WE APPEAL TO THE ERC TO LIFT THE SUSPENSION OF ITS NEW GUIDELINES CORRECTING THE METHOD OF DETERMINING CONCENTRATION OF OWNERSHIP, OPERATION, AND CONTROL OF INSTALLED GENERATION CAPACITY.
David Celestra Tan, MSK
11 December 2018
In the waning days of the former ERC Chair Zenaida Ducut in 2015, the ERC surprisingly made an effort to correct one of the great illegalities in the implementation of the EPIRA Law (RA 9136 of 2001) which was Rule 11 of the EPIRA. This Rule watered down the restriction of concentration of power generation facilities to only “control” instead of “ownership, operation, or control” as required under Section 45 of the EPIRA Law. This punched a mammoth loophole that had led to the monopolization of power generation and hence avoided true competition that was expected to lower the rates.
The EPIRA Law under Section 45 tried to promote competition in power generation and avoid concentration of ownership of the power plants by limiting the ownership, operation, or control of power plants that can be owned by an entity and their affiliated companies to only 30% of the regional grid and 25% of the national grid. Mathematically it means there would be at least four (4) generating companies that will compete in each area, thought to be sufficient to create beneficial competition for consumers.
Using Rule 11 as guideline, the ERC had been determining and announcing every year the maximum limits of installed power generating capacities and no one had been in danger of breaching the limit. We believe that at some point they also realized that by using only “control” they are not implementing the requirements of the EPIRA Law itself which clearly included three criteria which are “ownership, operation, or control”. They also noticed that power generation groups were just forming partnerships and joint ventures to circumvent the “concentration” limits.
After months of staff work, on October 13, 2015 the ERC posted its draft new guideline inviting public comments as ERC Case No. 2015-005 RM.
“GUIDELINES FOR THE DETERMINATION OF INSTALLED GENERATING CAPACITY AND ENFORCEMENT, OF THE LIMITS ON CONCENTRATION OF OWNERSHIP, OPERATION OR CONTROL OF INSTALLED GENERATING CAPACITY UNDER SECTION 45 OF REPUBLIC ACT NO. 9136″.
“The proposed amended Guidelines, on the other hand, provides that in the determination of the Generation Companies’ market shares and potential breach of the 30% and 25% market share limitation, it shall be separately determined based on three (3) separate tests, as follows:
a. Ownership test;
b. Operation test; and
c. Control test.
The generation company and its related group, if any, should comply with all the above mentioned tests. In the event that the generation company exceeds the limits in either of the tests required, the ERC shall consider the same as a breach of any of the market share limitation. If a generation company and its related group exceed the limits as periodically determined and set by the ERC in accordance with the Guidelines, it is obligated to inform and report such breach and the reason therefor to the ERC within the prescribed period from the occurrence thereof.
Thus, the Commission seeks the comments from the various industry stakeholders on the proposed amended Guidelines pursuant to Section 4s(a) of RA 9136.”
The draft revision does not go far enough but it would have been a big step forward towards correcting the legal infirmity of Rule 11 but also the control of market concentration and domination.
The Salazar ERC’s Step Backward on that fateful day of March 15, 2016
The ERC then quietly “held in abeyance” the rules on the determination of market concentration by passing Resolution 3 of 2016 on March 15, 2016 the same day and session that they famously “extended” the CSP policy by 6 months from November 6, 2015 to April 30, 2016. According to the Alyansa para sa Bagong Pilipinas, the two actions were interrelated because the new contracts that will result from the CSP extension will run counter to the limits of the new rules on concentration of installed capacity.
And the rest is history. Meralco took advantage of the extension that in 41 days it was able to hammer 3,551mw of PSA with 5 strategic partners who are willing to be the minority partners (and plant operators) of MeralcoPowerGen.
Freed from the market concentration limits “held in abeyance” by the ERC, they also proceeded to acquire the 1,000mw Global Business Power of the George Ty group and Aboitiz Group, for its part, acquired controlling interests in erstwhile competitor 1,200mw GN Power. Meralco partner EGAT of Thailand also bought 45% of the 800mw AES Masinloc coal plants in Zambales. GBP in turn bought controlling interest in the Alsons coal projects in Mindanao.
All these things happened before the new ERC Chair Agnes Devanadera was appointed on November 22, 2017 and new Commissioners Alexis Lumbatan and Catherine Maceda were recently appointed.
We realize that they have a lot to study and catch up on. Among the most epochal cases pending in the ERC that they have to deal with are the seven (7) midnight contracts of Meralco totaling 3,551mw and involving 80% of the energy needs of the largest distribution utility in the country covering the national capital region, the industrial and commercial nerve center of the Philippines.
In Meralco’s evident strategy to hoodwink even the Supreme Court, where ABP is questioning the legality of ERC’s extension of the CSP policy that turned out allowed the circumvention of the CSP policy, Meralco lawyers are trying to argue that the ERC had approved 30 power supply contracts that also did not undergo bidding, ergo ERC’s extension of the CSP cannot be illegal. Hence their 3,551 mw can be legally approved.
Is the argument valid? According to our sources, of the 25 PSA’s they were able to determine, 24 or 96% were between two unrelated generator and Distribution utility, hence in theory the negotiations were at least arms-length. Only 1 or 4% was between two sister companies, Meralco and Global Business. All the 25 PSA’s check were for small contracts of less than 50% of the DU’s demand. Meralco’s 3,551mw was for 80% of its energy requirement. 14 of the claimed contracts were signed before November 6, 2015 the original deadline of the CSP. 11 were signed after March 15, 2016 when ERC extended the CSP deadline. None of the 25 PSA’s checked resulted to a cartelization of power. The impact on the public cannot be compared.
We would like to appeal to the new ERC Chair Devanadera and the new Commissioners to activate this new formula for determining market concentration of power generation capacity under ERC Case No. 2015-005 RM and apply them to the current applications of the Meralco cartel. The six members for Meralco’s 3,551mw also own, operate, or control more than 10,000mw of the country’s installed generating capacity. That would give the cartel more than 75% of the nations installed generating capacity in 2022.
We pray that the new ERC will not allow this to happen.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
