ERC has two weeks to review rules preventing abuses in power industry

by Lenie Lectura – February 9, 2016

from Business Mirror

THE Energy Regulatory Commission (ERC) has started reviewing the rules on cross ownership and market-share limitation rules following the much-awaited inputs submitted by the Philippine Electricity Market Corp. (PEMC) and the Grid Management Committee (GMC) as part of the initiative to prevent market abuse and anticompetitive schemes in the power industry.

The review will take a couple of weeks, ERC Chairman Jose Vicente Salazar said in a text message.

During the review, the agency will determine if there is a need to revise these rules. Salazar said the modified rules would prevent anti-competitive behavior and market abuse by certain power companies.

“With respect to market-share limitations, the commission already received the recommendations of GMC and PEMC. The commission will decide in the coming weeks on the proposed revisions of the rules on MSL,” Salazar told the BusinessMirror.

PEMC is the operator of the Wholesale Electricity Spot Market. GMC, meanwhile, is a unit under the ERC.

Salazar said PEMC and GMC “are just going to be treated as resources because the decision would still be made by the ERC. We are discussing these things with PEMC and GMC. We want to know the implications when we implement the options that are presented to us.”

Salazar refused to disclose the contents of the recommendations drafted by PEMC and GMC, as “it could preempt the decision of the commission.”

Section 45 (a) of the Electric Power Industry Reform Act provides that “no company or related group can own, operate or control more than 30 percent of the installed generating capacity of a grid and/or 25 percent of the national installed generating capacity.”

“The commission gave instructions to key offices of the ERC for the determination of the most optimal percentage,” he said when asked what is the ideal limit being considered by the ERC.

While Epira allows generation companies (gencos) or distribution utilities (DUs) from participating in the transmission sector, cross-ownership between a genco and a DU is allowed. As a safeguard to abuse though, the law prevents DUs from sourcing more than 50 percent of their total power demand from bilateral contracts with their affiliated gencos.

“Completely disallowing cross-ownership between a DU and a genco might prove to be too much of a barrier to investment and entry into the market, and could also cause privatization to become more difficult,” according to a policy brief by the Senate Economic Planning Office.

Instead of completely disallowing cross ownership, the Senate said the caps on bilateral contracts and grid-capacity ownership could be enough to promote competition in the power sector. Nonetheless, the ERC’s authority plays an important role in discouraging possible market abuse.

“In the end, however, grid caps and bilateral caps can only do so much and there is still no substitute for good regulation and strong anti-trust and antimonopoly enforcement which should be the job of a truly strong and independent ERC,” the Senate added.

Every year the ERC sets generation-capacity limits for power generators. The limit could be calculated based on the installed generating capacity (IGC), which refers to the sum of the maximum capacities of the generation facilities connected to a transmission or distribution system in a grid.

The national grid has a total of 17,585.17-megawatt (MW) IGC in 2015 from 15,832 MW a year ago in 2014.

In Luzon, last year’s IGC was at 13,057.76 MW from 12,041.42 MW in 2014. The Visayas has 2,363.69 MW from 1,827.29 MW in 2014. Mindanao’s IGC rose to 2,163.72 MW from 1,963.65MW in 2014.

Based on existing rules, a genco could only corner 30 percent of the total IGC on a per-grid basis. Thus, if the rule is applied, the limit for Luzon this year is at 3,917.327 MW of IGC; 709.107 MW for the Visayas grid; and 649.115 MW for the Mindanao grid.

If the operation of a genco is concentrated in one particular grid, it is allowed to own 25 percent, or 4,346.291 MW, of the national grid’s total IGC.

“The ERC determines and adjusts the installed generating capacity and the market-share limitation yearly to ensure a competitive generation sector in the electric power industry that promotes and protects consumer interests,” former ERC Chairman Zenaida Ducut said in the resolution she signed. Salazar replaced Ducut.

The next adjustment will be implemented in March.

To date, the ERC said no genco has violated the MSL.