Tag: Wholesale Electricity Spot Market

Concurrent Jurisdiction: PEMC’s Authority to Investigate WESM Rule Breaches

In a significant ruling, the Supreme Court affirmed that the Philippine Electricity Market Corporation (PEMC) possesses the authority to investigate potential violations of the Wholesale Electricity Spot Market (WESM) rules. This authority is exercised concurrently with the Energy Regulatory Commission (ERC). This decision clarifies the division of responsibilities in the energy sector, empowering PEMC to ensure compliance and maintain the integrity of the electricity market, while also recognizing the ERC’s broader regulatory oversight. The ruling underscores the importance of collaboration between regulatory bodies in fostering a competitive and efficient energy landscape.

Navigating the Electricity Market: Who Polices the Rules of the Game?

The Power Sector Assets and Liabilities Management Corporation (PSALM) challenged the authority of the Philippine Electricity Market Corporation (PEMC) to investigate potential breaches of the Wholesale Electricity Spot Market (WESM) rules. PSALM argued that the Energy Regulatory Commission (ERC) held exclusive jurisdiction over disputes among electricity market participants. The central legal question was whether PEMC’s investigative powers encroached upon the ERC’s regulatory authority, potentially undermining the established framework for the electricity market.

The case arose from a request by PEMC to the Energy Secretary seeking approval to formally investigate PSALM for potential breaches of the WESM rules. These alleged breaches involved several power generating plants traded in the spot market, raising concerns about compliance with dispatch instructions and offer submission requirements. PSALM, in response, filed a Petition for Prohibition with the Court of Appeals, arguing that PEMC lacked the jurisdiction to conduct such an investigation.

The Court of Appeals dismissed PSALM’s petition, prompting PSALM to elevate the matter to the Supreme Court. PSALM contended that the ERC’s exclusive and original jurisdiction over disputes among electricity market participants necessarily included the investigative powers that PEMC sought to exercise. They further argued that the ERC could not delegate its powers to another body, asserting that it was duty-bound to exercise these powers directly, as granted by the Electric Power Industry Reform Act of 2001 (EPIRA).

The Supreme Court disagreed with PSALM’s arguments, emphasizing that EPIRA empowered the Department of Energy (DOE), in conjunction with industry participants, to develop the governance structure of the Wholesale Electricity Spot Market. This structure, as defined in the WESM rules, authorized PEMC to investigate breaches and ensure compliance. The Court found that PEMC’s actions were within the scope of its legally bestowed powers, concurrently exercised with the ERC.

The Court referenced key provisions of EPIRA and its implementing rules and regulations, highlighting the collaborative approach to establishing the WESM governance structure. The WESM rules, jointly formulated by the DOE and industry participants, specifically empower PEMC to investigate breaches and impose sanctions, subject to the ERC’s broader authority. This framework ensures a balance between PEMC’s role in maintaining market integrity and the ERC’s regulatory oversight.

The Court further explained the delineation of responsibilities between PEMC and the ERC, particularly concerning the investigation and sanction of breaches and anti-competitive behavior. The Memorandum of Agreement and Protocol between the two entities outline the procedures for handling such matters, ensuring a coordinated approach to market regulation. For instance, PEMC is authorized to initially investigate breaches of WESM rules, while the ERC retains oversight and can direct investigations into anti-competitive conduct.

The decision also addressed PSALM’s argument that it was not bound by the terms of the market participation agreement. The Court noted that PSALM, as a market participant, had endorsed the WESM rules and entered into a market participation agreement, thereby agreeing to be bound by those rules. This contractual basis further supports PEMC’s authority to exercise investigative and punitive powers, independently of the ERC’s regulatory functions. The Supreme Court emphasized the importance of upholding the agreements and rules that govern the electricity market to ensure its stability and efficiency.

