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Nature abhors a vacuum: SC as industry regulator, consumer watchdog

/ 08:14 PM February 03, 2014

While Congress and the Supreme Court have moved with alacrity on the scandalous Meralco rate hike, the executive’s response has been extremely slow and disjointed.

Malacañang on the sidelines

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The latest disappointment is Department of Justice (DOJ) Leila de Lima’s announcement that her self-imposed deadline of the end of January for producing the preliminary results of her agency’s study of collusion among the electric power players would not be met owing to the “complexity” of the matter.  De Lima had made the promise in a meeting with some members of Congress and representatives of consumer groups on Dec 16.

Well, okay, the DOJ’s Office of Competition is relatively new and untested, so it probably needs some leeway on the matter, though probably just a few weeks at the most.   But one cannot understand the President Aquino’s hesitation to fire or suspend Energy Regulatory Commission (ERC) Chief Zenaida Ducut against whom a complaint was filed at Malacañang nearly two weeks ago.  Due diligence is the last thing to describe Ducut’s approval of the highest rate hike in Meralco’s history.  Ducut, a Gloria Macapagal appointee, did not call a public hearing or conduct even a minimum of investigation, approving the rate increase in one pro forma session on December 9.  Indeed, as the Speaker of the House, Sonny Belmonte, has pointed out, Meralco announced the rate increase several days before the ERC approved it, meaning it assumed ERC approval, just as the agency had rubberstamped previous Meralco rate hikes.

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In its investigation of the Meralco price increase, the House Committee on Energy had direct experience with Chair Ducut’s desultory and dilatory style.  At a hearing on Dec 10, 2013, the ERC was asked by Committee Chair Rey Umali to submit a report on why it approved the rate hike.  A month and ten days later, on January 20, committee members received a 10-page response the gist of which was that it would take an indefinite period of time to comply with the Committee’s request.  Infuriated Committee members immediately branded it a “non-report.”

Though she is a fixed-term appointee whose tenure ends in 2015, the president’s power to terminate Ducut is confirmed by the Supreme Court decision on Pichay versus the Office of the Deputy Executive Secretary for Legal Affairs on July 24, 2012, which ruled that “Presidential appointees come under the direct disciplining authority of the President.  This proceeds from the well settled principle that, in the absence of a contrary law, the power to remove or to discipline is lodged in the same authority on which the power to appoint is vested.  Having the power to remove and/or discipline presidential appointees, the President has the corollary authority to investigate such public officials and look into their conduct in office.”  Ducut herself said during the House hearing on January 20 that she recognized the president’s authority to fire her, so long as it was “for cause.”

Nature abhors a vacuum

Nature abhors a vacuum, goes the saying, and with the ERC being derelict in its duty of regulating the power sector, the Supreme Court stepped into the breach by issuing a temporary restraining order (TRO) on Meralco’s implementation of the rate hike.  What the highest court of the land was essentially doing in issuing the TRO and holding deliberations on it was performing an executive, regulatory function that the ERC should have carried out.  Associate Justice Marvic Leonen asked the petitioners of the TRO why they did not first seek relief from the ERC.  Perhaps the question was rhetorical, but the obvious answer was that no one outside the power players now trusts the ERC, which has become the favorite example of a regulator that is captured by those it is supposed to regulate.

Likewise, with the DOJ, the Department of Energy, the ERC, and Malacañang caught in varying degrees of confusion and paralysis, the Supreme Court and Congress—the latter exercising its oversight function–exercising its oversight function, have taken the lead in determining if it was collusion among the power players that led to Meralco’s consumer-gouging rate hike.  And here, the results appear to point in the direction of collusion.

Meralco, it will be recalled, attributed the 4.5 pesos per kilowatt hour increase to the simultaneous unscheduled going off line of seven of its power suppliers allegedly for repair and maintenance at the very time the Malampaya natural gas plant went offline for scheduled maintenance in November 2013.  Meralco says it then had to go to the Wholesale Electricity Spot Market (WESM) for its sudden power deficit, forcing it to buy power at sky-high prices triggered by its unexpected demand.  Under the Electric Power Industry Reform Act (EPIRA), Meralco said, it was entitled to pass on to its 5.3 million consumers the added P10 billion in generation charges it incurred.

