SC affirms ERC authority on ‘substitute pricing’ for WESM

Published June 25, 2020, 10:00 PM By Myrna M. Velasco

https://business.mb.com.ph/2020/06/25/sc-affirms-erc-authority-on-substitute-pricing-for-wesm/

The Supreme Court has upheld the authority of the Energy Regulatory Commission (ERC) on its move to enforce “substitute pricing” for the Wholesale Electricity Spot Market (WESM) when the first act of market manipulation in 2006 was alleged to have been committed by state-run Power Sector Assets and Liabilities Management Corporation.

The affirmation of the regulatory body’s police power over imposition of price control at the spot market was rendered in a ruling recently issued by the high court.

To recall, the ERC had to lower settlement prices in the WESM employing time-of-use (TOU) rates for the questioned two billing months following investigation on alleged market manipulation precipitated by PSALM – which in a particular trading day had driven up rates because of the high-priced bids of the state-run firm’s trading teams.

The TOU rates were instituted as “substitute prices” in place of the actual WESM settlement prices that should have been higher.

On August 30, 2006 in particular, the market surveillance committee of the spot market operator Philippine Electricity Market Corporation (PEMC) pinned down that the three trading teams of PSALM made roughly similar or identical offers on specified trading intervals – and these price offers hovered at the scale of P10 per kilowatt hour (kWh); a far cry from the P3.00 per kWh level which prevailed as spot settlement prices in previous billing months.

And based on the investigation result of PEMC at that time, the trading teams of PSALM that were separately representing the Pagbilao, Sual and Ilijan plants were established to have been “bidding in such a manner that caused the market clearing price to rise above competitive levels.”

Given the sudden spike in spot prices, the ERC eventually decided to enforce substitute pricing so the final rate that shall be billed to consumers won’t be as prohibitive – and such statute or mandate for ERC stands until this time, especially in critical times when there are fresh round of price manipulation allegations at the spot market.

With the SC ruling, ERC Chairperson Agnes T. Devanadera stressed that the regulatory body is “happy that the Supreme Court appreciated the real intention behind ERC’s action when it imposed price controls for the spot market back in 2006.”

The target of that regulatory act of the Commission then, she explained, was “to protect the consumers from unusually high market prices.”

Fundamentally, the country’s ultimate court validated that the ERC “has been vested with delegated police power under the Electric Power Industry Reform Act (EPIRA), which provides that in the exercise of its investigative and quasi-judicial powers, it may act against any participant or player in the energy sector for violation of any law, rule or regulations and penalize abuse of market power.”
Devanadera reiterated “the Supreme Court’s ruling is very much appreciated as it confirms and validates the efforts of ERC in protecting the consumers as they are affected by the rates.”