Meralco plans to create affiliate retail electricity supplier ahead of SC ruling

Posted on October 26, 2016
http://www.bworldonline.com/content.php?section=Corporate&title=Meralco-plans-to-create-affiliate-retail-electricity-supplier-ahead-of-SC-ruling&id=135404

MANILA ELECTRIC Co. (Meralco) is planning to establish an affiliate that will serve as a retail electricity supplier (RES) ahead of the Supreme Court’s final ruling on the legality of the distribution utility’s RES operation within its franchise area.

This comes after the High Court issued on Oct. 10 a temporary restraining order (TRO) prohibiting all orders, resolutions and decisions relating to a case filed by the utility before a lower court questioning the legal basis of rules issued by the Department of Energy (DoE) and the Energy Regulatory Board (ERC) on retail competition and open access (RCOA).

“Considering the TRO that has been issued by the Supreme Court, we are examining the legal remedies that we can explore and our comment is due by the 29th of this month,” said Ivanna G. Dela Peña, Meralco first vice-president and head of regulatory management.

“We are also exploring the possibility of forming our own affiliate RES because that is allowed under the rules that have been issued by the ERC [Energy Regulatory Commission] as well as the Department of Energy [DoE],” she said.

A Pasig regional trial court previously ruled in favor of Meralco, which questioned the ERC and DoE provisions that include a directive for all “local RES” to wind down business and instead form an affiliate with limits as to its ownership, operation and market share. The high tribunal temporarily blocked the preliminary injunction issued by the lower court.

Meralco’s local RES MPower counts among its customers the big electricity consumers within its franchise area, a set up that the regulatory provisions seek to end. The utility based its opposition to the broader Republic Act 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA), which it said allowed the operation of a local RES.

“Definitely, we would like to give our current customers the choice and considering that MPower is a substantial portion of the contestable market right now, we would like to establish an affiliate RES that would likewise give them the choice of a competitive supply of power,” Ms. Dela Peña said.

The ERC provision that directly hits MPower is Resolution No. 11, Series of 2016, which imposed restrictions on the operations of distribution utilities and retail electricity suppliers in the competitive retail electricity market. It stopped distribution utilities from engaging in the supply of electricity to consumers in the “contestable market” other than as a supplier of last resort.

Contestable customers are big electricity users who are required to forge a retail supply contract with a licensed RES. Those using an average of at least 1 MW in the past 12 months are mandated to secure a contract by Dec. 26, 2016. The aim is to lower the threshold until even households are required to contract their power use, eating into Meralco’s current captive market.

From the effectivity of Resolution No. 11, all local RES are to wind down their business within three years. The issuance was signed on May 12, 2016, the same day the ERC signed Resolution No. 10, which adopted the revised rules for contestability. About two months earlier, the regulator issued Resolution No. 5 covering new rules on the issuance of RES licenses, a resolution that had seen several deferrals.

“Before they stopped the licensing of suppliers, we’re in the process of forming an affiliate RES that is to serve areas outside our franchise area,” Ms. Dela Peña said.

Meralco Chairman Manuel V. Pangilinan said he was open to a dialogue with the ERC on resolutions in question.

“As our regulator, we’re also open to any form of dialogue,” Mr. Pangilinan said, referring to a previous comment from ERC Commissioner Alfredo J. Non that he had reached out to Meralco executives to resolve the issue.

“Having said that, just two things, one is that EPIRA and the rules of EPIRA clearly allow Meralco to engage in a RES type of business. So I think it’s difficult for us to waive our rights with respect of what the legal framework allows us to do,” he said.

“Secondly, more of a commercial point, Meralco -- our MPower -- has gotten into this position of serving the contestable market on its own. So if the discussion turns into curbing our presence in the market, that might be difficult as a commercial matter for Meralco because it will have to give up a portion of its revenues and its income,” he added.

Asked about the legal remedies that the company was considering, William S. Pamintuan, Meralco deputy general counsel, said a motion for reconsideration was an option aside from creating an affiliate RES.

Based on the ERC’s list, there are 24 local RES currently operating in the country, a number of which have their own power generation companies. None of them has filed a case before the courts. Twenty others have secured a RES license, a number of them after the ERC issued Resolution No. 5.

As of August 2016, a total of 1,368 consumers in Luzon and 176 in the Visayas belong to the contestable market. Mindanao is excluded for now in the absence of a wholesale electricity spot market in the area.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in BusinessWorld through the Philippine Star Group, which it controls.