ERC voids high power rates

Published by rudy Date posted on March 12, 2014

MANILA, Philippines – Power industry regulators voided yesterday the sharp hikes in electricity rates in December 2013 and in January this year, saying “market failure” in the Wholesale Electricity Spot Market (WESM) had pushed rates by more than half of what was justified during the period.

In a decision dated March 6 but released only yesterday, the Energy Regulatory Commission (ERC) also ordered WESM operator Philippine Electricity Market Corp. (PEMC) to recalculate the prices and for the Manila Electric Co. to make the necessary adjustments.

“Supply was low because market participants did not offer their available capacity so there was market failure,” ERC executive director Saturnino Juan said in a briefing yesterday. WESM is the country’s trading floor for electricity. The ERC came out with the decision after months of investigation.

Reacting to the ERC order, Meralco said there would definitely be a reduction in rates but stressed it has yet to make a recalculation, at least for the January period as the December 2013 rate is still covered by a temporary restraining order (TRO) issued by the Supreme Court.

A total of 2,035 megawatts in average capacity were not offered at the WESM during the one-month maintenance shutdown of the Malampaya natural gas plant, the ERC said.

The ERC said WESM prices during the November and December 2013 supply months “could not qualify as reasonable, rational and competitive due to the confluence of factors.”

It said it was exercising its police power in voiding the rates “without prejudice to the results of the investigations into the possible culpability of any or all of the market participants.”

While the quasi-judicial body ordered PEMC to recalculate the prices, it provided its own estimates of the prices WESM should have set during the period.

“The lack or failure of competition necessitates government intervention to protect the consumers from unreasonably high market prices,” the ERC said. “Government intervention in this case is a valid exercise of the state’s police power and can be done by the regulatory body to which the said power has been delegated and to intervene when the common good so demands, such as the ERC,” the order read.

Juan said that based on the preliminary report of ERC’s investigation unit, regulated prices at the WESM for the November 2013 supply month should have been P6.37 per kilowatt-hour from the demanded average P22 to 25 per kwh or a reduction of 71 percent. For last December, the figure should have been P6.11 per kwh from the average rate of P22 to 25 per kwh. “This would translate to a reduction in generation charge by more than half,” Juan said but declined to provide specific figures.

‘Positive development’

For Meralco first vice president and deputy general counsel William Pamintuan, the ERC decision was a “positive development for our customers.”

He said a recalculation “will reflect the true competitive cost of power for the supply months covered.”

While the development would definitely pull down electricity rates, “the only question is how low,” Pamintuan said.

“Meralco will work closely with PEMC and with the relevant generation companies for the adjusted power supply bills,” he added.

He said Meralco would be waiting for the recalculated prices from PEMC and make the corresponding adjustments. However, Pamintuan said Meralco would have to wait for the SC decision on the TRO before it can adjust its December 2013 rates.

For the January 2014 rates, Pamintuan said adjustments may be felt starting May as Meralco still has to wait for the PEMC re-computation.

He also said Meralco would amend a pending petition with the ERC seeking to collect its unbilled January 2014 generation charge.

Meralco’s generation charge rose to P9.10 per kwh in December 2013 and to P10.23 per kwh in January 2014 due to drop in supply as a result of the scheduled maintenance shutdown of the Malampaya natural gas plant and the forced shutdown of several other power stations.

However, because of the court’s TRO on the December 2013 charge, Meralco had to peg the generation charge at P5.67 per kwh.

The ERC also ordered PEMC to determine if generation companies violated market rules when they did not offer their full capacities in the market.

“Within a period of no less than 90 days from receipt of this order, PEMC is further directed to conduct an investigation on the possible breach of must-offer rule,” the ERC said.

The “must offer” rule requires companies to declare and offer their maximum generating capacities to prevent supply shortage.

Gov’t commitment

Malacañang said the ERC order would definitely ease the burden of consumers even as the investigation into possible collusion among industry players to jack up power cost continues.

“We affirm government’s commitment to protect the citizens’ welfare by ensuring stable and reasonable electricity prices,” Presidential Communications Operations Office Secretary Herminio Coloma Jr. said in a press briefing yesterday.

“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 (SC’s TRO),” Coloma said.

“So, as far as they (ERC) are concerned, the investigation (by the Department of Energy and the Department of Justice) is still ongoing. At least, one of the most important concerns of the people has been addressed – the actual determination of rates, on whether this was reasonable or unreasonable,” Coloma said.

He said the ruling was the outcome of ERC’s inquiry into the behavior of market players during the Malampaya shutdown.

Coloma noted the ERC exercised its police power to stop the imposition of “excessive, exorbitant, unreasonable, or very high prices” of electricity in compliance with its mandate under the Electric Power Industry Reform Act.

The ERC order did not stipulate any punitive measures against erring power generators. –Iris Gonzales and Aurea Calica (The Philippine Star)

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