ERC in hot seat at SC orals
The ERC tells the High Court that the Automatic Generation Rate Adjustment rule encourages investors to put in capital

ERC. Energy Regulatory Commission (ERC) Chairperson and CEO Zenaida Cruz-Ducut shows up at the Supreme Court (SC) for Day 3 of oral arguments on Meralco's power rate hike. Photo by LeAnne Jazul/Rappler

MANILA, Philippines (UPDATED) – The Energy Regulatory Commission (ERC) was put in the hot seat Tuesday, February 11, during oral arguments before the Supreme Court, as it faced a battery of questions over how it exercised its regulatory functions in the power industry.

SC justices slammed the commission for failing to act in favor of public interest when it did not look into high power generation costs that were passed on to consumers. 

On December 9, ERC approved the staggered increase in rates of Manila Electric Company (Meralco). Bulk of the increase was accounted for by generation charges.

Why didn’t the ERC find anything strange with the high generation costs?” Justice Marvic Leonen asked ERC lawyers. “Isn’t this grave abuse of discretion? The neglect of ERC to find that there was something wrong?”

“All of this should have alerted ERC already that there was something problematic,” added Chief Justice Maria Lourdes Sereno.

In their defense, lawyer Francis Saturnino Juan, who argued for the commission, cited the Automatic Generation Rate Adjustment (AGRA) rule, which allows the automatic pass-on of generation charges to consumers. He also denied that ERC abused its powers when it approved Meralco’s staggered rate increase.

In fact, he said ERC’s approval gave Meralco clearance not to apply AGRA.

An amendment to Section 4(e), Rule 3 of the EPIRA’s Implementing Rules and Regulation allowed automatic rate adjustments or increases to recover generation costs. Petitioners before the High Court argued that this violates due process due to the absence of prior notice.

Juan, who is also ERC executive director, maintained that the AGRA rule does not provide distribution utilities (DUs) such as Meralco discretion to fix rates. The AGRA, he said, simply allows them to recover costs.

But Leonen indicated that ERC should have exercised its regulatory functions when it approved Meralco’s proposed increase.

The justice explained that ERC, with its technical knowledge and upon being sought for approval, could have acted based on prima facie suspicion that there might have been something wrong in the system when the prices spiked.

AGRA entices investors

According to Juan, AGRA was meant to attract investors in the power industry.

He said the rule encourages the flow of capital as it allows DUs to recover costs charged by power generation companies.

“Without this assurance, no investor will invest,” he explained.

DUs such as Meralco distribute power to residences and businesses. They buy power in bulk either through bilateral contracts or Power Supply Agreements (PSAs) with power generation companies or from the Wholesale Electricity Spot Market (WESM).

Meralco earlier blamed high rates at WESM for the spike in its rates. It said it was forced to source more power from the spot market following the maintenance shutdown of the Malampaya natural gas facility and the outages of its power plant suppliers.

Public can check PSAs

Petitioners opposed to Meralco’s power rate hike, meanwhile, have said that Meralco’s PSAs with generation companies have not been disclosed to consumers, giving rise to suspicion of collusion between suppliers and distributors.

Leonen raised this point in Tuesday’s oral arguments, citing concerns raised about the “asymmetry of information” between consumers and key players in the power industry. He was referring to a situation where one party has more or better information than the other.

Juan maintained the PSAs are not secret documents, prompting Leonen’s battery of questions.

Leonen: Can they [public] get a copy of the agreements?

Juan: Yes in some cases.

Leonen: So we can declassify the power supply agreements submitted to the Court? Can we now release copy of the power supply agreements?

At this point Juan hesitated, emphasizing that the contracts can be made public “except in some cases when there are requests for confidentiality.” Leonen asked: “But you said there should be transparency in terms of the pricing. So if the pricing in bilateral contracts is made [secret], how can the public participate?”

Juan again hesitated, prompting Sereno to tell him: “You wasted a lot of time already. Give a direct answer.”

Leonen resumed his questioning: Can the contracts be released to the public? Juan said: “Yes.”

On the first day of oral arguments on January 21, petitioner Bayan Muna Party-list Rep. Neri Colmenares argued that Meralco bought its power requirements from WESM at very high prices when it could have resorted to cheap alternatives.

Colmenares accused Meralco of helping jack up prices at WESM through power generation company Therma Mobile Inc. of the Aboitiz group. Meralco and Therma Mobile have a PSA allowing Meralco to buy 100 megawatts of power at P8.65/kWh. – with reports from Buena Bernal/


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