ERC revisits rules on ownership of power generators, distributors

by Lenie Lectura – November 23, 2015

from Business Mirror

TO discourage abuse of market power in the industry, the Energy Regulatory Commission (ERC) is currently reviewing the rules on cross ownership between generation companies (gencos) and distribution utilities (DUs), as well as the market-share caps for power generators provided for in the Electric Power Industry Reform Act (Epira).

“We want to revisit the provision on cross ownership and market- share restriction under Section 45 of Epira…to prevent anti-competitive behavior and market abuse by certain companies,” ERC Chairman Jose Vicente Salazar said in a text message.

Epira’s Section 45 (a) 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.”

In fact, he said, the commission is already conducting an “extensive study” on this. “The commission gave instructions to key offices of ERC for the determination of the most optimal percentage,” he said when asked what the ideal limit is being considered by the ERC.

Based on this study, the commission will issue resolutions to enforce whatever new regulations the agency has come up with. “We will have some resolutions before the year ends,” Salazar added.

While Epira allows gencos or 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 its total power demand from bilateral contracts with its 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 maybe enough to promote competition in the power sector. Nonetheless, the ERC’s authority plays an important role to discourage 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 anti-monopoly 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 said 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 this year from 15,832 MW a year ago.

In Luzon, this year’s IGC is at 13,057.76 MW from 12,041.42 MW last year. The Visayas has 2,363.69 MW from 1,827.29 MW last year; and Mindanao with 2,163.72 MW from 1,963.65 MW last year.

Based on existing rules, a genco could only corner 30 percent of the total IGC on a per grid basis. Thus, if the said rule is applied, the limit for Luzon this year is at3,917.327 MW of IGC; 709.107 MW on the Visayas grid; and 649.115 MW in 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 G. Cruz-Ducut said in the resolution she signed. Salazar replaced Ducut.

The next adjustment will be implemented in March next year.

To date, the ERC said no genco has violated the market-share limitations.