Way forward

Halting trade in the Wholesale Electricity Spot Market (WESM) whenever the National Grid Corporation of the Philippines declares a red alert on supply is a bold step since it would stop the unscrupulous practice of profiteering during times of great need.

On the directive of President Ferdinand “Bongbong” Marcos Jr., the Energy Regulatory Commission (ERC) ordered the Philippine Electricity Market Corporation (PEMC), the operator of the spot market, to apply the “administered price” instead of those quoted in the market.

Energy Secretary Raphael Lotilla must have contributed to the proposed suspension of trade during an emergency.

He was in the same post under former President Gloria Macapagal-Arroyo when market collusion was under investigation, and the same solution was applied to resolve it.

Administered prices can apply, under WESM rules, during national emergencies, force majeure, and natural calamities.

The provision should apply since the unprecedented heat wave that is causing widespread discomfort is considered a natural calamity.

However, the ERC, as the regulator, needs to determine the factors that would make the mechanism work.

The probe on market collusion resulted in the price spike, during a critical period similar to what was recently experienced, being reversed and adjusted to an administered rate at the level of the following month.

At that period, the PEMC denied market manipulation suspicions on the trading teams of the state-owned power plant holding firm Power Sector Assets and Liabilities Management (PSALM).

The PEMC findings indicated that the prices derived in the WESM trading “were all similar,” which resulted in high electricity bills.

However, it concluded there was no bad faith on the part of PSALM since the suspicions only came up due to how the prices were derived.

In a recent House hearing on the budget of energy agencies, Albay Rep. Joey Salceda estimated P1.2 trillion worth of “excesses” in the pricing structure of the power industry that has inflated monthly consumer bills.

He said the ERC should investigate the pricing and compare it with how the competitive price is derived in other markets.

The energy industry has a limited number of players, which makes it easier for price collusion to happen.

It has long been suspected that collusion and market gaming occurred in the WESM, but the few times that sanctions were imposed, the generating companies run by big businesses always obtained restraining orders from the courts.

Congress is now considering an overhaul of the EPIRA to plug the loopholes that invite market manipulation.

The EPIRA mandate requires the industry to offer electricity to consumers at the lowest possible cost, which is not being complied with under the current setup in a market with few players.

The high cost of electricity is not only a scourge for households on a tight budget but also an impediment to the economy, as investors have always cited it as a deterrent to locating in the country.

Amending the EPIRA to give more teeth to the ERC and even the DoE pursuing abusive big corporations in the power industry may work, but a whole-of-government approach is needed to compel the courts not to intervene through all-powerful injunction orders.

A recent case involved a powerful conglomerate that tried to free itself from the supply contracts it entered into and obtained an injunction and an order from the Court of Appeals to overturn a pro-consumer ERC ruling.

Through the court order, big business prevailed, and electricity users had to pay the consequences through higher rates.