I’ve written so many posts about how our local policies have been far from friendly to renewable energy (RE) developers like myself. But these days, it seems that the regulatory environment has even gone worse.
There is uncertainty in the sector given that our Energy Regulatory Commission (ERC) is caught in a messy situation after the Ombudsman suspended the four ERC commissioners last December.
Just this week, the Court of Appeals has issued a 60-day Temporary Restraining Order (TRO) on the suspension. But then again, as the order suggests, it is just temporary stay order. What happens after 60 days? Also, will the resolutions approved by the suspended commissioners during the 60-day TRO period be deemed legal?
But the complication does not end with the suspension order and the TRO. There is a bill filed in the Lower House seeking the abolition of the ERC. It was sponsored by no less than the Speaker of the House, Pantaleon Alvarez.
The House Bill 5020 not only seeks to abolish the commission but is also pushing for the creation of a new quasi-judicial regulatory body, the Board of Energy as ERC’s replacement. The new board will be an attached unit of the Department of Energy (DOE) and will be composed of a Chairperson and two members appointed by the President upon the recommendation of the Energy Secretary.
All these developments are worrying since the ERC while being far from being an ideal regulator even before the chaos brought by the suspension, at least provided some comfort to the sector that somehow issues will eventually get resolved. So, is it essential to abolish the commission and replace it with a new one? A new entity might not be the answer to problems already hounding the ERC, especially if it is attached to the Department of Energy (DOE). It is not implausible to think that the DOE can come up with policies which, contrary to its opinion, may not be good for consumers in the long-run. So, it is essential that ERC, or its equivalent, must remain independent of the Executive Branch.
The bigger issue here is REGULATORY CAPTURE. And here, I am not even implying covert attempt to control the ERC. Because the deregulation and privatization were not ideally done, there are pockets of monopolies and monopsonies that make it difficult for the ERC to make sound decisions that benefit the Filipino consumers. Because of all these, the ERC is sometimes constrained to follow “jurisprudence” and those with vested interests will not question the commission’s decisions. Creativity and innovation in rule-making for the benefit of the Filipino consumer are gone.
For example, as I have explained previously, the commission had the incorrect appreciation and application of the Capital Asset Pricing Model in the tariff setting for cost recovery in power contracts. From the very beginning I have always questioned the use of the CAPM – a classic situation of the emperor not having clothes. The CAPM is NOT appropriate for the Philippines. We do not have a well-developed equity market. Our economy is controlled by a few families, thus obliterating the classic economic model of “perfect competition.”
Since all the cases in the past have been decided on this economic model, how can the ERC reverse itself without putting in jeopardy its previous decisions? Can you imagine the amount of money that may have to be REFUNDED to the consumers if someone can prove in court that the CAPM was wrongly used in the past,? Billions!
Unfortunately, the suspense on the fate of the ERC will not only affect RE developers but everyone in the sector, and ultimately, the Filipinos. At this point, power sector players are probably holding their breaths, waiting for the next scene in the ERC saga. In the meantime, local power producers will be having a hard time obtaining loans and getting their power sales agreements (PSAs) approved, which might result in massive rotating blackouts as new capacities are stalled.
Newly minted ERC chairperson Agnes Devanadera has warned that the suspension would paralyze the power sector, could result in massive blackouts as the commission cannot act on P1.59 billion worth of PSAs.
Similarly, BDO Capital & Investment Corp. president Eduardo Francisco stressed that lending to the industry might be affected by the Ombudsman’s order. Banks are likely to postpone approval of loans given the absence of off-take contracts. “We can give conditional approval, but usually conditions to lend are based on the ERC approved contracts. There will be an impact on lending,” he was quoted by The Philippine Star.
We do like suspense, but only if we are watching films or TV series.The uncertainty on ERC’s operations has no place in the real world. Hopefully, the mess in the ERC gets resolved quickly.
Let us keep in mind that the current administration is pushing for sustainable economic development, including the building of more public infrastructure in the next couple of years. Our goal of putting up more bridges, airports, and roads cannot be achieved if we have an almost paralyzed or inefficiently functioning regulator in the Energy sector.