Let electricity spot market work

A new Energy Regulatory Commission (ERC) chairman was named recently. His appointment to the post was met with mixed reactions. 

It appears that, to private-sector players in the power industry, the ascension of former Justice Undersecretary Jovy Salazar to the post presents both opportunities and threats.

Some hailed the appointment as a whiff of fresh air. For the first time, a person with a combination of legal and technical backgrounds was named to the post. Salazar is a lawyer with an electrical-engineering degree tucked under his belt. The private sector appears to be hoping that the technical background would help in easing the backlog of cases, petitions and issues now clogging the ERC.

It appears Salazar also represents a threat. Days after his appointment was announced, text messages circulated in the corporate sector warning that the guy has a bad attitude against “cartels,” especially cabals attempting to take advantage of energy-sector consumers.

The black propaganda must have been triggered by memories of Salazar’s involvement in a task force formed by the departments of Justice and Energy to probe the suspicious spike in oil prices, particularly in the Visayas.

Salazar reportedly batted for the filing of charges against some big players in the downstream oil industry, a stand that positioned him against a perceived “cartel.” His move was reportedly thumbed down by the more “prudent” senior personalities in the government.

However, that move apparently did not escape the attention of the corporate bosses of the giants in that sector.

It may be safe to presume that, at this point, land mines are already being laid to make sure Salazar does not rock the boat. It would pay for Salazar to be cautious and to ensure that his back is guarded.

If Salazar plans to succeed in this job, we suggest he focus on what he has been hired to do: to represent and champion the interest of electric-power consumers in the complicated game of power-sector regulation.

If he were to look closely at that sector, Salazar would discover the silent, but strong resistance to the creation of an authentic free market, where electricity is priced solely on the basis of supply versus demand.

He might want to trust his hunch. He just might discover that a cabal rules that sector. A “cabal” is just as evil as a “cartel.”

What Salazar has to do in the meantime is to make sure that the electricity spot market works and does its job well.

The spot market is, so far, the only transparent mechanism in the whole electric-power sector scheme. Here, Filipino consumers somehow feel that their interest is protected and they pay a fair price for the generated power distributed to their homes and enterprises.

Looking for proof that the spot market works? All one has to do is to look at the Meralco website.

The website shows that generated power traded at the spot market tends to stay at a downward trend. It is the directly contracted power, which is more expensive.

Following Salazar’s assumption, the ERC announced it would restart investigation of power-price collusion allegedly committed by several power generators, including some of the biggest and most influential in the industry.

This is a good signal to consumers that the ERC, under its new leadership, is keen on protecting public interest. This may also be a sign that Salazar may still be oblivious to the size of the feet and toes he might be stepping on.

Previous energy secretaries and ERC chairmen have mostly spoken about leveling the playing field.

This is a good spiel. The problem is the playing field is being leveled only for the power-sector players. It must also be leveled for the ordinary consumer. After all, the Filipino consumer is the most important player in this field.

But who represents him in the whole rate-setting processes?

At the end of the day, it is the ERC. The commission plays a key role in the spot market. It approves the offer price caps. It issues the licenses to entities that want to take part in the spot market.

It is the ERC that OKs the methods by which prices are determined. It enforces the spot-market rules. It is the guardian of the spot market against anti-competitive behavior and so-called market-power abuse.

If Salazar steers the ERC into the faithful performance of these roles, then the commission just might end up standing up for consumers.

Salazar can do no less. Before his assumption to his new post, suspicions hounded the ERC regarding the alleged interests being represented by other commissioners recently appointed.

Salazar is in a position to erase the suspicions by making sure the spot market works—and this time, works for the Filipino consumer.