SC affirms ERC power on spot market prices

By Joel R. San Juan June 18, 2020

https://businessmirror.com.ph/2020/06/18/sc-affirms-erc-power-on-spot-market-prices/

THE Supreme Court has affirmed the power of the Energy Regulatory Commission (ERC) to implement price controls for the Wholesale Electricity Spot Market (WESM), the country’s trading floor for electricity, as part of the ERC’s police power to avoid “unusually high and unreasonable market prices.”

The SC order effectively prevents collection by the Power Sector Assets and Liabilities Management Corporation (PSALM) of a total of P9 billion in supposed accumulated billings that would have impacted consumers.

In a 15-page ruling released on Wednesday, the SC denied the petition filed by PSALM, a government-owned and -controlled corporation, seeking the reversal of the Court of Appeals (CA) decision of August 28, 2009.

In the said ruling, the CA affirmed the validity of ERC orders issued on January 30, 2008, and October 20, 2008, granting Meralco’s plea for the adjustment of WESM settlement prices.

The ERC, in the assailed order, set the WESM settlement prices for its  September and October 2006 supply months at the commission-approved time-of-use (TOU) rates.

This prompted PSALM to elevate the controversy before the SC, arguing that the ERC committed an “illegal, arbitrary and ultra vires
act” when it imposed price controls for the subject billing months in the WESM.

PSALM said such action of ERC was contrary to the requirements of Republic Act 9136 or the Electric Power Industry Reform Act (Epira).

It added that such act would cause unnecessary distortions in the market that would adversely affect both consumers and market participants.

Probe report

The case stemmed from an investigation report issued by the Enforcement and Compliance Office (ECO) of the Philippine Electricity Market Corporation (PEMC), a nonprofit organization which serves as the market operator and governing body of WESM, after it investigated the increase in the load weighted average price in the WESM in the monthly operations and the bidding behavior of PSALM’s trading teams increase.

As a result of the inquiry, the ECO issued an investigating report finding that PSALM behaved anti-competitively and abused its market power.

PEMC subsequently affirmed the findings of the ECO and its board ordered adjustments in the WESM settlement prices for the third and fourth billing periods.

However, the ERC invoked its mandate under RA 9136 and declared the PEMC Board’s action invalid due to lack of authority, and in violation of the Epira and WESM Rules.

Eventually, the ERC adopted the findings of its investigatory unit (IU) which found no prima facie case against PSALM for anti-competitive behavior or market power abuse.

P9-billion ‘debt’

On August 16, 2007, PEMC filed a manifestation before the ERC, saying it received a letter from PSALM demanding payment of the total unpaid amount from the third and fourth billing months which the latter claims to have accumulated to almost P9 billion.

PEMC said the impact to the consumers of these adjustments claimed by PSALM, if applied, together with the adjustments of all generation prices, would result in an additional imposition of P6 per kilowatt hour.

Meralco, on the other hand, moved for the reconsideration of the ERC decision and asked that the action of PEM Board in adjusting the WESM settlement prices for the subject months be declared valid.

The power distribution firm also stressed that the additional imposition of P6 per kilowatt hour would translate to an increase in the generation charge of its consumers of about 90 centavos and P2.05 per kilowatt hour for the supply months of September and October, 2006, respectively.

On January 30, the ERC issued the assailed decision denying PEMC’s motion for reconsideration.

ERC police powers

On the other hand, the ERC granted Meralco’s motion for reconsideration and set the WESM settlement prices for the third and fourth billing periods at the commission-approved TOU rate.

In upholding the ERC’s order, the SC pointed out that the object in applying TOU rates was not merely to protect consumers but also to set the WESM settlement prices at reasonable levels, “since there was a clear evidence of unusually high WESM prices during the subject periods.”

“Here, the unusually high and unreasonable market prices for the subject billing periods which necessitated the ERC to step in and exercise its police power as mandated by the Epira, cannot be overemphasized,” the SC said.

The SC said that as pointed out by PEMC, the impact of the adjustment in the WESM prices estimated to be an additional imposition of P6 per kwh  would have resulted to an increase in generation charge of its consumers of about 90 centavos and P2.05 per kwh for the subject period.

“In the basis of the foregoing, the Court absolutely agrees with the CA that although the ERC adopted the findings of its IU and terminated the investigation against PSALM for alleged anti-competitive behavior and abuse of market power, the same did not necessarily preclude the existence of irregular behavior or circumstances which would have contributed to the high prices in the WESM during the subject periods,” the SC explained.

“The ERC validly exercised its regulatory power pursuant to the police power of the State when it imposed the commission-approved TOU rates as a form of price adjustment or price control,” it added.