The Supreme Court Decision was supposed to be a Consumer’s Checkmate on Meralco’s 7 Midnight PSAs….It Turned Out to be a Stalemate! (Part 2)

Aya Jallorina, ABP
30 May 2019

In Part 1 MSK had written about the long needed constitutional clarifications that were provided by the Supreme Court in its decision on the questionable ERC extension of the CSP policy. It  can illuminate our energy policy makers specially the regulators who after almost 20 years could not liberate themselves from its capture by the vested interests. The more things changed in the first five (5) Chairmen, the more things stayed the same at the regulatory agency.  The first part of GR No. 227670 was just a wonderful work of wisdom, statesmanship, and patriotism. We in Alyansa para saBagongPilipinas are grateful to the Supreme Court for upholding the rights of electric consumers.

However, there are somethings in the decision that watered down an otherwise really wonderful consumer vindication.

A. Omission.

We are wondering why the Supreme Court is recognizing June 30, 2015 as the effectivity of the CSP policy and not November 7, 2015?

1. The Supreme Court decision took the position that the effectivity date of the DOE Circular 2015-06-0008 of June 30, 2015 is also the effectivity of the CSP deadline. It seems to have overlooked the fact that this circular provided that “within 120 days from the effectivity of this circular, the DOE and ERC will jointly issue the guidelines and procedures for the aggregation of un-contracted demand of the DU’s….”

2. This means The DOE Circular 2015-06-0008 actually allowed ERC 120 days to issue the implementing guidelines, which it in fact did by issuing Resolution 13 Series of 2015 on 20 October 2015 that became effective November 7, 2015 after the two weeks required publication. This was done jointly with the DOE as the Supreme Court ruling recognized.

3. It is for this reason that as petitioner ABP’s prayer was to seek that the“Court direct the ERC to disapprove the Power Supply Agreements (PSAs) of the Distribution Utilities (DUs) submitted after 7 November 2015 for failure to conduct Competitive Selection Process (CSP). The petition further asks the Court to order ERC to implement CSP in accordance with the Department of Energy (DOE) Circular No. DC2015-06-0008 (2015 DOE Circular) and ERC Resolution No. 13, Series of 2015 (CSP Guidelines).”

4. Why did the Supreme Court decide then that the effectivity date of the CSP policy should be June 30, 2015 instead of November 7, 2015? We wonder if this is in line with the “hide in the crowd” strategy of Meralco and the old ERC when they claimed there were 90 projects that took advantage of the controversial extended April 30, 2016 deadline although 80% of it is the 3,551mw of Meralco. Was the Supreme Court somehow persuadedto use June 30, 2015 to similarly create a crowd of applicants and avoid too much focus on Meralco’s seven midnight PSA’s.?

5. One of ERC’s main excuses for extending the CSP deadline was that there were “many” DU’s and IPP’s who requested for reconsideration? In fact in reaction to the Supreme Court decision, one point the ERC raised was that there are many projects affected including plants that have been finished and operating. There is a distinct effort to avoid making the issue mainly about Meralco 7 PSA’s.

6. The unfortunate collateral damage is on the small projects that were signed and filed after June 30, 2015 but made it to the real CSP effectivity of November 7, 2015.

B. The Supreme Courts perplexing reference to DOE’s CSP Guideline DC2018-02-0003 instead of DC2015-06-0008.

1. ABP’s issue and petition was about violating some rules that were in place in 2015 and actions made in 2016. As the Supreme Court Decision pointed out the “ABP’s petition thus presents a purely legal issue: Does ERC have the statutory authority to postpone the date of effectivity of CSP, thereby amending the 2015 DOE Circular which required CSP to take effect on 30 June 2015”

2. We wonder then why the Supreme Court Decision surprisingly included DOE policy changes issued two (2) years later in 2018? The petition should be decided based on the laws obtaining at the time of the violation of the rules in 2015.

3. On page 36 of the Decision, it narrated that “On 1 February 2018, the DOE issued Circular No. DC2018-02-0003 entitled “Adopting and Prescribing the Policy for the Competitive Selection Process in the Procurement by the Distribution Utilities of Power Supply Agreements for the Captive Market” (2018 DOE Circular).

The DOE prescribed, in Annex “A” of this 2018 DOE Circular, the DOE’s own CSP Policy in the procurement of power supply by DUs for their captive market (2018 DOE CSP Policy). Section 16.1 of the 2018 DOE CSP Policy expressly repealed Section 4 of the 2015 DOE Circular authorizing ERC to issue supplemental guidelines to implement CSP. In short, the DOE revoked the authority it delegated to the ERC to issue supplemental guidelines to implement CSP, and the DOE itself issued its own guidelines, the 2018 DOE CSP Policy, to implement CSP under the 2015 DOE Circular.

