TL;DR

In a decisive ruling, the Supreme Court granted a petition for mandamus, compelling the Energy Regulatory Commission (ERC) to immediately act upon and resolve the market fees application filed by the Independent Electricity Market Operator of the Philippines (IEMOP) for Calendar Year 2021. The Court found that the ERC unlawfully neglected its legal duty by refusing to recognize IEMOP as the legitimate Market Operator of the Wholesale Electricity Spot Market (WESM) and failing to process IEMOP’s application for market fees. This decision underscores the ERC’s obligation to adhere to the rules and regulations set by the Department of Energy (DOE) and ensures that the operational costs of the WESM can be recovered, thereby safeguarding the stability and efficiency of the electricity market for consumers and industry participants alike.

Powering Through Inaction: How the Supreme Court Energized the WESM Market Fees Application

The case of Independent Electricity Market Operator of the Philippines, Inc. (IEMOP) v. Energy Regulatory Commission (ERC) revolves around a fundamental question: Can a regulatory body, vested with quasi-judicial authority, disregard the clear directives and policies of the Department it is mandated to regulate? At its heart, this case is a legal showdown over the operational funding of the Wholesale Electricity Spot Market (WESM), the Philippines’ electricity trading platform, and the authority of its independent market operator, IEMOP, to secure the necessary fees for its operations. The ERC’s refusal to act on IEMOP’s market fees application prompted IEMOP to seek a writ of mandamus from the Supreme Court, a legal remedy to compel a government body to perform a ministerial duty or to act without grave abuse of discretion.

To understand the crux of the dispute, it’s essential to trace the legal framework. The Electric Power Industry Reform Act of 2001 (EPIRA) mandated the creation of the WESM to foster competition and transparency in the electricity market. Section 30 of EPIRA established the concept of a Market Operator to manage the WESM, initially as an Autonomous Group Market Operator (AGMO) and subsequently transitioning to an Independent Market Operator (IMO). The Philippine Electricity Market Corporation (PEMC) initially served as the AGMO. However, in line with EPIRA’s vision, the DOE issued Department Circular No. DC2018-01-0002, outlining policies for a transition to an IMO. This led to the formation of IEMOP, intended to take over the Market Operator functions from PEMC, with PEMC becoming the Governance Arm of WESM.

IEMOP was incorporated and an Operating Agreement was executed with PEMC in 2018, formalizing the transfer of Market Operator responsibilities. Subsequently, IEMOP filed a Market Fees Application for Calendar Year 2021 with the ERC, seeking approval for the fees necessary to operate the WESM. However, the ERC refused to act on this application, citing that PEMC remained the Market Operator and that IEMOP’s application was deficient. This refusal persisted despite IEMOP’s submissions of pre-filing documents and clarifications, as well as confirmations from both the DOE and PEMC itself that IEMOP was indeed the duly designated IMO. The ERC’s stance was primarily communicated through an email, which IEMOP argued did not constitute a formal action or denial under the law.

The Supreme Court’s analysis centered on the propriety of mandamus. The Court reiterated the requisites for mandamus: a clear legal right of the petitioner, a corresponding duty of the respondent, unlawful neglect of that duty, the duty being ministerial (or discretionary duty being abused), and the absence of other adequate remedies. The Court meticulously examined whether IEMOP possessed a clear legal right to compel the ERC to act on its application.

The Court found that IEMOP, as the designated IMO, undeniably had the legal right to file the Market Fees Application. Section 30 of EPIRA, along with its Implementing Rules and Regulations (IRR) and the WESM Rules, clearly establishes the Market Operator’s role in implementing the WESM and recovering operational costs through market fees, subject to ERC approval. The DOE Circular and the IMO Transition Plan, endorsed by the electric power industry participants, further solidified the transition from PEMC to IEMOP. Crucially, the Operating Agreement between PEMC and IEMOP explicitly recognized IEMOP as the IMO. The Court emphasized that:

Section 30 of the EPIRA, Rule 9, Section 9 of the EPIRA IRR, and Section 2.10.1 of the WESM Rules provide for the right of the Market Operator to recover the cost of administering and operating the WESM through a charge, i.e., the Market Fees, imposed on all market members, subject to the approval of the ERC.

Furthermore, the Court dismissed the ERC’s claim of deficient documentary requirements, noting IEMOP’s substantial compliance with pre-filing rules and subsequent submissions. The ERC’s insistence that PEMC should file the application was deemed untenable, directly contradicting the established transition to IEMOP as the IMO.

The Court then addressed whether the ERC unlawfully neglected its duty. It highlighted Section 43 of EPIRA, which mandates the ERC to enforce EPIRA’s rules and regulations, including those governing WESM operations and the Market Operator’s activities. The Court firmly stated that while the ERC is an independent body, it is legally bound to follow DOE rules and circulars issued under EPIRA. The Court cited jurisprudence emphasizing that the ERC’s primary duty is to enforce rules set by the DOE, not to disregard them. The ERC’s refusal to recognize IEMOP as IMO and to act on its application was therefore a clear neglect of its legal duty.

Regarding the nature of the duty, the Court clarified that while the approval of market fees is discretionary, the act of considering and acting upon the application is ministerial. Even if discretion is involved, mandamus can compel action when there is grave abuse of discretion, manifest injustice, or palpable excess of authority. The ERC’s prolonged inaction and refusal to acknowledge IEMOP’s status, despite overwhelming evidence, constituted such abuse and justified the issuance of mandamus. The Court underscored that:

Mandamus may issue when there is grave abuse of discretion, manifest injustice, or palpable excess of authority in the performance of discretionary duty. This is because discretion must be exercised in accordance with, and not contrary to, the law.

Finally, the Court found no other plain, speedy, and adequate remedy available to IEMOP, as the ERC’s inaction left IEMOP without a formal decision to appeal. The Court concluded that mandamus was the appropriate and only effective remedy to compel the ERC to perform its duties and recognize IEMOP’s rights as the Market Operator.

In granting the petition, the Supreme Court sent a clear message: regulatory bodies must operate within the bounds of the law and adhere to the policies set by their supervising departments. The decision ensures the continued financial viability of the WESM by compelling the ERC to process IEMOP’s market fees application, preventing potential disruptions in the electricity market due to lack of operational funding. This case reinforces the principle of regulatory accountability and the importance of timely action in ensuring the smooth functioning of critical infrastructure like the WESM.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.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: IEMOP vs. ERC, G.R No. 254440, March 23, 2022