The Manila Electric Co. argued it does not set power prices at the Supreme Court hearing last Feb. 4 on its recent rate hike. It said it only takes prices from power generators and passes these without taking profit. It asked the Energy Regulatory Commission not to approve a price increase (which it may already do) but to collect payments in installments to soften the unprecedented power prices last November.
Bayan Muna Rep. Neri Colmenares’ amateur-hour antics in the preceding hearing proved the exact opposite of the authoritative presentation for Meralco by Victor “Boy” Lazatin, president of the Philippine Dispute Resolution Center and leader of Accralaw’s feared litigation team. He argued that Meralco should not even be involved because it does not set prices; by law, it only passes generation charges. He said the high court’s restraining order is unfair because Meralco must pay power generators while unable to collect the same amounts from consumers. His primary point went undisputed, and this alone raises severe doubt on how well Colmenares’ case was framed.
Lazatin outlined the electricity market under Epira (Electric Power Industry Reform Act). Ninety percent of Meralco’s power is prepurchased at lower prices. Last September, anticipating the Malampaya natural gas facility’s preventive maintenance in November, it signed a 100-megawatt contract with Therma Mobile to ensure supply during peak hours. However, the market’s “must offer” rule caused behavior that seems strange. Power plants must quote a price for their output even if already prepurchased. Meralco thus instructed Therma Mobile to, during peak hours, quote P62 (the market maximum) to make it last priority in the system and leave its supply for Meralco. This is simply the system’s peculiar queuing method, and some plants quote zero to ensure they are first priority.
The system applies the last batch’s price to all power sold, with no one knowing the price ahead. Lazatin said that when Malampaya shut down, other firms broke market rules and failed to supply power, leading to all quotes being taken and the maximum price of P62 becoming the market price. He likened it to a classroom where unprepared students hide in the back. If some students are suddenly absent, the teacher will eventually have to call them and, under the market rule, apply their failing grades to the entire class. Lazatin said Meralco relied on system advice that power supply was adequate, under which quotes for the maximum price should not have been taken.
Justice Marvic Leonen highlighted Lazatin’s criticism of other firms and said he would have to name names later. Senior Associate Justice Antonio Carpio repeatedly asked how many times Meralco had to buy at P62. Lazatin stressed no buyer can predict the price; given the mechanics, a buyer only states the quantity it needs and Meralco was a price taker. He further said the “must offer” rule should cover only power not presold, and the price passed to consumers should be each generator’s actual quote instead of the highest accepted price. This, he argued, would make quotes realistic, unlike an extreme zero or P62. Carpio, in true fashion, tersely said “Good” and ended his questioning.
Midpoint of the hearing, Leonen said the high court would have to ask why the ERC officials had not seen the problems when they are the experts and not mere justices. Justice Roberto Abad flatly said he would not be comfortable determining whether complex hour-to-hour power trading is being done properly. Justice Jose Perez thanked Lazatin for explaining the mechanics, candidly admitting he had no clear idea of these before. But Chief Justice Maria Lourdes Sereno seemed to insist that the justices can wade through the technical rules to prescribe legal standards. She also asked whether Meralco itself intended to enter the generation sector.
Sereno and Leonen also very firmly rebuked Lazatin for positing that the high court’s restraining order might lead to power shortages, emphasizing it only covered bills for November and not all bills since then.
As if Lazatin were not enough star billing, the legendary retired justice Florentino Feliciano delivered a 10-minute speech on constitutional issues. It proved unnecessary given how some justices previously raised the same arguments against Colmenares.
Several points must be stressed. First, with justices admitting they have no expertise, the investigation of power market mechanics is clearly inappropriate for a court and its adversarial context. Indeed, the case is a bizarre reversal of the Reproductive Health Act arguments, with Abad counseling restraint in the face of nonlegal issues and Sereno, Carpio and Leonen pushing on. Second, the high court is becoming as powerful a venue as the Senate, with the energy secretary and the entire ERC at the hearing. Third, the media need help with technical issues. The mechanics Lazatin outlined did not translate well into news yet were explained in the pleadings uploaded ahead on the high court’s website. Fourth, the media need to penalize showboats such as Colmenares, lest out-of-control pleadings inadvertently become law.
One wonders why the high court has not stopped with the complexity becoming apparent. One hopes it limits itself to the narrow due-process issue and to pronouncing broad legal standards, without imposing specific power rules. A justice would be hard-pressed to claim both the expertise and mandate to revise these after merely studying them over Christmas.
Oscar Franklin Tan (@oscarfbtan, facebook.com/OscarFranklinTan) cochairs the Philippine Bar Association Committee on Constitutional Law and teaches at the University of the East.