“This means that the CSP Guidelines issued by the ERC have become functus officio and have been superseded by the 2018 DOE CSP Policy. Under its Section 15, the 2018 DOE CSP Policy is expressly made to apply to “all prospective PSAs.” (emphasis ours).

4. The question in our mind is why the Supreme Court is going out of its way to also rule that the questionable PSA’s must comply with the CSP rules according to specifically DC2018-02-0003 and not just generally to CSP guidelines as mandated by the DOE? Why even invoke the functus officio doctrine on the DOE guidelines? DC2018 is not germane to the petition and the SC decision.

5. The petition of Alyansa Para SaBagongPilipinas is to seek the Supreme Court “to declare as void ERC Resolution No. 1, Series of 2016 (ERC Clarificatory Resolution). The petition also seeks that this Court direct the ERC to disapprove the Power Supply Agreements (PSAs) of the Distribution Utilities (DUs) submitted after 7 November 2015 for failure to conduct Competitive Selection Process (CSP). The petition further asks the Court to order ERC to implement CSP in accordance with the Department of Energy (DOE) Circular No. DC2015-06-0008 (2015 DOE Circular) and ERC Resolution No. 13, Series of 2015 (CSP Guidelines).

6. Why should the Supreme Court specifically imply that the legitimate compliance to CSP can only be met by complying with DC2018-02-0003?Alyansa Para saBagongPilipinas filed its petition in December 2016 and did not include even subsequently DC2018 as relevant to the case.

7. The Supreme Court’s dispositive judgement says “In short, the DOE revoked the authority it delegated to the ERC to issue supplemental guidelines to implement CSP, and the DOE itself issued its own guidelines, the 2018 DOE CSP Policy, to implement CSP under the 2015 DOE Circular. This means that the CSP Guidelines issued by the ERC have become functus officio and have been superseded by the 2018 DOE CSP Policy. Under its Section 15, the 2018 DOE CSP Policy is expressly made to apply to “all prospective PSAs.” The 2018 DOE Circular, including its Annex “A,” took effect upon its publication on 9 February 2018. Thus, the 90 PSAs mentioned in this present case must undergo CSP in accordance with the 2018 DOE Circular, in particular the 2018 DOE CSP Policy prescribed in Annex “A” of the 2018 DOE Circular. (emphasis ours). 

8. WHEREFORE, the petition for certiorari and prohibition is GRANTED. The first paragraph of Section 4 of Energy Regulatory Commission Resolution No. 13, Series of2015 (CSP Guidelines), and Energy Regulatory Commission Resolution No. 1, Series of 2016 (ERC Clarificatory Resolution), are hereby declared VOID ab initio. Consequently, all Power Supply Agreement applications submitted by Distribution Utilities to the Energy Regulatory Commission on or after 30 June 2015 shall comply with the Competitive Selection Process in accordance with Department of Energy Circular No. DC2018-02-0003 (2018 DOE Circular) and its Annex “A.”Upon compliance with the Competitive Selection Process, the power purchase cost resulting from such compliance shall retroact to the date of effectivity of the complying Power Supply Agreement, but in no case earlier than 30 June 2015, for purposes of passing on the power purchase cost to consumers.”

Why is the Supreme Court even ruling on a retroactiveness of power purchase cost? This seems now a double over reach. While consumers are happy about the recognition by the Supreme Court of the illegality of the Meralco contracts, why is it going out of its way to what amounts to softening the impact on Meralcos contract and its ability to comply with the CSP?

C. What is the big deal about DC2018-02-0003 and its Annex A and why would it be in effect a concession to Meralco?

1.Under this DC2018 approved by the DOE in February 2018, the CSP will be undertaken by the Distribution Utilities and done by Third parties that it itself will form. This is a major change from DC2015 when the CSP can be undertaken by the DOE if needed with the use of a Third Party Bid Administrator it will choose. That means whatever happens, the DOE who has the task of insuring that additions to power supply actually materialize to meet the country’s demand, could not really do anything. It is only the DU that can do the CSP.

2. DC2018 did away with the CSP that can be undertaken by the DOE if needed and with the use of a Third Party bid administrators.

3. Why is this a big issue?

DC2018 gives the DU’s the main say on how the CSP will be undertaken, omitted any option for DOE to step in and undertake the CSP,  exactly what Meralco had been fighting to have.

