ERC to refine market-share restriction rules

by Lenie Lectura – January 4, 2016

from Business Mirror

THE Energy Regulatory Commission (ERC) awaits the submission of two separate reports that are vital to the commission in reviewing the rules on cross-ownership and market-share restrictions.

ERC Chairman Jose Vicente Salazar said the review is ongoing. “We are discussing these things with PEMC [Philippine Electricity Market Corp.] and GMC [Grid Management Committee]. We want to know the implications when we implement the options that are going to be presented to us,” Salazar said, when asked for an update on plans to revisit these rules.

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.”

PEMC has submitted its preliminary position, but the ERC is asking the grid operator to submit a final report within the month. “We are pressuring PEMC to submit their report, because we have already discussed this with them,” Salazar said.

Salazar, however, refused to disclose the contents of PEMC’s initial report: “It is still up for discussion. We don’t want to preempt the decisions that we will actually make.”

GMC, meanwhile, is still preparing a report. “We told GMC that this is really urgent. We will impose on GMC that the ERC should receive the report this month, so that we can compare these two reports and determine how we are going to move forward,” the ERC chief added.

Salazar, in an earlier text message, said the ongoing review is meant to prevent anticompetitive behavior and market abuse by certain companies.

Section 45 (a) of the Electric Power Industry Reform Act (Epira) 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 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 disallows 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 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 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 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; and Mindanao with 2,163.72MW, 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 said rule is applied, the limit for Luzon this year is at 3,917.327MW of IGC; 709.107 MW on the Visayas grid; and 649.115 MW in 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 2016.

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