ERC Faces Dilemma as Past Lapses Burden Consumers

The incompetence of the government in regulating the power industry is a significant cause of the Philippines' woes. While the current leadership of the Energy Regulatory Commission (ERC) is trying to clean up inherited messes, past sins will continue to hurt consumers. Recent ERC orders highlight this issue. Last week, the ERC ordered Meralco to refund P9.5 billion to consumers, attributing the necessity to previous commissions' failure to act on Meralco's rate reset petitions. Concurrently, the ERC allowed Meralco to collect over P8.7 billion in under-recoveries from 2011-2022, also citing past inaction. These actions will result in a reduction of P0.51/kWh for residential consumers. However, the core problem remains unaddressed. For over seven years, the ERC missed several reset periods, leading to unverified provisional pricing, massive overcollections, and subsequent multi-billion-peso retroactive refunds and true-up charges for consumers. ERC's failure forced distribution utilities to continue charging provisional rates without periodic performance-based reviews, resulting in continuous unverified overcollections from end-users. Past ERC commissioners have faced no sanctions for these failures, despite the public suffering the consequences. One reason cited for ERC's inadequacy is insufficient staffing and expertise. Lawyers with political connections but lacking energy economics backgrounds have been appointed, ill-equipped to handle the intricate economic modeling and vetting required for rate resets. While the current ERC chairman, Francis Saturnino Juan, has overhauled rate reset rules and issued 34 rule-making resolutions to modernize the framework, staffing shortages and a deep backlog of cases persist. The problems in the energy sector extend beyond the ERC, with the Department of Energy (DOE) and local government units (LGUs) also contributing to the mess. The thin reserve in power supply leads to frequent "yellow" and "red" alerts and higher electricity prices due to the market-based pricing mechanism. Furthermore, the regulatory environment for establishing new power plants is discouraging. Obtaining permits from national and local government units is difficult, and right-of-way issues for transmission grid connections are time-consuming. The case of Australia-based Energy World Corp. (EWC) exemplifies this struggle. Despite heeding the government's call to build a 650 MW power plant and LNG terminal, the project was plagued by local supply chain bottlenecks, extreme fuel price volatility, and local resistance to zoning. Even an "Energy Project of National Significance" certification under Executive Order 30 by the then-President Duterte did not expedite grid connection approvals, which took years to secure due to congested transmission capacity and complex grid-sharing disputes. Industry analysts suggest that the absence of backing from a powerful, politically connected local joint-venture partner was a major reason for EWC's difficulties. Ultimately, the plant became a stranded asset, highlighting the Philippines' struggles in attracting and managing foreign investment in the power sector.