The Supreme Court emphasized that while Section 43(r) of EPIRA grants the ERC the responsibility to act against any participant for violations, it does not mandate that the ERC perform all related functions exclusively. The Commission can exercise these functions concurrently with PEMC. The court looked at Section 43(r) of EPIRA, which states that the ERC is responsible to:

act against any participant or player in the energy sector for violations of any law, rule and regulation governing the same, including the rules on cross-ownership, anti-competitive practices, abuse of market positions and similar or related acts by any participant in the energy sector or by any person, as may be provided by law, and require any person or entity to submit any report or data relative to any investigation or hearing conducted pursuant to this Act.

This concurrent jurisdiction allows for a more efficient and effective regulatory framework. PEMC’s focused oversight of WESM operations complements the ERC’s broader regulatory responsibilities, ensuring that the electricity market operates fairly and transparently. This division of labor promotes accountability and encourages compliance with the established rules and regulations.

Building on this principle, the Supreme Court rejected PSALM’s claim that PEMC’s investigative powers encroached upon the ERC’s exclusive jurisdiction. The Court found that PSALM failed to demonstrate how PEMC’s actions undermined the ERC’s authority or exceeded the powers granted to PEMC under EPIRA and the WESM rules. The Court emphasized the importance of respecting the regulatory framework established by law and the agreements entered into by market participants.

The Supreme Court’s decision in Power Sector Assets and Liabilities Management Corporation vs. Energy Regulatory Commission and Philippine Electricity Market Corporation reaffirms the importance of a collaborative and well-defined regulatory framework for the electricity market. By recognizing PEMC’s authority to investigate WESM rule breaches, the Court promotes compliance, transparency, and fairness in the energy sector. This decision clarifies the roles and responsibilities of regulatory bodies, ensuring a stable and efficient electricity market that benefits both participants and consumers.

FAQs

What was the key issue in this case?	The key issue was whether the Philippine Electricity Market Corporation (PEMC) has the power to investigate possible breaches of the Wholesale Electricity Spot Market (WESM) rules, or if that power belongs exclusively to the Energy Regulatory Commission (ERC).
What is the Philippine Electricity Market Corporation (PEMC)?	PEMC is a private corporation constituted under the Electric Power Industry Reform Act of 2001 (EPIRA) and its implementing rules to prepare for and implement the Wholesale Electricity Spot Market (WESM).
What is the Wholesale Electricity Spot Market (WESM)?	WESM is the electricity trading market where electricity is bought and sold in the Philippines. It operates under specific rules and regulations to ensure fair and transparent transactions.
What was the role of the Energy Regulatory Commission (ERC) in this case?	The ERC is an independent, quasi-judicial regulatory body tasked to promote competition, encourage market development, and penalize abuse of market power in the electricity industry. It oversees the operations of PEMC.
What did the Court decide regarding PEMC’s investigative powers?	The Court decided that PEMC does have the power to investigate possible breaches of the WESM rules. This power is exercised concurrently with the ERC, meaning both entities have the authority to conduct investigations.
What is the basis for PEMC’s authority to investigate?	PEMC’s authority stems from the Electric Power Industry Reform Act of 2001 (EPIRA), its implementing rules and regulations, and the WESM rules themselves, which empower PEMC to ensure compliance and maintain market integrity.
What was PSALM’s argument against PEMC’s investigative powers?	PSALM argued that the ERC has exclusive jurisdiction over disputes among electricity market participants and that PEMC’s investigative powers encroach upon the ERC’s regulatory authority.
Did the Memorandum of Agreement between PEMC and ERC delegate powers?	The Court found that the Memorandum of Agreement (MOA) and Protocol between PEMC and ERC did not delegate powers but merely clarified the procedures for investigating breaches, ensuring a coordinated approach.

