In the
ever-evolving landscape of the Philippine energy sector, generation companies
and distribution utilities (DUs) find themselves grappling with regulatory
requirements aimed at fostering inflow of private capital and broadening of
ownership base. One such requirement in the Electric Power Industry Reform Act
of 2001 (EPIRA) mandates that these entities offer and sell at least fifteen
percent (15%) of their common shares of stock to the public.
While the public offering requirement aligns with the broader goals of EPIRA,
its application can be particularly challenging for small renewable energy (RE)
companies. Many of these entities lack the financial resources and market
capitalization needed to navigate the complex process of listing in the
Philippine Stock Exchange (PSE). Current PSE listing rules stipulate varying
public offering percentages based on market capitalization, making it
unattainable for some smaller players.
In August 2023, the SEC approved the direct public offering (DPO) of Pacerm-1 Energy
Corporation, setting a precedent for small RE companies to sell their common
shares without relying on financial intermediaries like underwriters and
investment banks. Pacerm-1’s DPO, covering 250,000 common shares, demonstrated
an alternative compliance avenue.
SEC Commissioner Kelvin Lester K. Lee recently announced that the SEC would soon
release an exposure draft for “SEC Power C Rules,” aiming to simplify
the application and approval process for ERC constituencies seeking to comply
with EPIRA’s public offering requirement. These rules, akin to SEC FARMS
and SEC HOPES, are part of a broader effort to boost the capital market and
support the growth of the energy industry.
EPIRA, enacted in 2001, initially set a five-year compliance window for
existing generation companies and DUs. However, this proved to be a formidable
task for many, prompting an extension. In 2011, Energy Regulatory Commission
(ERC) Resolution No. 04 (ERC Resolution No. 4, series of 2011) extended the
compliance period by another five years from its issuance, allowing existing
entities until 2016 to meet the requirement. New companies, on the other hand,
were mandated to fulfill this obligation within five years from receiving their
certificate of compliance. In 2015, a group of small RE companies petitioned
the ERC to hold in abeyance the implementation of ERC Resolution No. 4, series
of 2011, until a clarification is issued as regards the acceptable modes of
public offering.
Non-compliance with EPIRA’s public offering mandate carries significant
repercussions. The ERC is empowered to impose fines and penalties on violators,
while Congress, upon the recommendation of the Department of Energy (DOE)
and/or ERC, could revoke the franchise or privilege granted to non-compliant
companies. These stringent measures underscore the government’s commitment to
promoting competition, market development, and customer choice while preventing
the abuse of market power in the electricity industry.
A significant development in the interpretation of EPIRA’s public offering
requirement is the clarification by the Securities and Exchange Commission
(SEC) that “public offering” extends beyond PSE listing. SEC-OGC
Opinion No. 14-14 clarified that the sale of securities to 20 or more persons
qualifies as “selling to the public.” This expanded definition
provides alternative avenues for compliance.
Furthermore, the SEC, through a letter to the ERC dated 15 August 2018, also
confirmed that the forms of solicitation or presentation of securities for sale
through various means under Rule 3.1.17 of the 2015 Implementing Rules and
Regulations of the Securities Regulation Code (SRC IRR) constitute “public
offering.” These include print media, public or commercial venues,
electronic communication, and distribution of offering materials through
various channels. Nevertheless, all these modes require SEC approval, with the
registration process necessitating the submission of a Registration Statement
and a prospectus or offering circular.
ERC Resolution No. 04-2019 dated 4 June 2019, reinforced the SEC’s position by
highlighting that there are multiple ways for generation companies and DUs to
comply with EPIRA’s public offering requirement. These include PSE listing,
compliance with the SRC IRR, direct offers of capital stock, and more.
Importantly, ERC Resolution No. 04-2019 clarified that Employee Stock Option
Plans (ESOPs) do not constitute public offerings unless they involve registered
enterprises under the Omnibus Investment Code. The privatization of Build
Operate and Transfer (BOT) scheme projects does not absolve new owners from
their public offering obligations, emphasizing the continuity of compliance
regardless of ownership transfers.
Compliance with EPIRA’s public offering requirement is a multifaceted endeavor,
influenced by market dynamics, regulatory interpretations, and the evolving
energy landscape. While challenges persist, the government and regulatory
bodies are actively exploring avenues to facilitate compliance, particularly
for small RE companies and new entrants. These efforts reflect a commitment to
nurturing a competitive and transparent electricity industry in the
Philippines, with a focus on minimizing hurdles and maximizing opportunities
for all players.
For questions, contact:
Christianne
Grace F. Salonga
Senior Associate
[email protected]
Menu