The Lesson That Matters from the Ombudsman Suspension of the ERC Commissioners

David Celestra Tan, MSK
12 February 2018

When the Office of the Ombudsman handed down on December 21, 2017 its decision finding the Five (5) Commissioners of the ERC guilty of neglect of duty and abuse of discretion in favoring Meralco by extending the implementation of the CSP (Competitive Selection Process or bidding) for power supply contracts from November 5, 2015 to April 30, 2016, and suspended them for one year , it felt like it was a rare but major victory for the electric consumers.

MSK however did not view it as a conquest with the Ombudsman delivering to the consumers the heads of the four (4) Commissioners on a sling.  Rather it was a validation of MSK’s reading that the extension of the CSP was improper and illegal, a betrayal of the public trust by an agency unequivocally mandated by law to look after the public interest.

Court Findings

It was really the principle of the ruling and not the punishment that should matter to consumers and the country.

Based on certified documents submitted by both the complainant, the Alyansa Para SaBagongPilipinas (ABP) and the respondent Commissioners of the Energy Regulatory Commission, the Office of the Ombudsman, found the following:

1. “In sum, respondents are guilty of Conduct Prejudicial to the Best Interest of the Service, aggravated by Simple Misconduct and Simple Neglect of Duty; while the alleged Abuse of Authority is deemed included in the findings of misconduct” (P. 18 of 21).
2. “the CSP is an acknowledged mechanism to make the cost of PSAs more reasonable. Hence, accommodating companies request to be exempted from CSP was a deviation from respondents’ duty to promote public interest through the CSP requirement. (p.15 of 21),
3. “Respondents, in dismissing the allegation that they have given undue favor to MERALCO claim that they denied its request to be exempted from CSP’s requirement. However, the issuance of the 2016 CSP Resolution, which provided a window period to DUs and GenCos to file their PSCs without the need to comply with CSP requirement, patently shows that they actually heeded MERALCO’s request.”
4. “Respondents act of extending the effectivity of the CSP requirement, which effectively accommodated PSC’s entered by Meralco with its affiliates, and of other DUs, is beyond the authority entrusted to them by the EPIRA” “It is required that the regulation be germane to the objects and purposes of the law; and that it be not in contradiction to, but in conformity with the standards prescribed by law” (p.16 of 21).
5. “Conduct Prejudicial to the Best Interest of the Service is a grave offense defined as any act which tarnishes the image and integrity of public office. By not implementing the CSP requirement which favored the filing of PSAs of Meralco and other DUs, respondents tarnished the image and integrity of their public office and reneged on their duty to protect the consumers by implementing the policy of the government against Anti-Competitive Behavior in the electricity market.”
6. “Clearly, respondents’ acts as established by the evidence on record have prejudiced the public service and undermined the confidence of the public in the capacity of ERC to effectively implement the EPIRA and protect the interests of the public”.
7. “By wrongfully denying the consumers the benefit of CSP, and allowing high valued and long term PSA’s and PSCs to be filed without complying with the requirement of CSP, respondents failed to do their duty to encourage market development, ensure customer choice, penalize abuse of market power in the restructured electricity industry, and enforce the implementing rules and regulations of EPIRA”

Punishment

The Ombudsman suspended for one year all Five sitting Commissioners of the ERC. Previously removed Chairman Salazar was instead penalized equivalent to six month’s salary.  Whether or not the suspension will stick depends on the grind of our justice system…. A lesson we learned many times over.

The punishment however does not really matter to the consumers. Let us not lose sight of the real issue which is the approval of the seven (7) midnight contracts signed by Meralco with various project companies controlled by its sister company MeralcoPowerGen.

Atonement and Respect for Consumers

As a measure of atonement and enlightenment, let us hope that the ERC Commissioners, if they are given reprieve from suspension, immediately and expeditiously approve or extend the operating permits (called COC) of the reported 5,000mw of existing power plants to assure that the power supply of the country during this Summer is not threatened.

And in a display of humility and respect for the consumers and the law, the ERC Commissioners should stay off the approval of the questionable seven (7) midnight negotiated by Meralco with its sister companies.