In conclusion, the Supreme Court’s decision underscores the importance of a collaborative and well-defined regulatory framework for the Philippine electricity market. By affirming PEMC’s concurrent authority to investigate WESM rule breaches, the Court promotes compliance, transparency, and fairness in the energy sector, ensuring a stable and efficient electricity market for all stakeholders.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION vs ENERGY REGULATORY COMMISSION AND PHILIPPINE ELECTRICITY MARKET CORPORATION, G.R. No. 193521, April 17, 2023

April 17, 2023

Concurrent Authority: Investigating Energy Market Breaches in the Philippines

The Supreme Court of the Philippines affirmed that both the Energy Regulatory Commission (ERC) and the Philippine Electricity Market Corporation (PEMC) have the authority to investigate potential breaches of the Wholesale Electricity Spot Market (WESM) rules. This ruling clarifies the scope of PEMC’s investigative powers, confirming that it can act independently, yet concurrently with the ERC, to ensure compliance within the energy sector. This decision impacts energy sector participants by establishing a framework for monitoring and enforcing market rules to foster fair competition and stability in the Philippine electricity market.

Power Play: Unraveling the Jurisdictional Overlap in the Philippine Energy Market

This case revolves around the question of whether the Philippine Electricity Market Corporation (PEMC) possesses the authority to investigate potential breaches of the Wholesale Electricity Spot Market (WESM) rules, or if that power rests exclusively with the Energy Regulatory Commission (ERC). The Power Sector Assets and Liabilities Management Corporation (PSALM) filed a Petition for Prohibition, challenging PEMC’s jurisdiction to investigate possible violations of WESM rules. PSALM argued that the ERC, as the primary regulatory body, has exclusive authority over disputes among electricity market participants, including investigations. The Court of Appeals dismissed PSALM’s petition, leading to the present appeal before the Supreme Court. At the heart of this legal challenge is the interpretation of the Electric Power Industry Reform Act of 2001 (EPIRA) and related regulations, which define the roles and responsibilities of the ERC and PEMC in the restructured electricity industry.

The Supreme Court addressed whether PEMC has the power to investigate possible breaches of the WESM rules. The court reviewed the provisions of EPIRA, its implementing rules and regulations, and the WESM rules themselves. The Electric Power Industry Reform Act (EPIRA) sought to restructure the Philippine power industry to introduce competition and efficiency. Section 30 of EPIRA mandates the establishment of a spot market and the formulation of its rules by the Department of Energy (DOE) in conjunction with industry participants. It also calls for the creation of a group by the DOE, with representation from industry players, to implement the market. This group is meant to oversee the market’s operations and ensure fair practices.

The Implementing Rules and Regulations (IRR) of EPIRA further elaborate on the establishment of the WESM’s governance structure. Rule 9 of the IRR directs the DOE and industry participants to create a suitable governance framework for the WESM. This framework is intended to provide a cost-effective method for resolving disputes between market participants and the market operator. It should also establish sanctions for breaches of the rules. The rules governing the spot market are designed to promote competition and prevent abuses within the electricity sector. This includes clear procedures for addressing disputes and penalizing non-compliance.

Building on this principle, the Wholesale Electricity Spot Market (WESM) Rules outlines PEMC’s responsibilities and powers. Section 7.2.1 of the WESM Rules states that PEMC “shall do all things reasonably necessary to ensure that all. . . Members comply with the [Rules]” and can direct the disputes resolution administrator to investigate alleged breaches. Furthermore, Section 7.2.5.2 empowers PEMC to impose sanctions on any participant for breaching the Rules, without affecting the ERC’s authority to impose fines and penalties under EPIRA. This indicates a clear intention to grant PEMC significant authority in maintaining market integrity.

In this context, the Supreme Court highlighted that EPIRA granted the DOE, along with industry participants, the authority to develop the governance structure of WESM. This structure, formalized in the WESM Rules, authorizes PEMC to investigate rule breaches and take necessary actions to ensure compliance. PEMC is also empowered to resolve disputes among market participants and the market operator and to apply appropriate sanctions for any violations. Thus, PEMC’s request to investigate PSALM for potential rule breaches was a legitimate exercise of its legal powers. This action was consistent with the authority granted to it by law and exercised concurrently with the ERC.

