Like other electricity consumers, you don’t want to pay more than you should every month. But it appears that the Energy Regulatory Commission (ERC), the government agency mandated to encourage competition and more investments in the power sector so that electricity consumers will enjoy lower rates, is doing just the opposite with its issuance of several controversial resolutions on Retail Competition and Open Access (RCOA) in the electricity market.
The country’s largest power distributors, like Meralco—Manila Electric Co. (Meralco)—is up in arms against ERC Resolutions 5 and 10. These resolutions enumerate the entities that can apply for licenses as suppliers, and lay down guidelines to determine a “contestable consumer” (or one with a monthly average peak demand of at least 1 megawatt) in the retail electricity market.
ERC Resolution 11, meanwhile, prohibits power distributors, like Meralco, from engaging in the supply of electricity in a “contestable market,” or a group of customers that the ERC has allowed to choose their own electricity suppliers.
Meralco has filed a case in court seeking to nullify these ERC resolutions, as well as a circular of the Department of Energy supporting these rulings, on the grounds that the ERC rulings would discourage competition and unnecessarily increase electricity rates.
The ERC insists that, instead of opposing the rulings, Meralco should support its rulings on RCOA, because these were really intended to give electricity customers a choice and promote competition in the retail electricity market.
ERC Chairman Jose Vicente B. Salazar is urging the DU to “rethink its position against the RCOA” and to stop blocking retail competition.
“The RCOA is good both for its [Meralco’s] customers and its businesses. We can no longer set back the gains of the power sector. The RCOA is a big step toward putting the power of choice of electricity supplier in the hands of the customers,” Salazar said.
Careful scrutiny of the ERC resolutions would show, however, that these would neither ease the woes of electricity consumers nor encourage competition to attract more investors.
The rulings would perpetuate the status quo that President-elect Rodrigo R. Duterte wants to overhaul to ensure that economic growth would be inclusive and would benefit the poor.
And far from pursuing further reforms in the power sector, the ERC may be actually undermining the Electricity Power Industry Reform Act (Epira).
The ERC would actually lead to higher electricity prices and leave customers with a limited choice of electricity suppliers.
Prohibiting power distributors, like Meralco, from participating in the competitive retail market as electricity suppliers limits the choices of customers.
The ERC rulings also impose a market cap or limit on how much retail electricity suppliers (RES) can supply in the market. Resolution 11 states that “RES shall not be allowed to supply more than 30 percent of the total average peak demand in the retail market.”
The ERC orders would lead to a distortion of market forces because cost-efficient RES that offer cheaper electricity prices would be forbidden from supplying contestable customers once the cap is reached.
Under Resolution 11, the ERC set the dates, making it mandatory for electricity customers to be part of the contestable market. For customers consuming at least 1 MW, the requirement to secure a retail supply contract will become mandatory by December 26 this year.
For customers consuming 750 kW to 999 kW, the mandatory date is June 26, 2017. End users consuming at least 500 kW are required to secure a retail supply contract by June 26, 2018.
With more and more customers required to be part of the contestable market, a situation will emerge where contestable customers will be at the mercy of suppliers.
The limited availability and capability of the remaining RES to serve customers will, therefore, lead to a spike in electricity rates.
Industrial users would have fewer suppliers to choose from, thus forcing them to face a regime of higher electricity prices.
As industrial and commercial users have to pay exorbitant power rates, they have no choice but to pass them on to consumers by increasing the prices of their goods and services.
Is this compatible with the incoming Duterte administration’s propoor and probusiness stance? Of course not.
The ERC resolutions do not even have solid legal foundations, as Meralco has pointed out.
Section 29 of the Epira law and its implementing rules and regulations allow power distributors, like Meralco, to engage and take part in the competitive retail electricity market as supplier. DUs may even do so without the need of securing a license from the ERC.
Barring power distributors, like Meralco, from being suppliers of electricity reduces the number of choices for consumers, along with their right to choose the one that can offer the lowest tariff and the best service. Hence, instead of encouraging competition, the ERC will actually stifle it.
The ERC rulings are incompatible with President-elect Duterte’s propoor economic agenda, which includes attracting more foreign direct investments by addressing restrictive economic provisions in the Constitution and our laws, and enhancing our economic competitiveness.
But how can the economy attract foreign investments if regulatory agencies, such as the ERC, tend to make decisions that could lead to higher, not lower, electricity prices?
E-mail: ernhil@yahoo.com.