Dreadful

If there ever was an award for The World’s Worst Regulator, our Energy Regulatory Commission (ERC) would be a strong contender.

Alternately, the ERC might get the trophy for the greatest disincentive to investments in our nation’s hobbled energy sector. The Electric Power Industry Regulation Act (EPIRA) envisions a modern energy sector driven by nimble and efficient power producers and distributors in a highly regulated industry. The ERC’s poor regulatory oversight did not move us closer to this vision.

The tortured handling of the Actual Weighted Average Tariff case involving mega power distributor Meralco best illustrates the ineptitude of the ERC. This will be a rather long and complex discussion. Bear with me.

We go back to 2011, the start of the performance based regulation (PBR) prescribed by EPIRA. As a regulated enterprise, Meralco cannot unilaterally set its own rates. It is the ERC that sets rates according to the rules it sets.

In 2013, the ERC announced the formulation of new rules and the establishment of rate-setting parameters for the succeeding regulatory period. By 2015, the start of the fourth regulatory period defined by law, the ERC still had no rules set. It provided no guidance at all for the distribution utilities (DUs) awaiting guidance on what rates to set.

Since the DUs had to collect their tariffs somehow to keep their businesses going, Meralco proposed an “interim average rate” (IAR) while the ERC had not come up with the new rules. The proposal was “provisionally” approved by the ERC. Since the DUs cannot set their rates unilaterally, ERC’s approval was indispensable.

From 2015 to 2021, the ERC still failed to release the new rules, keeping the DUs guessing. In December 2020, Meralco filed an application for ERC’s approval of a “true-up calculation” of its actual weighted average tariff rate. This application included a proposed refund scheme for the period lapsed.

By 2021, Meralco took it upon itself to file for ERC approval of a refund to customers since actual sales and its mix of customers indicated a lower rate should have been charged. The refund program devised by Meralco involving P40.5 billion was approved by the ERC. That refund program was completed in 2023.

Notice that all throughout this period, the ERC was never taking the initiative. It was the DUs that proposed interim programs to keep their businesses going.

In June 2022, after the conduct of several public hearings, the ERC approved “with finality” a “revised interim average rate.” That might sound like an oxymoron: an “interim” average rate approved “with finality.” But that is the nature of ERC-speak.

At any rate, Meralco proceeded to refund P40.5 billion to its customers. This covers the seven-year “lapsed period” from July 1, 2015 to June 30, 2022.

It took nearly two years for the ERC to finally dismiss several motions for reconsideration filed by intervenors. Last June 13, 2024, the Meralco received its copy of the Order dated Jan. 25, 2024. In this Age of the Internet, one might imagine such things of great public significance are delivered a little more quickly.

It is quite bizarre that the ERC chairman submitted a dissenting opinion against the majority of her commission. The dissenting opinion seems premised on the assumption that the ERC can only set rates after it had promulgated the rules. In the EPIRA, it is clear that the ERC had the discretion to exercise its rate-fixing power as long as it does not violate basic constitutional tenets of due process and equal protection. It is also presumed that such rate-setting power does not go beyond the bounds of the law vesting that power – namely EPIRA.

Clearly, the decision on the IAR had already attained finality. Under the doctrine of immutability of judgment, the IAR decision may no longer be appealed or amended as it is already final and executory. A number of Supreme Court rulings reiterate this. The ERC enjoys quasi-judicial status.

The ERC also exercises police powers. We saw it when the ERC orders DUs to stagger rate increases to protect consumers. Furtherance of public welfare legitimizes the exercise of this police power.

We might also assume that the ERC obeys the basic ex post facto principle in law. It cannot set rules retroactively. Otherwise, there will be no end to litigation and the public interest will be ultimately harmed by regulatory paralysis.

In her dissent, the ERC chair seems to be suggesting that the previous “interim average rate” approved by the regulatory body itself should be invalidated because no rules have been set beforehand. But the fact that no rules were set for so many years is entirely the fault of the ERC.

The point of the ERC chair’s dissent is akin to allowing referees, after a hard-fought basketball game, to declare that three-point shots will not count. In a basketball game, this will produce a riot. In the regulated energy industry so vital to our economic performance, this will be like telling investors not to risk their money in an arena where rules are constantly shifting.

Our energy sector, as we know, is fragile and inefficient. This harmed the nation’s quest for prosperity.

In nearly every instance that brought our energy sector to such fragility and inefficiency, some sloppiness on the part of the ERC might be found.