The Vision of ERC’s Composition According to the Epira Law (Part 1)

David Celestra Tan, MSK
9 June 2018

Part 1

When the Philippines decided to privatize and deregulate the Power Sector seventeen years ago this month in June 2001, they created an Energy Regulatory Commission to ensure the goals of creating true competition, reducing power costs, and assuring adequate supply of power are achieved.

Indeed, a properly functioning ERC is critical to the success of deregulation and its intended objectives of assuring power supply by encouraging investments in an atmosphere of true open competition, reducing power costs by installing competitive markets,  and putting safeguards for consumers from being overcharged.

Composition of the ERC according to the Epira Law

I. Credential Requirements

SEC. 38. Creation of the Energy Regulatory Commission.

There is hereby created an independent, quasi-judicial regulatory body to be named the Energy Regulatory Commissions (ERC). ……. The Commission shall be composed of a Chairman and four (4) members to be appointed by the President of the Philippines. The Chairman and the members of the Commission shall be

1. natural-born citizens and residents of the Philippines,

2. persons of good moral character,

3. at least thirty-five (35) years of age, and

4. of recognized competence in any of the following fields: energy, law, economics, finance, commerce, or engineering, with at least three (3) years actual and distinguished experience in their respective fields of expertise:

5. Provided, That out of the four (4) members of the Commission,

a) at least one (1) shall be a member of the Philippine Bar with at least ten (10) years experience in the active practice of law,

b) and one (1) shall be a certified public accountant with at least ten (10) years experience in active

6. The Chairman of the Commission, who shall be a member of the Philippine Bar, shall act as the Chief Executive Officer of the Commission.

7. All members of the Commission shall have a term of seven (7) years: Provided, That for the first appointees, the Chairman shall hold office for seven (7) years, two (2) members shall hold office for five (5) years and the other two (2) members shall hold office for three (3) years; Provided, further,

8. that appointment to any future vacancy shall only be for the unexpired term of the predecessor: Provided, finally,

9. That there shall be no reappointment and in no case shall any member serve for more than seven (7) years in the Commission.

10. The Chairman and members of the Commission or any of their relatives within the fourth civil degree of consanguinity or affinity, legitimate or common law, shall be prohibited from holding any interest whatsoever, either as investor, stockholder, officer or director, in any company or entity engaged in the business of transmitting, generating, supplying or distributing any form of energy and must, therefore, divest through sale or legal disposition of any and all interests in the energy sector upon assumption of office.

11. The presence of at least three (3) members of the Commission shall constitute a quorum and the majority vote of two (2) members in a meeting where a quorum is present shall be necessary for the adoption of any rule, ruling, order, resolution, decision, or other act of the Commission in the exercise of its quasi-judicial functions: Provided, That in fixing rates and tariffs, an affirmative vote of three (3) members shall be required.

II. Regulatory Responsibilities

Those are the general credential requirements.  Now let us see what the Epira Law had tasked them to do so we can have an idea on what kind of technical and integrity qualifications are needed to properly perform as a Commissioner beyond their credentials. In addition to Section 43, the ERC is also tasked with implementing many rules provided for in the various sectors of the power industry.

1. SEC. 43. Functions of the ERC. –The ERC shall promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the restructured electricity industry. This Section listed specific duties of the ERC from “a” to “u”. among which are:

f) In the public interest, establish and enforce a methodology for setting transmission and distribution wheeling rates and retail rates for the captive market of a distribution utility, taking intro account all relevant considerations, including the efficiency or inefficiency of the regulated entities. The rates must be such as to allow the recovery of just and reasonable costs and a reasonable return on rate base (RORB) to enable the entity to operate viably. The ERC may adopt alternative forms of internationally-accepted rate-setting methodology as it may deem appropriate. The rate-setting methodology so adopted and applied must ensure a reasonable price of electricity.

k) Monitor and take measures in accordance with this Act to penalize abuse of market power, cartelization, and anti-competitive or discriminatory behavior by any electric power industry participant;

u) The ERC shall have the original and exclusive jurisdiction over all cases contesting rates, fees, fines and penalties imposed by the ERC in the exercise of the above mentioned powers, functions and responsibilities and over all cases involving disputes between and among participants or players in the energy sector.

(c) Enforce the rules and regulations governing the operations of the electricity spot market and the activities of the spot market operator and other participants in the spot market, for the purpose of ensuring a greater supply and rational pricing of electricity;

2. Section 45 is one of its most challenging mandates on “Cross Ownership, Market Power Abuse and Anti-Competitive Behavior.” To promote true market competition and prevent harmful monopoly and market power abuse, the ERC shall enforce the following safeguards:

a) No participant in the electricity industry or any other person may engage in any anti-competitive behavior including, but not limited to, cross-subsidization, price or market manipulation, or other unfair trade practices detrimental to the encouragement and protection of contestable markets.

b) No generation company, distribution utility, or its respective subsidiary or affiliate or stockholder or official of a generation company or distribution utility, or other entity engaged in generating and supplying electricity specified by ERC within the fourth civil degree of consanguinity or affinity, shall be allowed to hold any interest, directly or indirectly, in TRANSCO or its concessionaire.

3. The ERC shall, within one (1) year from the effectivity of this Act., promulgate rules and regulations to ensure and promote competition, encourage market development and customer choice and discourage/penalize abuse of market power, cartelization and any anti-competitive or discriminatory behavior, in order to further the intent of this Act and protect the public interest. Such rules and regulations shall define the following:

4. (a) the relevant markets for purposes of establishing abuse or misuse of monopoly or market position;

5. (b) areas of isolated grids; and

6. (c) the periodic reportorial requirements of electric power industry participants as may be necessary to enforce the provisions of this Section.

7. The ERC shall, motuproprio, monitor and penalize any market power abuse or anti-competitive or discriminatory act or behavior by any participant in the electric power industry. Upon finding that a market participant has engaged in such act or behavior, the ERC shall stop and redress the same. Such remedies shall, without limitation, include the imposition of price controls, issuance of injunctions, requirement of divestment or disgorgement of excess profits and imposition of fines and penalties pursuant to this Act.

We do not mean to reprint the Epira law. Just took a sampling of the ERC’s responsibilities mandated unto it by the EPIRA Law so you can get a feel of the enormity of the job that was dumped on the ERC to make power deregulation and privatization work.

 Good to review as we embark on its possible reform.

Next the vision and mission of the ERC are actually simple!