Will the ERC and DOE Remake Themselves as a result of the Supreme Court Ruling on Meralco CSP? (Part 3)

David Celestra Tan, MSK
14 June 2019

In the ongoing saga of the MVP Group’s money making schemes to also monopolize power generation and charge Meralco customers self-negotiated sweetheart electric rates for the next 20 years,  the cause oriented group Alyansa Para Sa BagongPilipinas (ABP) had petitioned and the Supreme Court had spoken that ERC’s extension of the date for the effectivity of the CSP policy is beyond its authority and therefore illegal. Consequently all power supply contracts that were applied with the ERC after November 7, 2015 should undergo competitive selection process or bidding.The biggest lot of those is Meralco’s seven (7) PSA totaling 3,551mw with a guaranteed 28 Billion kwh a year sales for 20 years, fully 80% of the energy needs of the National Capital Region.

In its ruling GR 227670 the Supreme Court not only ruled on that issue but also reiterated enlightening provisions of the Constitution on other aspects of jurisdiction, governance, and autonomy related to ERC that the regulatory agency had been ignoring for a long time. If heeded, these constitutional reminders would have long term implications on the ERC and DOE as oversight institutions for the public interest.

Here are some excerpts of the Supreme Court Decision:

  1. On Page 2 on unfair competition and protection of public interest

Section 19, Article XII of the 1987 Constitution provides: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

The State grants electricity distribution utilities, through legislative franchises, a regulated monopoly within their respective franchise areas. Competitors are legally barred within the franchise areas of distribution utilities. Facing no competition, distribution utilities can easily dictate the price of electricity that they charge consumers. To protect the consuming public from exorbitant or unconscionable charges by distribution utilities, the State regulates the acquisition cost of electricity that distribution utilities can pass on to consumers.

As part of its regulation of this monopoly, the State requires distribution utilities to subject to competitive public bidding their purchases of electricity from power generating companies. Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities. Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution utilities.

x-x-x

Section 6, Article XII of the 1987 Constitution provides: “The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”

Indisputably, the use of electricity bears a vital social function. The State, in requiring competitive public bidding in the purchase of power by distribution utilities, has exercised its constitutional “duty x xx to intervene when the common good so demands. “

  1. Page 16 Functions of DOE and ERC

Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that the “pass through of bulk purchase cost by distributors is transparent [and] non-discriminatory. “

  1. Page 20 Independent Power of the ERC

In the present case, where there is no exercise of the ERC’s quasi-judicial powers, the ERC is legally bound to enforce the rules and regulations of the DOE as authorized under the EPIRA. The ERC has no independence or discretion to ignore, waive, amend, postpone, or revoke the rules and regulations of the DOE pursuant to the EPIRA, as it is horn book doctrine that rules and regulations issued pursuant to law by administrative agencies, like the DOE, have the force and effect of the law.  In fact, the first duty and function of the ERC under its charter is to “enforce the implementing rules and regulations” of the EPIRA as issued by the DOE. Certainly, the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA.

  1. Page 21

In any event, even in quasi-judicial cases, the ERC is bound to apply the policies, rules, regulations, and circulars issued by the DOE as the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA. To repeat, the DOE’s rules, regulations, and circulars issued pursuant to the DOE’s rule-making power under the EPIRA have the force and effect of law which the ERC is legally bound to follow, whether the ERC is exercising executive, quasi-legislative, or quasi-judicial powers.

 

(Emphasis are ours)

ERC

Considering that the legality of the Meralco power supply contract applications have delayed the power development of the country by 3 years, the compelling question is what will the affected institutions, ERC, Meralco and its 5 partners, and DOE, do? Will they continue fighting the legal issue, protract the impasse,  and not care about the delay in the nation’s power supply? Will the consumers be held hostage again and will the government passively watch as Luzon’s power supply deteriorate?

The new ERC will be tested on what they hold important, Self-interest or public service? Will they continue fighting for their domain over the power sector and put self-empowerment first over focusing on averting a power crisis by starting in earnest to making enough of the Meralco projects comply with legitimate CSP?

 a. Jurisdiction, power, and autonomy of ERC

Is the ERC willing to temporarily loosen its grip on its empire?

Almost from the beginning, the series of trapo politicians that were made Chairmen of this supposed public interest agency from 2003 to 2018, worked hard at protecting its power and jurisdiction over the power industry domain. As politicians steeped in the culture in Congress, they evidently wanted absolute power over a sector that the private entrepreneurs and oligarchs discovered they can profit handsomely, especially if they capture the regulators. The seasoned politicians effectively kept at bay past attempts by the DOE, Congress, and the Courts to influence the regulatory agency’s power by arguing they are an independent body and stigmatized any input from other government agencies as “meddling”.

