Meralco inflated charges, SC told

Buena Bernal
Petitioners' lawyers in the Meralco rate hike case also hit Meralco for not having prepared a contingency plan as it knew of the Malampaya shutdown beforehand

ORAL ARGUMENTS. The Supreme Court hears oral arguments on the controversial price hike of the Manila Electric Co (Meralco). Photo by LeAnne Jazul/Rappler

MANILA, Philippines – Petitioners in the case against the controversial price hike of the Manila Electric Company (Meralco) claimed Meralco unduly passed on inflated charges to its customers.

Bayan Muna Party-list Rep. Neri Colmenares before the Supreme Court (SC) on Tuesday, January 21, argued that Meralco bought its power requirements from the Wholesale Electricity Spot Market (WESM) at very high prices when it could have resorted to cheap alternatives. 

The SC heard oral arguments against Meralco’s historic-high rate increase of P4.15 per kilowatt-hour (kWh) – temporarily halted by the high court – from petitioners Tuesday. Petitioners were represented by lawyers Colmenares, Leonard de Vera, and Carlos Zarate. 

Colmenares accused Meralco of helping jack up prices at WESM through power generation company Therma Mobile Inc. of the Aboitiz group. Meralco and Therma Mobile have a power supply agreement (PSA) allowing Meralco to buy 100 megawatts of power at P8.65/kWh.

He said that Therma Mobile, also a WESM participant, sold power – supposedly contracted by Meralco – in the spot market for P62/kWh, the ceiling price at WESM at the time. WESM prices fluctuate on an hourly basis, depending on bids offered by suppliers.

“Instead of accessing these 100 MW during the Malampaya shutdown, considering its claimed lack of supply, Meralco ordered Therma Mobile to sell 40 MW at the highest possible bid of P62 in at least 21 instances, some even during peak hours when respondent Meralco supposedly lacked supply,” said Colmenares.

Earlier, Colmenares quoted Therma Mobile CEO Erramon Aboitiz as saying that Meralco had full control of the use of the 100 MW, including WESM pricing and volume offers.

Why buy from spot market

Meralco sourced its power requirements from WESM after the scheduled maintenance shutdown of its main power source, the Malampaya gas field.

Meralco, however, also had to contend with the simultaneous outages of the power plants it had PSAs with. The outages of the plants coincided with that of Malampaya.

Petitioners also regarded the outages as “questionable irregularities.” 

Usually, Meralco sources 90% of its power needs from Malampaya and through PSAs. Only 10% of its energy requirement is sourced from the spot market.  

‘WESM rules may be anti-competitive’

The interpellation in the SC opened the door for greater scrutiny of how the power sector works.

“Unlike competitive behavior, gaming – strategic behavior that is illegal – does not require actual evidence of the players talking to each other. They only need to predict the behavior of the others in the market in order to maximize also their advantage,” Chief Justice Maria Lourdes Sereno told Colmenares.

“That is correct, your honor,” answered Colmenares.

“But when the spot market is already being gamed by players, not only by the way that their contracts have been structured, but also by the way their contracts have been observed in the breach, as well as by the absence of arms-length relationship within the WESM itself, that I think is a very clear indication that there is a failure of market regulation because the contracts are being gamed. The spot market bids are also being gamed,” said Sereno.

Colmenares agreed.

Sereno explained that the objective of the spot market is to avoid a shortfall in supply. Said objective, she added, is a “legitimate policy objective.”

The Chief Justice however clarified that her line of questioning “does not prejudge WESM” or the DOE (Department of Energy) and ERC (Energy Regulatory Commission).

“That is why we denied [their] request to be exempted in the oral arguments,” she noted.

The SC denied the petition of the Office of the Solicitor General, representing the regulators, to be excused from filing comments on Meralco’s rate hike. The high court wants the regulators to explain why they approved the increase.

The SC also denied the request of WESM operators Philippine Electricity Market Corporation and National Grid Corporation of the Philippines not to participate in the oral arguments.

Grave abuse of discretion?

In its response-comment filed before the SC, Meralco maintained that it was just collecting from its customers the charges that power suppliers billed the utility firm. It asserted it followed spot market rules.

Sereno however hinted at the Meralco-Therma Mobile issue as the only evidence of collusion during the interpellation.

“Except for the communication between Therma Mobile and Meralco, we have no other evidence that Meralco is talking with players in the spot market,” she said.

During his speech, Zarate, one of the petitioners’ lawyers, argued that ERC’s approval of the rate increase, given the Meralco-Therma Mobile and other questionable “irregularities,” constituted grave abuse of discretion.

Contingency plan

Colmenares argued that Meralco should have prepared a contingency plan as it knew beforehand that Malampaya was going to undergo maintenance.

“Your Honors, Meralco, despite knowledge of the Malampaya shutdown 3 years before it occurred, refused to contract out 100% of its entire energy requirement, which should have assured it of a stable supply of energy instead of being subject to the vagaries of WESM prices,” said the lawmaker.

Proper forum

Justices also questioned the lawyers if appealing to the High Court was the appropriate remedy for the issue.

“You have made a lot of factual allegations, but we have already cautioned you that we are not a trier of facts,” Sereno told Colmenares.

Junior Justice Marvic Leonen pointed at regulation and administrative sanctions by ERC as alternative. Zarate, however, cast doubt on ERC’s ascendancy as regulator.

“ERC abandoned its duty to protect consumers,” he said, implying ERC’s incapacity to adjudicate the issue on the price hike as it was the one who approved it to begin with.

“Have you complied with requirement of exhaustion of all administrative remedies (before petitioning SC)?” the Justice then asked.

The petitioners’ lawyer maintained that the issue was imminent, citing irregular circumstances such as alleged collusion of power firms, which required court intervention.

Continuation of oral arguments

Due to time constraints, the High Tribunal only heard arguments from petitioners. 

Arguments from respondents will be heard on February 4 and 11.

Assistant Solicitor-General Vida San Vicente and Atty. Francis Saturnino Juan will be arguing for the DOE and ERC, while Atty. Victor Lazatin and Retired Justice Florentino Feliciano will be arguing for Meralco. – Rappler.com

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