RCOA: The ‘promise and peril’ of electricity consumer’s choice (Part I)

By Myrna M. Velasco – September 20, 2017, 12:22 PM

from Manila Bulletin

Retail competition and open access policy – or simply the RCOA, has arrived more than 10 years late.  Yet we sigh, its promise of ‘freedom of choice’ remains an “on-and-off” proposition to electricity consumers.

One step forward, and then there’s that whole chaotic mess stopping the reform process – but as everybody knows, politics in any form in this country will always be tricky to master or even to comprehend – more so on the arcane and highly-technical ‘electricity square.’

The recent snag to it had been the temporary restraining order (TRO) verdict of the Supreme Court on at least three rules issued by the Energy Regulatory Commission (ERC) and a Circular of the Department of Energy (DoE) prescribing its implementation. That had been based on the petition of the Philippine Chamber of Commerce and Industry (PCCI), San Beda College Alabang, Inc., Ateneo de Manila University and Riverbank Development Corporation.

With the high court’s ruling, retail competition in the restructured electricity sector effectively rolled back into voluntary phase for those in the 1.0-megawatt threshold; while temporarily preventing supplier switching to those in the lower threshold of 750 kilowatts. The ERC though had recently prayed for lifting of the high court’s ruling.

Under the policy cornerstones of the Electric Power Industry Reform Act (EPIRA), the RCOA is the only remaining ‘major show in town’ awaited by consumers wanting to get out from the shackles of traditionally-peddled unsatisfactory electricity service, but it taking off from the ground proved to be nasty and difficult.

With the latest development comes this nagging question: What retail competition in the power sector has exactly been bringing into consumers’ doors: cost benefits and better service – or the curse of ‘limited choice’? “Freedom of choice” seems simply appealing, but obviously this is not about waddling into ‘fantasy land’.  The bigger question really is, how does that translate into actual benefits to the consumers?

Against the backdrop of series of legal drawbacks, some parties-in-interest claim that the contestable customers only signed up retail supply contracts because they were technically in that “honey, sign or I’ll shoot” menace – supposedly done under the guise of the mandatory February 26, 2017 deadline set by the ERC on the policy’s enforcement.

The articulated objective to policy resistance is “not to limit choice for customers” – and could the unspoken one be: extended control over the so-called ‘market juicy’ customer segments? Just maybe – and that’s up to the relevant authorities to discern.

Meralco and the academic group’s dissent

Manila Electric Company (Meralco), the country’s biggest power utility, had been in the forefront of questioning the policy prescriptions as to how RCOA should have been implemented, primarily a provision in the ERC Rules exempting the Local Retail Electricity Suppliers (L-RES) from continuing their business and customer service offers. Its local RES is placed under subsidiary MPower.

The utility firm argued “in the event that Meralco’s L-RES is unable to engage in the supply of electricity to the contestable customer, it will be unable to transfer its displaced contract brought about by the RCOA, resulting in additional burden to its captive customers.”  To differentiate, ‘contestable customers’ are those who can already exercise ”freedom of choice” on their electricity suppliers and can negotiate for and sign up contracts with preferred RES; while ‘captive customers’ would be those remaining under the service domain of franchised distribution utilities or electric cooperatives – primarily small commercial and residential end-users.

Meralco added that disbanding L-RES would also result on its failure to comply “with least cost obligation to customers,” pointing out that “the directive to wind down business operations and the imposition of a market cap are confiscatory and are tantamount to deprivation of property rights.”

It similarly notes the “clear possibility of damage to Meralco due to financial losses brought about by loss of significant business, loss in investment capital, personnel, technical equipment, offices and system and loss of time and effort that have been rendered wasted due to the sudden change in the system that is forcing MPower to shut down.”

In interviews with the media, Meralco Chairman Manuel V. Pangilinan repeatedly indicated that they are not ‘resisting competition’ in the power industry – but when it is done so, it must be enforced fairly by truly widening the base of choices for consumers – and that should not drive out other legally-bound participants, such as the L-RES players.

