Concurrent Jurisdiction: PEMC Authority to Investigate WESM Rule Breaches

The Supreme Court has settled a significant question in the Philippine energy sector: who may investigate breaches of the Wholesale Electricity Spot Market (WESM) Rules? In Power Sector Assets and Liabilities Management Corporation v. Energy Regulatory Commission and Philippine Electricity Market Corporation (G.R. No. 193521, April 17, 2023), the Court ruled that the Philippine Electricity Market Corporation (PEMC) exercises investigative and punitive powers over market participants concurrently with the Energy Regulatory Commission (ERC). The decision clarifies the division of regulatory labor in the restructured electricity industry and confirms that the ERC need not perform all enforcement functions by itself.

The Dispute: PSALM Challenges PEMC's Authority

The case arose when PEMC sought to conduct a formal investigation against the Power Sector Assets and Liabilities Management Corporation (PSALM), a government-owned corporation created under Republic Act No. 9136, or the Electric Power Industry Reform Act of 2001 (EPIRA). PEMC alleged that PSALM, as the registered trader of several power generating plants, committed possible breaches of the WESM Rules, including non-compliance with dispatch instructions and failures to submit proper generation offers.

PSALM filed a Petition for Prohibition with the Court of Appeals, arguing that PEMC had no jurisdiction to investigate market participants. PSALM claimed that the ERC held exclusive and original jurisdiction over disputes among electricity market participants, and that the ERC could not delegate its powers to another body. The Court of Appeals dismissed the petition, and PSALM elevated the matter to the Supreme Court.

The Issue: Who Has the Power to Investigate?

The central question was whether PEMC has the power to investigate possible breaches of the WESM Rules. PSALM argued that the ERC's statutory mandate under Section 43 of EPIRA—which includes acting against any participant for violations of energy sector rules—was exclusive. PSALM also contended that it was not bound by the market participation agreement that would have subjected it to PEMC's authority.

The Ruling: Concurrent, Not Exclusive, Jurisdiction

The Supreme Court denied PSALM's petition and affirmed the Court of Appeals. The Court held that the power to investigate WESM Rule violations is concurrently exercised by the ERC and PEMC.

The Court's reasoning rested on the statutory framework of EPIRA. Under Section 30 of EPIRA, the Department of Energy, jointly with industry participants, is tasked to formulate the rules for the spot market and to constitute a group to implement it. The implementing rules and regulations further mandate the establishment of a governance structure for the WESM, including a market operator responsible for operating and administering the market in accordance with the Rules.

The WESM Rules themselves empower PEMC to ensure member compliance and to impose sanctions for breaches, without prejudice to the ERC's authority to impose fines and penalties under EPIRA. The Court noted that while Section 43(r) of EPIRA gives the ERC responsibility for acting against errant participants, it does not require the ERC to perform all related functions by itself. The ERC may exercise these functions concurrently with PEMC.

The Court also addressed PSALM's argument that it was not bound by the market participation agreement. Having endorsed the WESM Rules and participated in the market, PSALM was bound by the rules it had agreed to follow.

The Protocol: A Practical Division of Labor

The Court also upheld the validity of a memorandum of agreement and protocol executed between the ERC and PEMC in 2008. The protocol delineates responsibilities:

• Breaches of WESM Rules: PEMC, through its Enforcement and Compliance Officer, initially investigates and resolves breach cases. Complaints received by the ERC are referred to PEMC at the first instance.
• Anti-Competitive Behavior: PEMC refrains from investigating such conduct unless directed or allowed by the ERC. If PEMC finds grounds, it issues a Notice to the ERC, which decides whether to take cognizance or direct PEMC to investigate.
• Overlapping Acts: If an act constitutes both a breach and anti-competitive behavior, PEMC may investigate the breach but must refrain from the anti-competitive aspect unless the ERC consents.

This arrangement, the Court found, does not constitute an undue delegation of the ERC's powers. Rather, it reflects a permissible sharing of regulatory functions within the framework of EPIRA.

Practical Takeaways

• PEMC has real enforcement power. Market participants in the WESM must comply with the Rules, knowing that PEMC can investigate and sanction breaches without waiting for the ERC to act.
• The ERC retains oversight. The ERC's authority is not diminished; it exercises concurrent jurisdiction and has the final say on anti-competitive behavior cases.
• Contractual consent matters. By entering the market and agreeing to the WESM Rules, participants bind themselves to PEMC's investigative and punitive authority.
• Regulatory delegation is allowed. Administrative agencies may share or delegate functions where the law permits, as long as the statutory framework supports the arrangement.
• For energy sector stakeholders: Ensure compliance with WESM Rules and manuals, as investigations may proceed from either PEMC or the ERC.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.