Furthermore, the Supreme Court examined the protocol established between the ERC and PEMC to delineate their respective roles in investigating and sanctioning breaches of WESM rules. The protocol outlines specific procedures for handling different types of violations. According to the protocol, PEMC, through its Enforcement and Compliance Officer (ECO), has the initial authority to investigate and resolve cases involving breaches of WESM rules. Upon completing the investigation and imposing sanctions, PEMC must provide the ERC with a copy of its findings and conclusions. Any complaint received by the ERC regarding a breach is initially referred to PEMC for investigation and resolution, with the ERC informing the complainant of this action. If the ERC, through its monitoring, finds any irregular activity that may constitute a breach, it refers the matter to PEMC for investigation and resolution. This ensures a coordinated approach to market surveillance and enforcement.

In cases involving potential anti-competitive behavior, the protocol stipulates that PEMC must refrain from taking cognizance of a case unless directed by the ERC or expressly allowed to conduct an investigation. If PEMC receives a complaint or identifies potential anti-competitive conduct, it issues a Notice of Possible Commission of Anti-Competitive Behavior and transmits it to the ERC. The ERC then has ten business days to decide whether to take cognizance of the investigation or direct PEMC to proceed. Failure to communicate a decision within this period is considered consent for PEMC to proceed with the investigation. After completing its investigation, PEMC issues a resolution with its findings and recommendations to the ERC regarding appropriate fines and penalties.

The investigation and sanction of anti-competitive behavior are related to Section 43(r) of EPIRA, which assigns the ERC the responsibility to act against any participant in the energy sector for violations of laws, rules, and regulations. This includes rules on cross-ownership, anti-competitive practices, abuse of market positions, and similar acts. Section 43(r) also empowers the ERC to require any person or entity to submit reports or data related to investigations or hearings conducted under EPIRA. However, the Supreme Court clarified that while the ERC is responsible for key functions in the restructured industry, it is not required to perform all related tasks independently. The ERC may exercise these functions concurrently with PEMC, fostering a collaborative approach to market regulation. The Court emphasized that Section 43(r) does not mandate the ERC to execute all functions related to its responsibilities alone.

Therefore, the Philippine Electricity Market Corporation’s power to investigate and sanction breaches of the Rules is outlined and PSALM did not demonstrate how these acts encroach on the exclusive and original jurisdiction of the ERC. The Supreme Court ultimately denied the Petition, thereby affirming the concurrent authority of the ERC and PEMC. The Supreme Court held that the power to investigate violations of the Rules is concurrently exercised by the Energy Regulatory Commission and the Philippine Electricity Market Corporation. This collaborative approach ensures comprehensive oversight and enforcement within the Philippine electricity market. The decision emphasizes the importance of both entities working together to maintain market integrity and prevent abuses.

FAQs

What was the key issue in this case?	The key issue was whether the Philippine Electricity Market Corporation (PEMC) has the authority to investigate possible breaches of the Wholesale Electricity Spot Market (WESM) rules, or if that power rests exclusively with the Energy Regulatory Commission (ERC).
What is the Wholesale Electricity Spot Market (WESM)?	The WESM is the market where electricity is traded as a commodity, allowing buyers and sellers to transact based on supply and demand. It aims to create an efficient and transparent pricing mechanism for electricity in the Philippines.
What is the role of the Energy Regulatory Commission (ERC)?	The ERC is the regulatory body responsible for promoting competition, encouraging market development, ensuring customer choice, and penalizing abuse of market power in the restructured electricity industry. It oversees the activities of market participants and enforces rules and regulations.
What is the role of the Philippine Electricity Market Corporation (PEMC)?	PEMC is responsible for the preparation and initial implementation of the WESM, in accordance with its rules and regulations. It ensures that all members comply with the WESM rules and can direct the investigation of alleged breaches.
What is the significance of EPIRA in this case?	EPIRA (Electric Power Industry Reform Act of 2001) is the foundational law that restructured the Philippine power industry. It provides the legal framework for the creation of the WESM and the roles of the ERC and PEMC in regulating the electricity market.
What did the Court decide regarding PEMC’s investigative powers?	The Supreme Court ruled that PEMC has the power to investigate possible breaches of the WESM rules, concurrently with the ERC. This means both entities can independently conduct investigations to ensure compliance within the energy sector.
What is the impact of this decision on energy sector participants?	The decision clarifies the scope of PEMC’s investigative powers, confirming that it can act independently, yet concurrently with the ERC, to ensure compliance within the energy sector. This enhances market monitoring and enforcement capabilities.
What is the meaning of the term “concurrent jurisdiction” in this context?	Concurrent jurisdiction means that both PEMC and ERC have the authority to investigate violations. PEMC’s authority does not diminish or encroach upon the ERC’s power.