Meralco won the legal round on its prayer for injunctive relief at a Pasig regional trial court. But it was a short-lived victory since this was subsequently reversed by a restraining order of the Supreme Court around October last year.

But when the ‘mandatory RCOA implementation’ was about to take effect February this year, a new restraining order was handed down by the high court – and that practically held the industry ‘to a halt’ due to parameters of the legal verdict that had not been clear to them.

The petitioners in the case from the academic sector – Ateneo and San Beda College Alabang – legitimately concluded that there had been gravely wrong in the policy imposition as such will practically incapacitate them from continuously having their electricity service. Fr. Aelred Nilo, OSB, director for finance, administration and general services of San Beda College-Alabang averred in a statement to the media that “it would be very difficult (for them) to meet the proposed deadline by ERC and DOE of February 26, 2017, forcing customers to enter into new retail supply contracts or otherwise suffer the consequence of being disconnected from the distribution utility or being made to pay a supplier of last resort a 10-percent premium between the higher contract cost and the Wholesale Electricity Spot Market.”

Leaning on the letters and intent of the EPIRA, they contend that the law “provides for the voluntary migration of end-users to the contestable market and there appears to be no basis for the mandatory migration ordered by ERC and DOE through their issuances.”

On his grasp, Ateneo De Manila University President Fr. Jose Ramon Villarin, SJ., noted that “our government and regulating bodies should ultimately seek to protect our basic, constitutional right to freedom of choice.” By that, he asserts that such right “should extend to all electricity consumers,” stressing that “if we are allowed to choose the best supplier for our needs in a market that is allowed to work freely and for the common good, then such a scenario will be most beneficial to all consumers concerned, especially those smaller scale contestable customers like schools and universities that may have difficult time searching for a new contract.”

Taking on government’s core wisdom

With all the roadblocks, it becomes clear that serious goals don’t just come from imagination but from the practical realities of what governments are wiling to do and able to implement.

Relative to the RCOA policy, after series of debates and media interviews, the afterthought is still to have it enforced “on mandatory basis” – and that finally was the tenor of the relevant government agencies’ position lodged with the Supreme Court.

The DOE, sounded off that while there are some perceived flaws in the policy, retail competition at this stage cannot be hauled back de novo – the ‘magic bullet’ perhaps would be to come up with a more feasible and politically-savvy strategy on its implementation.

Energy Undersecretary Felix William B. Fuentebella stipulated that the government’s position “is still mandatory because we looked at the practicality of that approach,” noting that it had been the ‘common position’ they concurred with the ERC, co-respondent in the case. That argument, he said, is rooted on the fact that “if (RCOA) is not mandatory, the number of players (retail suppliers) coming in might be limited, so that will also limit the choice for consumers, that’s why we had to look at it from the aspect of practicality.”

Ultimately, Mr. Fuentebella asserted that the government’s wish is for this legal morass to be decided with finality and with clearer policy direction by legal arbiters. “That case is already there, so we just let the court decide on it. We can’t move forward if we can’t hurdle this first.” Nevertheless, the department just had a recent afterthought of having retail competition done on ‘voluntary basis’ and it has been opting on remedial measures to it.

The Joint Congressional Power Commission (JCPC), which exercises oversight authority over the power sector, is still contemplating on a remedial policy that it can work on to fix the dysfunctions on the power sector’s retail competitive regime.

On his sense, Senate Committee on Energy Chairman Sherwin T. Gatchalian indicated that they may need to issue a resolution that “can be used in clearing up the Supreme Court case or it can be used outright in addressing the concern of the distribution utilities,” emphasizing that “the resolution will set the legal basis as to what it is that had been in the real spirit of the RCOA.”

To many in the power industry for now, the legal skirmish is just another way station, but it is their impassioned wish that hopefully, this is already the last one onward to a truly-functional endpoint. (To be continued)