Power and profit

The timing of the Supreme Court was so precise, and the issue so controversial, that the announcement of a temporary restraining order barring the Manila Electric Co. from implementing a three-stage power rate increase was received, and presented in the media, as a veritable Christmas gift. It wasn’t just the Inquirer (“SC gift: TRO on rate hike”); other media outlets ran similar headlines (“Maagang pamasko ang SC TRO”—that is, the order was an early Christmas gift) or ledes (“The Supreme Court played Santa Claus yesterday …”).

The order, issued on Dec. 23 and effective immediately, is only for 60 days, but December and January are the months when Filipino families traditionally spend the most; even a temporary breather would be a financial advantage for a budget-conscious family. But the Court’s decision to hear the consolidated case, with oral arguments already scheduled for Jan. 21, is also an opportunity to subject the Energy Regulatory Commission’s controversial Dec. 9, 2013 decision allowing Meralco to raise electricity prices by P4.15 per kilowatt-hour to rigorous questioning.

The TRO does not affect the parallel investigations into possible collusion among power industry companies that the Senate and the Departments of Justice and of Energy are conducting—but we cannot imagine the Court refraining from asking questions about such a possibility. All the better, then, for the Filipino consumer.

Meralco has said it will heed the Supreme Court’s TRO, but voiced concern about possible consequences not only for the company but for the entire economy. One company official said: “It has an impact on the regulatory stability of the government. Overall, it has an impact on the country and Meralco.” And another explained: “It’s the whole electricity supply chain that would be affected. The objective is to ensure continued electricity service. That might have repercussions because any uncertainty would have implications. It is important that everybody is able to function viably.”

We share the view that regulatory stability is crucial and any uncertainty sends important signals to the business community and to investors. But the very first issue that the Court should resolve is precisely a question about ERC: Did the regulators do their job?

The petitioners before the Court assert that in fact the ERC did not follow due process when it approved Meralco’s petition, and approved it based on what the critics say was an unverified presentation. If this assertion is proven true, then in fact the regulatory framework that structures the country’s power industry did not function as intended. Fixing this would then be the right way to achieve that regulatory certainty that Meralco says it seeks.

The point about the “electricity supply chain” is also of the highest moment. As the Senate hearings into the issue have shown, the ERC was not able to disprove the increasingly popular notion that industry players were in collusion. Meralco’s reason for a rate increase is based on the fact that seven of the power plants and the Malampaya pipeline itself had to shut down temporarily at almost the same time, and that in order to provide “continued electricity service” the company had to purchase a more expensive fuel in the market. It bought that alternative fuel from the same power plants, raising the specter of collusion.

We trust that the Supreme Court will be able to shed light on this issue.

Not least, the economic theory that impelled Meralco to seek a rate increase, and which the ERC impliedly approves, is also at issue. Can companies pass on all costs to the consumer? If, for argument’s sake, a private firm providing a utility is guaranteed a certain return on investment, under the terms of contract, is there no limit to the amount of costs it can seek to pass on to the consumer? It is not unimportant to note that the P4.15 rate increase Meralco seeks is on top of other charges it already levies on its customers—or that other companies, in other industries, periodically absorb new costs. Customer loyalty is a two-way street.