Viewpoint: Regulatory Capture of the Energy Regulatory Commission Part 2

By David A. Tauli, Mindanao Coalition of Power Consumers

The Duterte government has among its priority programs the reduction of rates for electricity. This objective will not be attained unless the regulatory capture of the Energy Regulatory Commission is ended.

In an earlier post on the Apo IPPA scam, we pointed out that one unmistakable evidence of the regulatory capture of the ERC is the ERC decision to increase the rate of the generation of the Mt. Apo geothermal power plant, from the duly approved rate of around 3.00 pesos per kilowatt-hour to a rate of around 5.20 per kWh. By studying the ERC decisions in the applications for the approval of power supply agreements for the generation of the Mt. Apo GPP,  it can be seen that the increase in the rate of Mt. Apo is unjust and unreasonable, and was attained through a malicious perversion of the regulatory process for approval by ERC of increases in the rates of existing power plants. The exorbitant rate approved by the ERC results in billions of pesos being stolen from Mindanao power consumers, totaling to more than 16 billion pesos over the period of ten years that the generation of the Mt. Apo GPP remains contracted to the national government.

Since the ERC is directly under the office of the President, the Apo IPPA scam can be stopped by President Duterte ordering the ERC to restore the rate of the Mt. Apo GPP to the previous rate duly approved by the ERC.

It also can be stopped by filing a petition at the Court of Appeals or the Supreme Court contesting the ERC increase in the rates of the Mt. Apo GPP. The MCPC was advised by the ERC Chairman to file a petition with the ERC for the reduction in the rates of the Mt. Apo GPP. But decision-making at the ERC is collegial. Even if we can be certain of proving our case at the ERC it will be the Chairman against the four other commissioners who approved the rate increase.

Regulatory capture of the ERC can be proven beyond reasonable doubt by using the Apo IPPA scam. Studying the case is Regulatory Capture 101. A more difficult way of proving regulatory capture is through a study of the ERC approvals of the power supply agreements (PSA) of four coal power plants in Mindanao. A result of such a study is briefly taken up here, and constitutes Regulatory Capture 102.

A tabulation of the results is shown below of the petitions to the ERC for approval of the PSAs for the four coal power plants in Mindanao, here referred to as A, F, S and G (to avoid the banality of using A, B, C and D).

Coal Power Plant	A	F	S	G
Installed Capacity, MW	2×150	3×135	2×150	2×150
Least-Cost Acquisition	NO	NO	YES	YES
Total Charges approved by the ERC (excluding Fuel Fee) in Pesos per KWh	4.50	4.10	3.20	3.10

All coal power plants use the same technology, fluidized bed combustion (FBC). (This is wrongly touted by coal generating companies as “clean” coal technology. The only coal-fueled power plant technology that can be called environmentally clean is the IGCC-CCS, Integrated Gasification, Combined Cycle, with Carbon Capture and Sequestration. This has already been proven to be technically viable, but such coal plants are not yet in commercial production.) All the four coal plants are also of similar capacity ratings per unit. Consequently, in a rational world, the cost-based prices (pesos per kWh) for the generation of the power plants installed in Mindanao should be virtually the same, varying only by single-digit centavos. But, as can be seen in the tabulation, the differences in the rates approved by the ERC are around one peso or greater per kWh.

Other than the approved rates, the only significant difference in the coal plants is that two of them complied, and two did not comply, with the legal requirement (imposed by the EPIRA on distribution utilities entering into power supply contracts) to carry out Least-Cost Acquisition before entering into the contracts. The two power plants for which it has been proven that an LCA process was carried out prior to negotiating the PSA have lower rates than the power plants for which it is doubtful that LCAs were carried out by the DUs.

The LCA requirement forces the DU’s to carry out an honest-to-goodness search for the least-cost supplier of electric power, and prevents the ERC from arbitrarily setting the rates at which the generation will be sold to consumers. Thus, the LCA requirement is the only protection of consumers against sweetheart deals between DUs and gencos, in which the DU and the genco agree to charge consumers unreasonably high rates for bulk power generation. With the ERC captured by these DUs and gencos, the high rates applied for are automatically approved.

The EPIRA mandates the ERC to ensure against violations of the implementing rules and regulations of the EPIRA by the electric power corporations that it regulates. Thus, the ERC is supposed to ensure that the DUs, who are submitting petitions for approval of PSAs, have gone through an acceptable LCA process before entering into the PSA with the Gencos. Apparently, the ERC did not perform this responsibility in the case of coal plants “A” and “F”.

Of course the ERC and the DUs claim that all the DUs went through an LCA process before entering into the PSAs. But the large difference in the rates of the approved PSAs constitutes prima facie proof that the DUs did not do an LCA for the higher-priced coal plants. This is also prima facie evidence that the ERC has been captured by the entities that it is supposed to elaborate. The irrationally large difference in rates of similar coal power plants demonstrates that, without an LCA process, the ERC makes arbitrary decisions on rates in favor of the gencos and the DUs, to the prejudice of the power consumers.

That the DUs did not go through an LCA process in the case of Coal Plant F can be proven “beyond reasonable doubt” in a competent legal court. (I still have to study the manner in which the alleged LCA process for Coal Plant A was carried out.) At the same period when the DUs were negotiating the PSAs with the owners of Coal Plant F, the owners of Coal Plant G were also offering to DUs power supply at the fixed total rate (excluding Fuel Fee) of around 3.10 pesos per kWh. Despite this existing offer at a lower rate, the DUs entered into PSAs with Coal Plant F at the total effective rate (excluding Fuel Fee) of 4.10 pesos per kWh.

The additional profits, from the one peso increase over the reasonable rate for the coal plants, will enable the owners of Coal Plant F to earn over the 25 years contracted life of the coal plant the humongous sum of more than sixty (60) billion pesos. Greater than what all the lawmakers stole through the PDAF scams. Greater than what all the drug lords can extort from engaging in the illegal drugs business.

Who can save the Mindanao power consumers from being gypped by the gencos, the DUs and the ERC? Only the President of the Philippines. By terminating the regulatory capture of the ERC.