In conclusion, the Supreme Court’s decision in this case solidifies the framework for regulating the Philippine electricity market. By confirming the concurrent authority of the ERC and PEMC to investigate breaches of the WESM rules, the Court has strengthened the mechanisms for ensuring compliance and preventing abuses within the sector. This promotes fairness, transparency, and stability in the electricity market, benefiting both industry participants and consumers alike.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

April 17, 2023

ERC’s Duty to Act: Mandamus and the Independent Market Operator

The Supreme Court’s decision emphasizes that the Energy Regulatory Commission (ERC) must act on applications filed by the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP) for market fees. The Court granted a petition for mandamus, compelling the ERC to immediately consider and resolve IEMOP’s application. This ruling reinforces that while the ERC has discretionary powers, it cannot disregard rules and regulations set by the Department of Energy (DOE) under the Electric Power Industry Reform Act (EPIRA). This decision ensures that the transition to an independent market operator is recognized and that IEMOP can fulfill its functions without undue delay, fostering stability and transparency in the energy market.

Powering Through Red Tape: Can the ERC Delay the Market’s Transition?

The case revolves around the transition from the Philippine Electricity Market Corporation (PEMC), as the Autonomous Group Market Operator (AGMO), to IEMOP, as the Independent Market Operator (IMO) of the Wholesale Electricity Spot Market (WESM). IEMOP filed a Market Fees Application for Calendar Year 2021 with the ERC, seeking approval to recover the costs of administering and operating the WESM. However, the ERC refused to act on IEMOP’s application, insisting that PEMC should be the applicant, citing previous decisions where PEMC was considered the Market Operator. This prompted IEMOP to file a Petition for Mandamus with the Supreme Court, seeking to compel the ERC to act on its application.

The central legal question is whether the ERC unlawfully neglected its duty to act on IEMOP’s application, thereby impeding the transition to an independent market operator as envisioned under the EPIRA. The EPIRA aims to ensure the quality, reliability, security, and affordability of electric power through a transparent and competitive market. The establishment of the WESM and the transition to an IMO are key components of this reform.

The Supreme Court anchored its decision on Section 78 of the EPIRA, which grants the Court jurisdiction over cases involving the implementation of the Act’s provisions. The Court noted that this case directly involves the enforcement of Section 30 of the EPIRA, concerning the implementation of the WESM through the Market Operator and the recovery of operational costs. Thus, the Court asserted its authority to exercise jurisdiction over the petition.

Building on this, the Court outlined the requisites for the issuance of mandamus, which include: (1) a clear legal right on the part of the petitioner; (2) a corresponding duty on the part of the respondent; (3) unlawful neglect in the performance of that duty; (4) a ministerial act to be performed; and (5) the absence of any other plain, speedy, and adequate remedy. The Court found that all these requisites were present in IEMOP’s case. IEMOP, as the Market Operator, has a clear legal right to file the application for market fees, supported by Section 30 of the EPIRA and its Implementing Rules and Regulations (IRR). The EPIRA IRR defines the “Market Operator” as either the AGMO or the IMO, with the IMO assuming the functions after a transition period.

Moreover, the DOE and electric power industry participants jointly endorsed the transition from PEMC (AGMO) to IEMOP (IMO), fulfilling the requirements of Section 30 of the EPIRA. This endorsement was evident in the DOE’s Department Circular No. DC2018-01-0002 and the IMO Transition Plan. To further solidify this transition, PEMC and IEMOP executed an Operating Agreement, formalizing the transfer of functions and acknowledging IEMOP as the duly incorporated IMO. The ERC’s insistence that PEMC should file the application was, therefore, unfounded.

