September - December 2007
Power and poisons

A commission of power

TO INTRODUCE competition in the generation sector, EPIRA called for the creation of a wholesale electricity spot market a year after it took effect. As a marketplace for the trading of electricity, the WESM is a venue for generators/sellers to offer their outputs and specify their prices to buyers. It also serves as a mechanism to encourage investors to participate in the generation sector and attract buyers of the NPC plants.

Yet last year, a price manipulation scandal broke out involving PSALM’s trading teams, which were found to have engaged in uncompetitive behavior in the electricity spot market. The Enforcement and Compliance Office (ECO) of the Philippine Electricity Market Corporation (PEMC), which oversees the power market, found PSALM liable for abusing its market power by simultaneously raising the market clearing prices for three plants: Ilijan natural gas plant, and the coal-fired thermal power plants in Sual and Pagbilao.

But the Energy Regulatory Commission ordered its own investigation terminated, finding no prima facie evidence of market abuse against PSALM. The regulatory agency likewise dismissed ECO’s findings as mere “speculation, conjectures or guesswork.”

Maitet Diokno-Pascual, who has looked into ERC’s handling of PSALM’s market abuse, is aghast. “The ERC has a very extensive market data that showed exercise of market power,” she says. “But instead of using that as evidence, it looked for price-fixing between NPC and PSALM. It didn’t find any precisely because that’s not how the abuse took place.”

The ERC is more known to the public as the agency that rules on petitions on power rate hikes. But the independent, quasi-judicial regulatory body has more than that on its plate, as the PSALM case shows.

Pascual says that ERC’s “narrow understanding” of market power abuse will cost consumers P9 billion. That is the amount PSALM is collecting from WESM after the ERC decision, and which PSALM now wants Meralco and other utilities to collect from consumers.

ERC is made up of five commissioners, all of them appointed by the president. Its current head is former Isabela Representative Rodolfo Albano Jr. Some have taken issue with the ERC’s independence, but independent industry consultant Edna Espos — who does not hide her dismay with the ERC for its handling of the WESM price manipulation case — says she has no quarrel with whoever heads the agency “for as long as they do it right.”

The FDC’s Pascual, however, doubts if the ERC understands its accountability to the consuming public. At least on one occasion, she says, it has even held its hearing for a rate-increase petition in the very office of the private utility it is supposed to regulate. “Maybe,” she says, “it (ERC) sees itself as a guardian of the (power sector) reforms, as a partner of the industry players, more than a protector of public interest.”

Both erstwhile government energy chiefs Raphael Lotilla and Francisco Viray are more understanding. “I think they’re doing their best considering the environment they’re working in,” says Viray, noting that everybody — the government, the private sector, the ERC — went through a learning curve with EPIRA. He also says the government set a very tight timetable for the law’s implementation.

Lotilla echoes his predecessor’s views. But he also says that there is a need to strengthen the ERC and suggests that there be more rules and guidelines “to effect things and help minimize the arbitrary exercise of discretionary power.”