The Correct and Legal Way to Determine Concentration of Power Generating Capacity (Part 1)
David Celestra Tan, MSK
1 April 2018
The creation of true and robust competition in the power generation sector is key to achieving least cost power for consumers. The EPIRA Law had established under Section 45(a) the limits on generating capacity a group can own, operate, and control to 25% of national installed capacity and 30% of regional capacity (Luzon, Visayas, and Mindanao).
The policy for CSP is just the first part of the formula to assure competition. CSP or competitive selection process (bidding) of power generation contracts are fairer to the consumers, as opposed to the long practice of allowing negotiations between a distribution utility like Meralco and generators, usually their sister companies.
The second part is the way the EPIRA law restrictsthe concentration of power generating capacity to 25% of national installed capacity and 30% of regional capacity (Luzon, Visayas, and Mindanao) under its Section 45(a).
Unfortunately, the Department of Energy in 2002 that was tasked of drafting the Implementing Rules and Regulations of RA 9536 watered down this restriction of the law by disregarding “own and operate” and limited only to “control” in determining market concentration. This has been as much the reason for the uncontrolled consolidation of power generating capacity as the apathetic implementation of the CSP policy. Rule 11 did not disregard “own and operate” by accident. It clearly was a carefully calculated (and illegal) emasculation of the main law which otherwise unequivocally provided that all three, own, operate, and control to be the criteria for limits of concentration. (as we wrote before, whoever perpetuated this must be tried for treason!)
The Energy Regulatory Commission for its part promulgated its Resolution No. 26 Series of 2005 entitled Guidelines for the Determination of Installed Generation Capacity in a Grid and the National Installed Generating Capacity and Enforcement of the Limits of Concentration of Ownership, Operation, or Control of Installed Generating Capacity which took effect on 22 February 2006.
This is essentially an adaption of the “control” limits under Rule 11 and removal of “ownership and operation” as factors for limitation.
So what’s the big deal? A lot. And a lot because it is one of those subterranean reasons for the continuing lack of true competition in the power generation sector and the resulting higher pass on generation rates to consumers.
Understanding the Basics
If we are to achieve least cost power, we need a truly competitive power sector, where there are enough players who would be truly competing with each other. We would have enough players if there is a limit on how much of the country’s power generation capacity a particular group or related group can own, operate, and control.In countries that are vigilant against monopolies and market manipulation, four players would be enough. However, in the Philippines we probably need minimum six players. Limits on market collaboration must be strictly imposed.
The EPIRA law rightfully said “own, operate, and control” for the reason that in any of those capacity, the power generator would be in a position to influence the availability and pricing of the power. When the EPIRA IRR under Rule 11 dropped “own and operate” and only retained “control” as the determining factor, they were suggesting that a power generator who own or operate the power plant is not in a position to influence the decision on whether to run the plant or price its power. Tell that to the marines!
In the spot market, that is referred to as “withholding supply capacity” and “manipulation of prices”.
Rule 11 thus defined “control” to mean
“The capacity of such facility shall be credited to the entity controlling the terms and conditions of the prices or quantities of the output of such capacity sold in the market in cases where different entities own the same Generation Facility.
In cases where different Persons own, operate or Control the same Generation Facility, the capacity of such facility shall be credited to the Person controlling the capacity of the Generation Facility.” c
Could this be the reason why the multi-ownership of power generating plants became modus operandi among the big guys? Only the part owner who “controls” the capacity will be credited with the capacity for purposes of determining concentration of generating capacity. The other owners and operators of the power plants are not counted with the capacity.
The 3,551mw of the controversial Midnight power supply contracts although all owned 49% to 51% by Meralco PowerGen will not count and not be subject to limit computation since another entity will beassigned to control “the terms and conditions” of the prices or quantities of the output of such capacity sold in the market. Nifty circumvention of the law!
Rule 11 of the EPIRA IRR and ERC’s Resolution 26 of 2005 are the one-two punch against consumers that had been allowing for the consolidation, oligopolization, and cartelization of the power generation sector.
In many public fora your organization MatuwidnaSingilsaKuryente Consumer Alliance argued every chance we have to the ERC and DOE that Rule 11 is illegal and should be amended. An IRR cannot effectively water down and amend the mother law it is supposed to implement.
There was a flickering light at the end of the tunnel
There was a possibility that the ERC under former Chair Ducut and Executive Director Saturnino Juan tried to do something good for the consumers before they exitedby rectifying the illegality of omitting “ownership and operations” of Rule 11 or at least its Resolution 26 of 2005 in counting concentration of generating capacity.
In August 19, 2015 Exec. Director Juan signed an issues paper under ERC Case 2015-005 RM and on October 13, 2015 issued draft rules that would add an “ownership test” and “operation test” in addition to “control test” in determining capacity concentration and compliance to the limits set by Section 45(a) of the Epira Law.
This planned rules change apparently held a Damocles sword over the plans of the Big Generators to consolidate power generation among themselves.
ERC Snuffs Out Flickering Light
This would have been a big step for the consumers. But lo and behold, on the fateful day of March 15, 2016, the same ERC Commission session when they decided to postpone the implementation of the CSP policy (Resolution 1 of 2016) , the ERC decided to “hold in abeyance” the adoption of the new methodology adding ownership and operation tests in the ERC’s determination of compliance to market concentration limits. This was Resolution 3 of 2016.
The twin resolutions on March 15, 2016 (Resolutions 1 and 3 of 2016) were actually complementary to each other. Some people knew that the postponement of the CSP policy would result to the signing of significant contracts among related groups that would run counter to the “ownership and operation tests” envisioned under ERC Case 2015-005 RM. The obstacle had to be removed.
The pandemonium that accompanied the postponement of the CSP policy enabled the equally significant ERC Resolution 3 of 2016 to scape public and media notice. In fact, it was not held in abeyance but filed away hoping that it is totally forgotten.
Two years later on March 20, 2018, the ERC announced its determination of market concentration limits
- National Installed capacity of 21,867.11 mw or 5,466.77mw limit
- Regional Limits
Luzon 15,175 mw installed, 4,552.79mw limit
Visayas 3,194.88mw installed, 958mw limit
Mindanao 3,496.26mw installed, 1,048.78mw limit
We assume that these are based on the old questionable methodology using “control test” only. We are not aware of any new methodology issued.
When will the government do what is right and look after the people, the electric consumers? Investors in power generation need to make reasonable returns on their investment but do we have to sacrifice the people always in the process? Can we not find a balance?
In the next article we will tackle who are legally in compliance with the limits set by the Epira Law of 2001, Section 45(a)?
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com
