Meralco: Void ERC, DOE rules

by Lenie LecturaJune 3, 2016

from Business Mirror

THE Manila Electric Co. (Meralco) has asked a local court to declare null and void two Energy Regulatory Commission (ERC) resolutions and one circular of the Department of Energy (DOE), which prohibits, among others, distribution utilities (DUs) from participating in the competitive retail electricity market as suppliers.

The utility company also asked to declare null and void Sections 2 and 3 of another ERC resolution.

In particular, Meralco asked the Regional Trial Court (RTC) Branch 157 in Pasay City to issue a temporary restraining order (TRO), and subsequently, a writ of preliminary injunction enjoining the DOE from enforcing DOE Circular DC2015-06-0010; and Article I, Sections 2 and 3 of ERC Resolution  05; Resolution 10; and Resolution 11, all Series of 2016; and after due hearing, render judgment declaring as null and void the said rules issued by the two government agencies.

In particular, the DOE circular and the ERC resolutions prohibit DUs’ local retail electricity suppliers (RESs) from participating in the Retail Competition and Open Access (RCOA) as suppliers of electricity. While they allow DU-affiliate RESs from participating in the RCOA, ERC Resolution 11 “unduly imposed a 30-percent market cap whereby all RESs shall not be allowed to supply more than 30 percent of the total average monthly peak demand in the retail market.”

The same resolution also prohibits RESs from supplying more than 50 percent of the capacity requirements of their affiliate contestable customers (CC).

The DOE circular and ERC Resolution 10 also provide for mandatory contestability and excludes local RESs in their scope. The latter issuance also imposes penalties for CC that fail to enter into RCSs retail supply contracts.

Under the RCOA, customers with monthly average peak demand of at least 1 megawatt, dubbed as CC by the ERC, are now able to choose the supplier of their energy requirement.

These suppliers, commonly known as RES, will directly negotiate and contract on a wholesale level with power-generation companies, so they can sell electricity to CC at competitive rates. These rates will be reflected in the generation-charge portion of the bill, which typically comprises at least 50 percent of the monthly electrical bill.

When a CC chooses an RES to supply his needs, this RES will also be in charge of the customer’s monthly billing and collection of payments.

MPower, Meralco’s local RES, accounts for about 50 percent of the market share of the contestable market within its franchise, or 18 percent of the national total.

In its 91-page petition for declaration relief filed before the RTC Branch 157 in Pasig, Meralco said the prohibition and the market cap are invalid because they contravene the provisions of the Electric Power Industry Reform Act (Epira).

“To begin with, there is no provision under the Epira regarding the prohibition of DUs to participate in the supply business,” Meralco said, adding “Nowhere in the law or IRR [implementing rules and regulations] does it provide the ERC can effectively place a market cap on any industry player, much less bar a local RES from fully participating in the market to prevent anti-competitive behavior.”

In fact, the prohibition against DU’s local RES embodied in the DOE circular and the ERC resolutions is contrary to the express provision of Section 29 of the Epira, which expressly recognizes the DUs’ right to supply electricity to the contestable market,” Meralco said.

Moreover, Section 1, Rule 8 of Epira’s IRR also does not prohibit the DUs to engage in the business of supplying electricity.

Meralco said administrative regulations could not supersede the law. “In cases of conflict between the law and the rules and regulations implementing the law, the law shall always prevail.”

Meralco said the DOE and the ERC singled out MPower due to the latter’s market leadership.

“What the DOE and ERC actually want is to curb MPower’s market leadership for fear that it is causing a monopoly on the market, effectively preventing new entrants and curtailing the growth of other suppliers in the industry,” the utility firm in its petition said. “Such fear is completely baseless and wildly speculative.”

The ERC resolutions were meant to promote competition and protect customer interest. Meralco, however, believes instead of promoting competition, the DOE and the ERC would be destroying competition and granting unwarranted advantage and benefit to existing and prospective generation company (genco)-affiliated RESs.

“The undue advantage given to prospective genco-affiliate RESs is even more pronounced with Section 1 of the DOE circular, which categorically mentions a genco-affiliate RES and, yet, expressly prohibits local RESs,” Meralco said.

As such, the prohibition imposed by the DOE and the ERC, as well as the market cap violate the constitutional right to equal protection of the laws, Meralco said in its petition.

The ERC, when sought for comment, said the Office of the Solicitor General is currently drafting the appropriate pleading.