This assertion by ERC of absolute power led to the regulatory agency’s total disregard for power policies set by the Department of Energy, the mandated policy making body under the EPIRA law. ERC routinely tries to appear to be in synch with the policies set by the DOE but in the process of implementation, they exercise so much privilege that they often violate if the not the word but the spirit of the DOE policies.

In fact, on the ruling by the Supreme Court years ago that Meralco as a public utility should be entitled to only a 12% annual return on their investment, the ERC evidently felt they were above the Supreme Court when they adopted the rate setting methodology PBR that effectively deregulated the profits of Meralco who is now making officially 25% return on equity.  Asked in a hearing on PBR, two senior commissioners declared in open court that they did not have to follow because the Supreme Court ruling was “no longer applicable when ERC changed the methodology to PBR and that the 12% return is no longer valid because “economic conditions had changed”. (Who brainwashed them?)

It is under this kind of hubris that the ERC evidently felt they can get away with fooling around with the implementation of the CSP policy from November 7, 2015 to April 30, 2016, despite them turning down Meralco’s request as late as January 2016 to be allowed to do swiss challenge type CSP.

What happened in February 2016 that made ERC change its mind and incongruously “clarified the implementation date of the CSP to April 30, 2016, a full 176 days after the original date? Most Filipinos can guess correctly on this one.

b. ERC’s mandate under the Epira Law

RA 9136 or the EPIRA Law of June 2001 indeed gave ERC a lot of power, many of them even motuproprio and all for the purpose of protecting the public interest. The most important of which is insuring the fair and reasonableness of the rates. It is true that previous ERC’s invoked those other non-rate setting powers like Section 43 sub-sections f,o,r,  whenever convenient but rarely in the genuine intent to serve the public interest.

Now the Supreme Court is saying they must implement only the policies laid down by the Department of Energy which had the effect of law. And we interpret that to mean not to exceed or contradict one whenever a policy had been established by the DOE.

A current case in point, the DOE had issued in February 2018 a Guideline for the procurement of power supply for the Distribution Utilities. And the ERC has been working on coming up with its own implementing guidelines of such policy. It is now in its 3rd draft and interestingly, while the DOE circular and expressed clarifications did not provide for unsolicited proposals or swiss challenge type biddings, ERC’s guidelines is devoting fully 1/3 of its pages to rules on unsolicited proposals and swiss challenge.

So the question is will the new ERC now respect the authority of the DOE to set policies and rules and not freelance and exercise privileges with their own implementation rules?

c. Will there an advent of a New DOE?

DOE is the reverse of ERC. They were given a clear mandate by the law to insure that there would be sufficient supply and least cost power with broad policy powers.  For many years they seem to have accepted that their job is to formulate and issue policy. And be contented that the implementation is left up to the discretion of the ERC, NEA, NPC, PSALM, come hell or high water.  One recent Secretary of Energy lamented that they don’t have enforcement capability, a sad perspective.

For the last 15 years one reality has been hitting DOE and that is when things are going wrong in the power sector, regardless of privatization and deregulation, it is the DOE that the people and the legislators are holding responsible.

Yellow and Red Alerts

In the recent case, yellow and red alerts started lighting up in the Luzon grid, and the JCPC called the power players to hearings. It was admirable that the DOE officials were trying to explain except they really could not provide the answers and solutions to the mysterious coincident downtimes of the power generators in Luzon.  The reason is it is really Meralco, to whom those power plants are contracted to, who is capable of ensuring the performance of these power plants and shepherding their downtime schedules.

It is evident they themselves feel it is DOE’s responsibility to make sure there is enough power supply and reserves and that the prices do not skyrocket. But they must stop thinking that their job is passive and only persuasive in making things happen.

Now the Supreme Court had clearly spoken.  It is the job of the DOE to establish policies and guidelines and those will have the effect of law.  ERC’s job is to implement the policies set by the DOE.

It is true that in the past the ERC was forced to write more implementing guidelines to executive the vague and motherhood guidelines set by the DOE or where the later had not written one.  For example, the implementation of Section 45 of the Epira law on limiting the market share of the owners of Meralco to only 50% of the power utility’s demand and energy needs. Some people managed to dilute the Epira law by writing a different way of implementation under Rule 11 of the Epira IRR in 2004. This has been paving the way for the MVP Group that controls Meralco to covet 100% of the contracts of Meralco’s power supply….. because they could.

But since the DOE had evidently not even recognized the illegality of Rule 11 through the years, the ERC had been implementing it in their own way and in their own time.

Now the DOE needs to step up and provide clear guidelines, monitor their implementation, and take proactive action if say power supply is not materializing on time.

This will require DOE to remake itself from a passive issuer of policies and rules and gatherer of statistics on evolving power development, to a proactive enforcer and pursuer of power development objectives if the private sector is not getting it done on time or the right way. The people is expecting that from the government and DOE.

The Supreme Court message is clear…..but will the ERC and DOE heed the call?

 

We will see soon enough in the rest of the year.

 

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

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.