The Energy Regulatory Commission’s (ERC) decision announced the other day to void its early approval of the staggering November-December 2013 MERALCO rate hike exculpates itself and MERALCO of accountabilities while trying to appease massive public condemnation.

 

The ERC blames “ market failure “ for the extraordinary price spike and avoids for the nth time its duty to rule on solid and strong indications of market abuse by MERALCO and the monopsony of power generators.  This, despite its admission that the so-called supply deficit during the Malampaya shutdown period can be attributed to the rampant violation of the “ Must Offer Rule “  (MOR) of the Wholesale Electricity Spot  Market   (WESM) by the power generators and by MERALCO’s unusually high purchases from WESM.  The MOR requires all traders to offer their respective maximum available capacity to WESM trading to mitigate artificial supply shortage caused by capacity withholding which usually drive prices higher.  


The ERC conveniently ignores MERALCO’s imprudence to provide a power replacement agreement with its power suppliers in case of scheduled and forced outages so it can avoid making costlier purchases from other sources.  Also set aside was MERALCO’s decision to bid some 100MW it contracted from Aboitiz’ Therma Mobile in WESM at the maximum price of P62/kwh at a time when it claimed it had problems with supply. Obviously this behavior aims to gain more from the high price situation in WESM and skirt the prohibition on cross-ownership.  MERALCO is a distribution company not a generation company. 


Feigning prudence, claiming to avoid hasty action, to explain away its failure to use its extensive regulatory powers to at least verify in time the causes of the sudden price spike, the ERC forgets that it gave clearance for MERALCO to proceed with its December rate hike, albeit staggered, only four (4) days after MERALCO applied for clearance.

In effect, confirming the failure of EPIRA

What is most revealing in the latest ERC decision are the following statements admitting in effect to the failure of EPIRA to create a competitive market, thus giving rise to an oligopoly or a monopsony under which predatory pricing for superprofit  extraction, market abuse and gaming thrive:


Referring to the rise of an oligopoly, the ERC decision says:


“The Commission takes this opportunity to put forward its observation that there has always been a tightness of supply in the market given that it cannot be said that the market has matured to be considered a fully competitive one. Reasons for not attaining a fully competitive market may be rooted in the market itself which may be characterized as oligopolistic.“


Of  WESM it says :


“The Commission has not seen any other rule in the market as violated as the ‘Must Offer Rule ‘ of WESM.  The non-observance is so rampant that the entire WESM governance has perhaps already grown accustomed to encountering it on a regular basis.“


Well said, ladies and one gentleman of ERC.  Well said of the failure of EPIRA and the privatization of the electric power industry.

 

March 13, 2014

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