A security guard inspects old transformers at a stockyard of the Manila Electric Co. (Meralco) in Quezon City on Tuesday, a day after the utility firm announced that it will be cutting power rates by 45 centavos per kilowatt-hour this month. PHOTO BY MIGUEL DE GUZMAN
THE Energy Regulatory Commission (ERC) has voided the “excessive and exorbitant” power prices at the Wholesale Electricity Spot Market (WESM) late last year and ordered those rates cut by as much as 70 percent.
However, the ERC order did not have to include the Manila Electric Co. (Meralco) because the Supreme Court (SC) already issued a temporary restraining order (TRO) in December stopping the power firm from collecting higher electricity rates.
Meralco had claimed that the high cost of electricity on the spot market prompted the company to impose a record P4.15 per kilowatt-hour increase, which should have been collected starting in December had the High Court not intervened. The cost of power at the WESM spiked when the Malampaya power plant was shut down for its scheduled annual maintenance. However, several power producers also shut down, sparking suspicions that the simultaneous shutdowns were meant to manipulate power rates on the spot market.
In its order, the ERC directed the Philippine Electricity Market Corp. (PEMC) to calculate and implement the regulated prices in the revised WESM bills of the affected distribution utilities in Luzon for their immediate settlement, except for Meralco whose November 2013 bill will be maintained in compliance with the TRO issued by the high tribunal.
These regulated prices, according to the ERC, are expected to be at least 70 percent lower than the voided WESM prices, which stood on average at P22.13/kWh for November 2013 and P25.67/kWh for December 2013.
The commission noted that there was widespread withholding of capacity through the non-observance or breach of the “Must Offer Rule” (MOR) amid the plant outages that occurred during the two-month period.
Presidential Communications Secretary Herminio Coloma Jr. said the ERC has manifested its order dated March 3, 2014 to the Supreme Court.
“The prices in the [WESM] during the period covering the Malampaya shutdown could not qualify as ‘reasonable, rational, and competitive,’” Coloma said, adding this has prompted government regulator to exercise its police power.
“Hence, the ERC has ordered the imposition of regulated prices in lieu of the voided rates. This ruling covers Luzon WESM prices and excludes Meralco in view of the Supreme Court’s temporary restraining order,” he told reporters.
Under the Electric Power Industry Reform Act (Epira) generators are required to offer all of their available capacity in the market to prevent artificial shortage of supply by capacity withholding, which may drive prices to higher levels.
“The dispatch schedule and the prices during the November and December 2013 supply months reflected an inefficient allocation of resources contrary to the aspirations of WESM. This was brought about by the tight supply condition arising from the participants’ failure to abide with the MOR,” the ERC said.
“Under the circumstances obtaining when the Malampaya was on shutdown, this created an environment wherein higher offers were practically assured of clearing in the market to the detriment of the consuming public. This was fairly evident from the way the market participants behaved and the market prices moved during the period in question,” it added.
The ERC stressed that “the contrived supply shortage impaired the market and this resulted to market failure.”
Welcomed
Coloma said the Palace welcomed the move of the ERC, whose chairperson, Zenaida Ducut, is facing two administrative complaints filed with the Office of the President.
“We note further that this ruling is the outcome of the ERC’s inquiry into the behavior of market players during the Malampaya shutdown that preceded Meralco’s imposition of the questioned power rate adjustments. We note finally that the ERC exercised government’s police power to stop the imposition of ‘excessive, exorbitant, unreasonable, or very high prices’ of electricity in compliance with its mandate under the Epira,” he pointed out.
The Palace official said the ERC order only affirmed the government’s commitment to protect the citizens’ welfare by ensuring stable and reasonable electricity prices.
Coloma explained that the Meralco rates that has been questioned at the SC are excluded from regulation in deference to the court.
“But without it [TRO] Meralco [rates] is clearly included,” Coloma told The Manila Times.
At an earlier press briefing, Coloma explained that the ERC focused its probe on the “behavior” of WESM players during the Malampaya shutdown.
“If we can recall, the prices really spiked, right? And that’s the reason cited by Meralco as to why they had to increase their rates, right? They have to go to the spot market and that was where they bought power that was high,” he noted.
Penalties
Coloma said that while the order on the reduction of WESM rates was issued “without prejudice to the ongoing investigation on alleged collusion or abuse of market power”, the ERC will have to investigate further if there were violations of the Epira law.
“Since they are the regulator, I suppose they have the power to impose just penalties,” he stressed.
For her part, Ducut said the ERC’s action was “a product of its judicious review of the circumstances surrounding the Malampaya shutdown.”
“It demonstrates that while the market will generally be left alone, the ERC will not hesitate to exercise its regulatory authority to ensure rational pricing of electricity and to protect the interests of electricity consumers,” the ERC chief added.
Ducut said the ERC found basis to intervene after determining that the WESM prices during the October-December period could not qualify as reasonable, rational and competitive due to the confluence of factors accompanying the tight supply situation in the market.
The ERC directed the PEMC to conduct an investigation on the possible breach of the MOR within a period of no less than 90 days from receipt of the ERC order after which the result of the investigation of the PEMC Enforcement and Compliance Officer shall be submitted to the ERC with the recommended sanctions and penalties, if any.
Meralco on Tuesday said it supports the ERC decision to recalculate rates at the WESM for the supply months of November and December.
”Meralco is hoping that it will receive the adjusted bills soon to enable it to immediately determine the appropriate generation charges for the covered period, and for it to manifest these adjusted rates to the ERC as the basis for the appropriate filings,” Meralco First Vice President and Deputy General Counsel William Pamintuan said.
He added that Meralco will draw guidance from the ERC on how it could
recover any of the adjusted charges.
With report from Madelaine B. Miraflor