A plot gone awry

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It emerges now that there is no longer just the strong possibility of collusion among Meralco’s power suppliers, who could have turned off their seven plants with contracts to Meralco so other plants their owned could take advantage of the resulting higher prices in the spot market.  Documents show that Meralco itself appear to have gamed the market, when it instructed Therma Mobile, an Aboitiz-owned plant whose power is fully contracted to Meralco (making it practically a Meralco-owned plant) to submit a bid to WESM at the highest allowable price of 62 pesos per kilowatt hour no less than 25 times.  This was apparently the decisive move that led to the skyrocketing price of power at WESM.

What is even more intriguing is the role of government, specifically, the Department of Energy (DOE) and the Power Sector Assets and Liabilities Management Corporation (PSALM).  DOE is the parent agency of PSALM which controls the 650 Megawatt Malaya thermal power plant in Pililia, Rizal.   PSALM, it must be noted, was required under EPIRA to dispatch Malaya’s power to WESM if electric supply power was tight in order bring to bring down the market price at WESM.  PSALM refused, using as an excuse that it received no notice from the National Grid Corporation of the Philippines (NGCP), the transmission monopoly that is supposed to issue power supply alerts, that the supply was tight.  Had Malaya dispatched power, this would have brought down the average price at WESM during the Malampaya shutdown period from Nov 11 to Dec 10 from 22 pesos per kilowatt hour down to some five pesos per kilowatt hour, said a Meralco spokesman.

The question for some then is, if there was collusion, were DOE and PSALM part of the plot, or were they, as columnist Boo Chanco put it, “sleeping on the job,” when they refrained from using the one weapon the government could have deployed to prevent the power price from going through the roof?

What we now have, in the best Hollywood tradition of gangster plots gone awry, is a blame game among crooks or fools or foolish crooks.  DOE blames Meralco’s suppliers.  Therma Mobile squeals on Meralco.  Meralco says DOE and PSALM are to blame for not running the Malaya plant.  PSALM blames NGCP—a firm owned 40 per cent by a state enterprise belonging to the People’s Republic of China, incidentally– for not issuing a red alert on power supply conditions.

Malacañang meanwhile watches the spectacle from the sidelines, seemingly unwilling to fire the ERC chief for abdicating her duty and to prod the Department of Justice to speed up its investigation of collusion.  Not surprisingly, the 5.3 million consumers affected by the Meralco price hike now look to the Supreme Court to uncover the truth, tell the real story, punish the guilty, and provide them relief.

Wrong and right moves

Congress, for its part, has so far played a positive role in disentangling the elements of the plot.  It should not spoil this by giving in to suggestions that it come up with a law to allow the executive to use the Malampaya Fund to provide Meralco the 10 billion pesos in added generation costs that it now wants to gouge from consumers.  This would be rewarding a corporate giant that was either guilty of collusion with its suppliers or at the very least of mismanagement for not making provisions for reserve power with its suppliers, a standard practice of distribution utilities worldwide.  As President Aquino has himself noted, “There is periodic maintenance [of Malampaya] required.  That’s a foreseeable event.  If you know what producers of fuel will not be able to produce, then you have to find a substitute.  So preparation should have been made for foreseeable events.”

There is another move that Congress must not make the mistake of making, and that is giving the president emergency powers to deal with the power crisis.  The executive has enough powers to deal with the crisis.  What it needs is not emergency powers but political will.

What Congress must do, beyond disentangling the Meralco rate hike plot, is to repeal the Electric Power Industry Reform Action (Epira).  There is growing public consensus that Epira has failed.  Privatization has resulted in monopoly control, inefficient power delivery, and sky-high prices, not in more efficiency, less concentration, and lower prices.  13 years is enough.  Speaker Belmonte has declared that the time has come to amend Epira.  Such a legislative initiative will be helped immensely if Malacañang were to cease being indecisive on the energy issue and certify as urgent a legislative initiative to repeal, amend, or replace Epira.

*Walden Bello represents Akbayan in the House of Representatives, where he serves on the Committee on Energy.

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