Since June 30, 2015 when the DOE issued the Policy on CSP by Third Party Administrators, the Meralco group had been campaigning against it. First they wanted it voluntary. Then they want to be allowed to do swiss challenge type CSP. Then they don’t want Third Party Administrators and for them to do their own CSP. Then they want the policy implementation delayed.  As late as January 2016 Meralco still officially asked ERC that they be allowed to do swiss challenge type CSP. The point of all these is they want to have control over the bidding rules and process evidently so they can insure the desired winners win. Which not surprisingly will be a sister company.

The ERC magically and incongruously extended the CSP implementation to April 30, 2016 enabling Meralco to fast track 7 PSA with 5 partners for 3,551mw in cookie cutter terms and pricing formula just 10 days before the April 30 opening and filed the applications just the day before. There is something anomalous in the whole picture and that’s why we all ended up in the Supreme Court.

4. Meralco’s determination to control power supply and its market.

It has been 3 years since its seven PSA’s with sister company MeralcoPowerGen have not progressed while legal cases are pending. Yet Meralco had not moved to do a CSP to pursue back up major power supplies to assure it meets its franchise obligation to its customers.  It is evident they want their CSP way or no way.

5. It is for this reason that the seeming gratuitous reaching of the Supreme Court decision to specifically identify DC2018-02-0003 and its Annex A as the way to comply with its order for CSP is very disconcerting. It means the eventual compliance to the CSP will still be under the control of Meralco.

6. Is it possible that this concession is the reason the Supreme Court vote reached 10-2?

Is it possible that some justices were convinced to argue for the inclusion of DC2018-02-0003 without really realizing the power sector implications to the consumers and the unfortunate opportunity it will offer to Meralco that will sabotage the precise constitutional aspirations they so eloquently upheld in the early parts of the decision?

 7. While it is true that the DOE has the power to further amend its CSP Guidelines in view of the long delay in the Meralco projectssome quarters sympathetic to Meralco, and those within DOE itself, can argue that the Supreme Court had ruled that the PSA’s must comply specifically with DC2018-02-0003 and its Annex A. Otherwise “the DOE would be inviolation of the Supreme Court order”.

DOE is preempted by reason of a Supreme Court order from making any updating of its own CSP guideline even if the country is now pushed to the brink of power crisis due to Meralco’s dogged desire to get their way on juicy negotiated power supplies. Never mind that their service obligations to their consumers under their franchise are in jeopardy.

 8. Overwhelming forces against the consumers

In the battle to protect the consumers from exploitive negotiated power supply rates, the forces and resources lined up against the consumers are just overwhelming.  Imagine the combined financial and political resources of the MVP Group, Aboitiz, San Miguel, DMConsunji, Metro Bank, and EGAT of Thailand fighting for 3,551mw of power projects valued at approximately p400 Billion and revenues for 20 years of about P3 Trillion. We believe the overprice would be at least P15 billion a year for 20 years! With that kind of numbers at stake, it is no wonder that even a Supreme Court decision can be made tomagically align with their desires. Isn’t it scary?

9. In summary, as petitioner Alyansa para saBagongPilipinas asked the Supreme Court to rule on whether the ERC had the legal power or jurisdiction to postpone or extend the effectivity of the CSP policy from November 7, 2015 to April 30, 2016. It would have been sufficient for the Supreme Court to rule that based on the rules at that time in 2015 and 2016 specifically the applicable DOE policy Circular 2015-06-0008 and ERC Resolution 3 Series of 2015, that the ERC exceeded its authority and jurisdiction by extending the CSP implementation without DOE coordination or approval.

Instead the Supreme Court went as far as making aruling, that to us is regretfully overreaching, that to comply with the CSP policy, the distribution utilities must undertake CSP biddings restrictively in accordance with DC2018-02-0003.

 Unfortunately, given Meralco’s history, this DC2018 may need to be updated to enable the DOE to have the flexibility to insure that the CSP is no longer further delayed and is truly open and competitive to protect the public interest. We have seen what happens if power development and CSP is left totally in the hands of Meralco.  But the Supreme Court decision effectively straight jacketed the DOE from making the needed updating in the rules.

And in double over reach, the Supreme Court went even further and provided that “upon compliance the power cost shall retroact to the effectivity of the complying PSA” which this time encroaches on the rate setting methodologies of the ERC. 

As it stands the CSP compliance is not only under the control of Meralco but can also be complied with under restrictive requirements of the Supreme Court.  An untenable position for consumers.

Let’s hope maybe the Supreme Court can make a clarification?For now, Stalemate DOE, Checkmate Meralco consumers!

Can our lawyer readers help us understand more what is going on?

Next: the long range impact of the Supreme Court’s decision on DOE and ERC. 

Evelyn Jallorina, Secretary General
Alyansa Para Sa BagongPiliinas Inc.