If the ERC Commissioners committed a misjudgment the first time “By wrongfully denying the consumers the benefit of CSP, and allowing high valued and long term PSA’s and PSCs to be filed without complying with the requirement of CSP, respondents failed to do their duty to encourage market development, ensure customer choice, penalize abuse of market power in the restructured electricity industry, and enforce the implementing rules and regulations of EPIRA”, them trying this time to one-up the consumers by nonetheless approving any of Meralco’s midnight contracts despite the Ombudsmans findings, would be a greater crime against the consumers and an even  more serious betrayal of public trust.

If these happen then the consumers really have lost and we as a nation have not learned any lesson from the clear Ombudsman ruling.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

david.mskorg@yahoo.com

Words to Live by: “Only a life lived in the service of others is worth living….after you have raised and educated your kids well”

Recent Movies I loved: Shape of Water, don’t miss it… Also “Worlds Greatest Showman” and Jumanji.

CounterPoint: Our Rates are high because of Sweetheart Deals with Sister Generators and of Anomalous PBR rate methodology by ERC.

David Celestra Tan, MSK
9 February 2018

(This is MSK’s response to the viewpoint of Mr. Kris Balibukel  on our article Coal or LNG is not an either or question posted on December 5, 2017)  

We agree with the point of Mr. Balibukel that the Philippines has one of the highest electricity rates in Asia. We however disagree that the reason is that the Filipino consumers paid dearly for the energy security and environment sustainability programs of the government.  He pointed at the government’s support for the development of indigenous Malampaya LNG, geothermal power,  large hydro power, and the subsidies for Renewable Energy under the FIT program as the main reasons.

MSK reiterates its position that the real reason for the high rates is that major distribution utilities like Meralco have been allowed to negotiate long term power supply contracts, most of them with sister generators, without benefit of market bidding and resulting to sweetheart rates that they then pass on to the consumers. MSK’s analysis of the pass on charges of Meralco power suppliers showed that the prices between sister generators and independent suppliers have been as much as P0.75 to P1.00 per kwh. And that the difference between negotiated rates and truly competitively bid power supply contracts is at least P0.50 per kwh.  And those are only for the officially published rates per kwh.  There are also sweetheart maintenance downtime payments, fuel allowances, and escalation.

Power generated from Malampaya gas was high not because of the gas and the royalty charge of the government but the take-or-pay provision and the higher capacity fees of the First Gas Power and Meralco contracts   We invite Mr. Balibukel to compare the First Gas Power prices from 2006 to 2010 with the prices charged to it by the government owned Ilijan Power that also use Malampaya gas.  The numbers will speak for themselves.

The other reason for the high rates to consumers is the anomalous PBR rate setting methodology for distribution charges which effectively allowed Meralcoto make 25% return on equity per year AFTER TAX. MSK filed a petition for changes in the PBR rules but the ERC was clearly not sympathetic to the flight of the Meralco consumers.

We also agree with Mr. Balibukel that the EPIRA Law of 2001 was designed to create competition in the power sector and in his words to convert it from a sellers’ market to a buyers’ market.  We are amused though by the assertion that what MSK “espousesis to diminish that power to buy from where it is cheap”.

Because Distribution Utilities like Meralco, Davao Light, Visayan Light, have been allowed to negotiate power supply prices with their sister companies, there is no real buyer and seller of power to speak of. What we got is a buyer-sellers (as one) market and no real sellers because buyers (Meralco) and their sister generators (First Gas, MeralcoPowerGen) are one and the same.

Coal and Natural Gas have each their supply chain vagaries as energy sources.  We would like to listen to the argument that Coal is less market volatile than LNG and ergo it is better for consumers for the country to use more coal.  It rings hollow however if it is argued by Meralco who has self-interest in the bias for coal because of the 4,005 MW of coal power plants they signed with various project companies controlled by its own MeralcoPowerGen.

The argument also does not count the consequential costs of coal, the global need to subsidize clean energy, just to atone for the sins of coal.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com

Saying for the week:

“Somedays you are the dog, Other days you are the hydrant”, 
American Poster

Filipino Version: “weather weather lang yan”!