Progenies of Dissonance

There is no doubt that what has come to fore in the wake of this crisis are the persistent structural weaknesses of our economy: the heavy dependence of our transport and power systems on fuel importation, and the dissonance embedded in the legal and regulatory frameworks governing these energy downstream industries. Time and again we have seen how these weaknesses can translate to policies that promise short-term relief but have adverse long-term consequences, some unintended for sure, borne by the small consumers who are precisely those whom these policies intend to protect.

SPOT MARKET SUSPENSION
As this article is being finalized, the Energy Regulatory Commission (ERC) has just ordered the immediate suspension of operation of the electricity spot market as of 0005H on March 26, “in recognition [of] the potential impacts of limitation in fuel supply and price increase to the energy prices.” The suspension, according to the ERC, “shall remain in effect until the recommendation of the [Department of Energy (DoE)] to the Commission.”

The suspension itself raised some questions which, hopefully, the ERC will get to address during the scheduled public consultations on the draft Resolution setting the pricing methodology that will govern the suspension period:

a.) Does Executive Order No. 110 issued by the President declaring a State of National Energy Emergency authorize suspension of spot market operations? If so, can market suspension take effect prior to the issuance of the rules governing such suspension?

b.) Were there already increases in spot market prices over the last few days or weeks that merit the suspension?

c.) Are these price increases determined to result from fuel shortages on the part of fossil fuel-powered generation facilities? If they are not (considering reports from generators that they still have sufficient fuel) and the recorded price increases are deemed unreasonable, should there not be an investigation for anti-competitive behavior or abuse of market power instead of a suspension of the market?

d.) If there are no price increases recorded yet or if there is no shortage of fuel (as reported also by the DoE in recent news reports), can market operations be suspended as an anticipatory measure, before any such shortage or price increases are recorded? And if so, how long will such anticipatory suspension last?

e.) Finally, considering that only around 20% of supply to consumers is priced based on the market, with around 80% priced under bilateral contracts or power supply agreements (PSAs) which are settled outside of the market, how will the suspension cushion the impact of increased fuel costs on consumers, particularly if the PSAs have fuel pass-through components?

BUILT-IN STRESS IN OUR SYSTEMS AND POLICIES
This last question, to my mind, is the most critical one if we are truly to find solutions that will give effective relief to consumers. There is no question about the noble intention behind the issuance: what I think the situation illustrates quite clearly is the complexity in governance that we have seen over the last few decades. Whenever the economic system is tested mainly by stress coming from global markets, we witness the strain and the conflict brought about by policies that appear to want to have its cake and eat it, too.

On one hand, the Government (over several Administrations) has benefited from the policy of deregulation (as the twin of privatization) in the form of reduced administrative and financial burdens of providing certain public goods and services, such as power and public transport. On the other hand, it also needs to perennially confront the political costs of having transferred fully the financial burden of paying for these goods and services on the shoulders of the consumers. And so here we are, living in this chasm growing bigger and deeper with the strain between a deregulated supply market and a tariff-regulated service segment.

DEREGULATION IN THE FUEL SECTOR
In 1998, the Philippines passed Republic Act No. 8479 or the Downstream Oil Industry Deregulation Act. It was enacted to address the strain on public funds created by the subsidy program through the Oil Price Stabilization Fund by liberalizing the downstream oil industry, providing for incentives for new players to come in and deregulating the retail price of petroleum products. It also gave the DoE additional powers to realize and enforce safeguards to promote and protect fair competition in the industry as the law prohibits cartelization and predatory pricing, among others.

Over the years, we have seen an increase in the number of players in the industry. According to a study published by the Philippine Competition Commission (PCC) in 2021, the new players in industry accounted for 43% of the total product market as of 2019, while the three major players held 50.6% market share. The study found that the industry “has indeed become less concentrated,” as per preliminary screening, in most areas in the country. As to pricing, however, the study noted that “[t]he ‘synchronized’ weekly price adjustment… acts as a coordination mechanism for changing prices. The synchronized part (most if not all players notifying on Monday) of the current practice should be benign… Since the industry has been deregulated, the oil companies have been free to set their price. If they have been following the price adjustment above, it is not because the government has been imposing on them. It is conceivable that a firm may be tempted to take market share from the others by pricing below the price resulting from the formula or adjustment mechanism. Nevertheless, it may still not do so for fear of provoking retaliation from the rival and starting a price war. Since firms can predict the (common) price adjustment following the formula, it might be tempting for a firm to follow that price, rather than risk a price war.”

Apart from the issues in pricing identified in the 2021 PCC study, the common pricing practice still prevalent among oil industry players today also indicates that the competition among retail players may not solve the underlying issue of lack of or limited product sources globally. While there could be an increased number of players who sell domestically, if they procure supply from the same sources, there is a high likelihood that they will be selling at the same or similar price.

More importantly, what the deregulation policy has failed to address is the fact that tariffs or fares in the public transport sector — for jeepney drivers, taxi drivers, bus drivers or operators — remain regulated. Government approval for any tariff adjustment is needed and can only be issued after the conduct of notice and hearing, in the exercise of the rate-making function of the regulatory agency. Thus, every time there are increases in pump prices for petroleum products, the public sector is expected to bear the cost of such increases, under the theory that it can also keep the gains should there be any reduction in price, until the passenger tariffs or rates are adjusted accordingly. When the weight of this burden becomes too much to bear and public sentiment turns for the worse, Government goes back to where it started, that is, providing subsidies, when this was in fact the practice that has proved unsustainable and prompted the adoption of deregulation in the first place.

DEREGULATION IN THE POWER SECTOR
Almost 25 years ago, Congress passed Republic Act No. 9136 or the EPIRA (Electric Power Industry Reform Act), adopting the policies of privatization in the power industry and the deregulation of the generation and supply sectors. While there were less than 50 generation companies prior to EPIRA, mostly contracted as independent power producers (IPPs) selling directly to the National Power Corp., this number has more than doubled over the last 20 years and has significantly increased with the number of new players in the renewable energy (RE) space. Based on the ERC’s records, however, as of 2025, there are only five dominant players controlling, cumulatively, around 65% of the generation sector.

Despite the adoption of Retail Competition and Open Access (RCOA) and the licensing of more than 20 retail electricity suppliers (RES) nationwide, more than 70% of the demand remains “captive,” that is, supplied by their respective distribution utilities (DUs) and mainly from bilateral PSAs with prices approved by the ERC. With the onset of increased RE adoption, primarily from rooftop solar home or commercial/industrial (C&I) installations, and direct contracting through RES via the RCOA and Retail Aggregation Program or the Green Energy Option Program, more consumers are expected to migrate from the captive to the contestable market, thereby being liberated, so to speak, from regulation.

Until such time, however, that we get to the tipping point of such migration to contestability, consumers and generation companies are also caught in the same realm of dissonance that prevails in the transport sector. In the power sector, however, the dynamics can be a bit different considering the long-term nature of PSAs and the pass-through fuel price provisions of coal, diesel, and natural gas-fueled contracts which shield the DUs and the generators from pricing risks. While the financial strain of fuel price increases in the public transport sector is borne by the jeepney drivers, taxi drivers, and bus operators, such strain in the power sector is borne directly by consumers (including the same jeepney drivers, taxi drivers, and bus operators).

Monalisa C. Dimalanta is a senior partner at Puyat Jacinto & Santos Law (PJS Law). She was the chairperson and CEO of the Energy Regulatory Commission from 2022 to 2025, and chairperson of the National Renewable Energy Board from 2019 to 2021.