The Supreme Court also highlighted that the ERC unlawfully neglected its duties under the EPIRA. Section 43 of the EPIRA outlines the functions and responsibilities of the ERC, which include enforcing the rules and regulations governing the WESM and the activities of the Market Operator. The Court emphasized that while the ERC is an independent body, it must adhere to the rules, regulations, and circulars issued by the DOE under the EPIRA. The ERC’s refusal to recognize IEMOP as the IMO and its insistence that PEMC should file the application directly contradicted the directives of the DOE and the agreements between PEMC and IEMOP.

Furthermore, the ERC’s failure to act on IEMOP’s application violated Section 4(a) of R.A. No. 11032, the “Ease of Doing Business and Efficient Government Service Delivery Act of 2018,” which defines “action” as a written approval or disapproval. The ERC’s email returning the application was not considered an “action” because it did not state whether the application was approved or disapproved. The Court also noted that the ERC failed to verify the completeness of IEMOP’s pre-filing requirements, as mandated by its own rules and guidelines.

The Court addressed the argument that mandamus cannot be issued to direct the exercise of discretion, stating that mandamus is proper in cases of grave abuse of discretion, manifest injustice, or palpable excess of authority. While the evaluation of the application involves discretion, the act of considering and acting upon it is ministerial. The ERC’s continued refusal to act, despite the DOE’s and PEMC’s confirmations of IEMOP’s status as the IMO, constituted a grave abuse of discretion. Finally, the Court noted that IEMOP had no other plain, speedy, and adequate remedy against the ERC’s inaction, making mandamus the appropriate recourse.

FAQs

What was the key issue in this case?	The key issue was whether the Energy Regulatory Commission (ERC) unlawfully neglected its duty by refusing to act on the market fees application filed by the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP).
Who is IEMOP and what is its role?	IEMOP is the Independent Market Operator (IMO) of the Wholesale Electricity Spot Market (WESM). It is responsible for administering and operating the WESM, ensuring a transparent and competitive electricity market.
*What is a petition for mandamus?*	A petition for mandamus is a legal remedy that seeks to compel a government agency or official to perform a duty that they are legally obligated to perform. It is used when there is a clear legal right and a corresponding duty that is being neglected.
Why did the ERC refuse to act on IEMOP’s application?	The ERC refused to act on IEMOP’s application because it insisted that the Philippine Electricity Market Corporation (PEMC) should be the applicant. The ERC cited previous decisions where PEMC was considered the Market Operator.
What is the significance of the EPIRA in this case?	The Electric Power Industry Reform Act (EPIRA) provides the legal framework for the restructuring of the Philippine electricity industry. It mandates the establishment of an independent market operator and the transition from the autonomous group market operator (PEMC) to the IMO (IEMOP).
What did the Supreme Court rule in this case?	The Supreme Court ruled in favor of IEMOP and granted the petition for mandamus. The Court ordered the ERC to immediately act upon and resolve IEMOP’s market fees application for Calendar Year 2021.
What does this ruling mean for the energy sector?	This ruling ensures that the transition to an independent market operator is recognized and that IEMOP can fulfill its functions without undue delay. It promotes stability, transparency, and competitiveness in the electricity market.
What are market fees and why are they important?	Market fees are charges imposed on market members to cover the costs of administering and operating the WESM. They are essential for the financial viability of the WESM and the effective functioning of the electricity market.
What was the ERC’s main argument against the petition for mandamus?	ERC argued that mandamus was only for ministerial acts and did not extend to acts requiring discretion. ERC further stated that they acted on IEMOP’s petition when they returned it to the petitioner due to the view that it was not the proper party to file.

The Supreme Court’s decision serves as a crucial reminder to regulatory bodies like the ERC that they must adhere to the laws and regulations that govern their actions. By compelling the ERC to act on IEMOP’s application, the Court has reinforced the importance of the transition to an independent market operator, fostering a more transparent and efficient electricity market in the Philippines. The ERC’s failure to recognize the transition undermined the objectives of the EPIRA.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

March 23, 2022