The Corporate Regulatory Capture of ERC

1. The Corporate Regulatory Capture of ERC Vicente C. Camilon Jr. TUCP Party-List

2. The Mission of the Energy Regulatory Commission (ERC) “The Energy Regulatory Commission will promote and protect long-term consumer interestsin terms of quality, reliability and reasonable pricingof a sustainable supply of electricity.” 

3. Energy Regulatory Commission (ERC) “Objectives” “1. To promulgate/approve rules, regulations, guidelines and policies2. To enforce rules, regulations including issuances of permits and licenses3. To resolve cases (rates and other cases) and disputes4. To promote consumer interest5. To become a dynamic organization of professional people with the highest degree of technical competence and integrity”

4. ERC Officials Chairperson Zenaida G. Cruz-Ducut Commissioners Maria Teresa R. Castañeda Jose C. Reyes   Alfredo J. Non Gloria Victoria C. Yap-Taruc

5. ERC only regulates the transmission and distributionsectors. The generation sector was already deregulated with the passage EPIRA.

6. The transmission sector: National Grid Corporation of the Philippines (NGCP) • 25 year Concession Agreement (2009-2024) • Operator of the power grids, the “electricity superhighways” which link-up the power generating plants with the distribution utilities and electric cooperatives. • Originally a consortium of three companies, led by the Monte Oro Grid Resources Corp., owned by businessman Enrique Razon (30%), the State Grid Corporation of China (40%), and Calaca High Power Corp. (30%) owned by businessman Robert Coyiuto Jr.

7. In March 2010, Henry SyJr.’s One Taipan Holdings Corp. bought out the group of Monte Oro Resources of businessman Enrique Razon. One Taipan acquired the 30 percent share of Monte Oro at NGCP for approximately $350 million. • In June 2010, HerySy Jr., fondly called “Big Boy” in business circles, has been elected as the new president and chief executive officer of the NGCP. Sy Jr., is currently vice chairman and CEO of SM Development Corp., and vice chairman of SM Investments Corp. • In September 2011, Henry Sy Jr. sealed his majority control over NGCP through his company Synergy Grid and Development Philippines Inc. which has controlling stakes in both the Monte Oro Grid Resources Corp. and the Calaca High Power Corp.- the two companies which control 60% of the NGCP.

8. “P15 billion” – Annual estimated earnings of NGCP (Freedom from Debt Coalition) Note: It seems that NGCP does not publish its annual earnings/profits in newspapers as compared to other utilities

9. The major players in the distribution sector • Manila Electric Company (MERALCO) • Franchise area covers 31 cities and 80 municipalities including Metro Manila, the entire provinces of Bulacan, Rizal and Cavite; parts of the provinces of Laguna, Quezon, Batangas and Pampanga. Biggest DU. Franchise area is home to 24.7 million people. • Majority Owners: Metro Pacific Investments Corp./ Manuel V. Pangilinan--- (44%) San Miguel Corp./Ramon S. Ang--- (27%) First Holdings Corp./Lopez Group ---(6.6%)

10. The major players in the distribution sector • Meralco net earnings/profits (selected years) 2009 –--------- P7 billion 2010 ----------– P9.69 billion 2011------------- P14.9 billion 2012 (target)--– P15.5 billion

11. The major players in the distribution sector • Aboitiz Power Corp/ Aboitiz Group Visayan Electric Co. (VECO) - Second largest distribution utility in the Philippines. Davao Light & Power Company- Third largest DU in the country. Cotabato Light & Power Company (CLPC) San Fernando Electric Light & Power Company (SFELAPCO) Subic EnerZone Corporation (SEZ)

12. The major players in the distribution sector • Aboitiz Power Corp/ Aboitiz Group MactanEnerZone Corporation (MEZ) BalambanEnerZone Corporation (BEZ) • Aboitiz Power Corp/ Aboitiz Group earnings/profits (selected years) 2009 ---– P5.7 billion 2010 –---- P25 billion 2011---------P21.6 billion

13. Why “regulatory capture”? • There is a “knowledge asymmetry” between the power companies (who can pay numerous technical experts and consultants) and consumers who do not have much technical expertise and who must spend their own money just to participate in ERC hearings • ERC rules are too technical and too complicated such as the Performance Based Regulation (PBR), which are beyond the comprehension of ordinary consumers even of their lawyers and representatives • ERC’s lack of capacity (technical and other resources) to effectively scrutinize the claims and petitions of utilities

14. Why “regulatory capture”? • Rate hearings not conducive for active and substantial and effective participation of consumer groups and advocates including their representatives • Difficult to read ERC notices of hearing in newspapers

15. Why “regulatory capture”? • Constant and regular rate increases Meralco Power Rates Increases from June 2011 to August 2012 (per kwh) June 2011 – Meralco average residential rate was P10.35 per kwh   June 2011 – 51 centavos August 2011 –8.5 centavos September 2011 – 3.06 centavos October 2011 – 14.19 centavos

16. November 2011 – 44 centavos December 2011 – 11.84 centavos February 2012 – 11 centavos April 2012 – 33 centavos June 2012 – 12 centavos July 2012 – 32 centavos August 2012 – 28 centavos

17. Recommendations • Scrap PBR and return on 12% - P15% RORB Note: DOE/ERC during plenary deliberations on their budget said that ERC is studying PBR and is open for replacing it if the results of the study will show that PBR is not working • ERC to conduct national, multi-stakeholders, transparent and substantive consultations to come-up with simple and uncomplicated rate-setting systems, rules and procedures that even ordinary consumers can understand and analyze

18. Recommendations • ERC to have consumers and workers representatives/commissioners to counter-balance and moderate the greed of powerful and influential electric companies

19. Thank you.