wholesale Electricity Spot Market (WESM), in spite of the latter's P62 bid 25 times at the height of the Malampaya platform shutdown upon the directions of the distribution firm.

Puno stressed that Therma Mobile, solely owned by Aboitiz Power and an embedded plant in Meralco's distribution system, merely complied with the WESM's must-offer rule, but may not be paid by Meralco more than P8.65 per kwh, regardless of what is the closing price at WESM, by virtue Therma Mobile's power supply agreement with Meralco.

The same power supply contract provides that Meralco dictates Therma Mobile's bid offers at the spot market.

Therma Mobile is diesel-run and is highly vulnerable to world energy prices and fluctuations in the exchange rate.