ERC control over WESM pricing upheld

The Supreme Court has upheld the authority of the Energy Regulatory Commission to implement price controls for the Wholesale Electricity Spot Market, the country’s trading floor for electricity.

In a 15-page decision, the SC denied the petition filed by Power Sector Assets and Liabilities Management Corporation (PSALM), a government-owned and controlled corporation, seeking the reversal of the Court of Appeals (CA) decision issued on August 28, 2009.

The CA ruling sustained the validity of ERC orders issued on January 30, 2008 and October 20, 2008 granting Meralco’s plea for the adjustment of WESM settlement prices.

The ERC, in the said assailed order, set the WESM settlement prices for its September and October 2006 supply months at the commission-approved time-of-use (TOU) rates.

This prompted PSALM to file a petition before the SC seeking to reverse the ERC orders, arguing that the ERC committed an “illegal, arbitrary and ultra vires act” when it imposed price controls for the subject billing months in the WESM.

According to PSALM, such action of ERC was contrary to the requirements of Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA).

PSALM stressed that such act would cause unnecessary distortions in the market, which would adversely affect both the consumers and the market participants.

In upholding the ERC’s order, the SC ruled that the objecting in applying TOU rates was not merely for the protection of consumers but also to set the WESM settlement prices at reasonable levels, “since there was a clear evidence of unusually high WESM prices during the subject periods.”

“Here, the unusually high and unreasonable market prices for the subject billing periods which necessitated the ERC to step in and exercise its police power as mandated by the EPIRA, cannot be overemphasized,” the SC stressed.

The SC shared the position of PEMC, saying the impact of the adjustment in the WESM prices estimated to be an additional imposition of P6 per kwh would have resulted to an increase in generation charge of its consumers of about 90 centavos and P2.05 per kwh for the subject period.

“In the basis of the foregoing, the Court absolutely agrees with the CA that although the ERC adopted the findings of its IU and terminated the investigation against PSALM for alleged anti-competitive behavior and abuse of market power, the same did not necessarily preclude the existence of irregular behavior or circumstances which would have contributed to the high prices in the WESM during the subject periods,” the SC said.

“The ERC validly exercised its regulatory power pursuant to the police power of the State when it imposed the commission-approved TOU rates as a form of price adjustment or price control,” the tribunal added.

The controversy arose from an investigation report issued by the Enforcement and Compliance Office (ECO) of Philippine Electricity Market Corporation (PEMC), a non-profit organization which serves as the market operator and governing body of WESM.

ECO investigated the increase in the load weighted average price in the WESM in the monthly operations and the bidding behavior of PSALM’s trading teams increase.

As a result of the inquiry, the ECO issued its investigating report finding that PSALM behaved anti-competitively and abused its market power.

Topics: Energy Regulatory Commission , Electricity Spot Market , Supreme Court
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