Power supply deals need to undergo competitive process – SC

By Rey Panaligan – August 8, 2019, 4:36 PM
from Manila Bulletin

The Supreme Court (SC) has declared final its decision that ordered the conduct of competitive selection process (CSP) on all power supply agreements (PSAs) submitted by the country’s power distribution utilities on or after June 30, 2015 “to prevent monopolies that result in exorbitant electricity rates.”

Supreme Court of the Philippines (MANILA BULLETIN)

Supreme Court of the Philippines (MANILA BULLETIN)

In its May 3, 2019 decision, the SC also ruled that “upon compliance with the CSP, the power purchase cost resulting from such compliance shall retroact to the date of effectivity of the complying PSA, but in no case earlier than 30 June 2015, for purposes of passing on the power purchase cost to consumers.”

The decision, written by Senior Associate Justice Antonio T. Carpio, was declared final in a full court resolution issued last July 23 but made public on Thursday (August 8). The resolution denied all motions for reconsideration.

The SC declared that no further pleadings will be entertained on the case and an entry of judgment must be issued immediately for the enforcement of the decision.

Its decision was anchored on Section 19, Article XII of the Constitution which provides that “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 SC said that since the authority to distribute electricity is given through a legislative franchise, a regulated monopoly within their respective franchise areas, “competitors are legally barred within the franchise areas of distribution utilities.”

Thus, it pointed out that “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,” it said.

“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,” it stressed.

The issue on CSP was raised before the SC by the Alyansa Para sa Bagong Pilipinas, Inc. represented by Evelyn V. Jallorina and Noel Villon.

Named respondents were the ERC, the Department of Energy, Manila Electric Company (Meralco), Central Luzon Premiere Power Corp., St. Raphael Power Generation Corp., Panay Energy Development Corp., Mariveles Power Generation Corp., Global Luzon Energy Development Corp., Atinoman One Energy, Inc., Redondo Peninsula Energy, Inc. and the Philippine Competition Commission (PCC).

Challenged in the petition were the several postponements done by the ERC in the process of subjecting all PSAs by distribution companies to CSP which requires power distributors to get at least two offers for supply of electricity before awarding a PSA to ensure the least cost for electricity consumers.

The SC decision ruled that the authority of the ERC was limited only to the implementation of the CSP, and that the ERC had no power and authority to postpone the conduct of CSPs.

It noted that there were PSAs that last for 20 years.

Thus, in its decision, the SC pointed out that “the outcome of this case will greatly affect, for the next two decades, all consumers of electricity in the Philippines, which include the over 95 million Filipinos… as well as the millions of business enterprises operating in the Philippines.”

In postponing the conduct of CSP on PSAs, the SC ruled:

1. “Postponing the effectivity of CSP from 30 June 2015 to 7 November 2015, and again postponing the effectivity of CSP from 7 November 2015 to 30 April 2016, or a total of 305 days, allowed DUs (distribution utilities) nationwide to avoid the mandatory CSP.

2. “Postponing the effectivity of CSP effectively freezes for at least 20 years the DOE-mandated CSP to the great prejudice of the public. The purpose of CSP is to compel DUs to purchase their electric power at a transparent, reasonable, and least-cost basis, since this cost is entirely passed on to consumers.

3. “The ERC’s postponement unconscionably placed this public purpose in deep freeze for at least 20 years. Indisputably, the ERC committed grave abuse of discretion amounting to lack or excess of jurisdiction when the ERC postponed the effectivity of CSP.

4. “The postponement effectively prevented for at least 20 years the enforcement of a mechanism intended to ensure ‘transparent and reasonable prices in a regime of free and fair competition,’ as mandated by law under EPIRA, a mechanism implemented in the 2015 DOE Circular which took effect on 30 June 2015.

5. “In short, in the absence of CSP, there is no transparency in the purchase by DUs of electric power, and thus there is no assurance of the reasonableness of the power rates charged to consumers. As a consequence, all PSA applications submitted to the ERC on or after 30 June 2015 should be deemed not submitted and should be made to comply with CSP.”