13 things Meralco consumers should know about the hike

Below are what Manila Electric Company (Meralco) consumers need to know about the impending power rate hike.

1. It is an unconscionable rate hike and money grab that comes at a time when all our energies are focused on assisting Yolanda victims and when many workers would have just received their 13th month pay. In other words, instead of us voluntarily giving our money to Yolanda victims and our loved ones this Christmas, the big power players would take it from us.

2. It is the result of supply not being sufficient to meet demand. But this gap appears contrived rather than real. The official explanation of Meralco is that 3 plants that run on natural gas from Malampaya were unable to use the gas because Malampaya is undergoing a scheduled preventive maintenance. And that only 2 of the 3 plants are able to continue running on a more expensive distillate or other fuel. However, at a hearing of the House of Representatives Energy Committee on Tuesday, December 10, Energy Undersecretary Raul B. Aguilos confirmed that 8 to 9 generating plants went on unscheduled outage, which contributed to the spike in generating prices.

3. The contrived supply gap raises Meralco’s generation charge to over P9 per kwh. This is above what it costs to produce a kilowatt hour of electricity from hydro power, coal power, geothermal power, natural gas, and wind. These rates are even 1.4 to 3 times higher than what the US Energy Information Administration forecasts operating costs to be 5 years from now of power plants in the US using coal, nuclear, biomass, solar pv, onshore wind, hydro, geothermal, etc.

4. Withholding supply so that the price goes above what it would cost to generate the same electricity is a form of market abuse. So the rate hike that Meralco would like to collect from us, and which the Energy Regulation Commission (ERC) so hastily approved, violates the EPIRA (Electric Power Industry Reform Act) or Republic Act 9136, specifically, Section 45: “No participant in the electricity industry or any other person may engage in any anti-competitive behavior including, but not limited to, cross-subsidization, price or market manipulation…”

5. The ERC is mandated by section 43 of the EPIRA to ensure competitive behavior of all industry players. Section 43 (c) requires the ERC to enforce the rules and regulations governing the operations of the WESM (Wholesale Electricity Spot Market). Section 43 (k) requires the ERC to monitor and take measures to penalize abuse of market power, cartelization, anti-competitive or discriminatory behavior by any electric power industry participant. Section 43 (r) mandates the ERC, in the exercise of its investigative and quasi-judicial powers, to act against any participant or player for violation of competition rules and regulations. Section 43 (s) authorizes the ERC to use its quasi-judicial powers to inspect the premises, books of account, or records of any person or entity at any time, to determine the existence of anti-competitive behavior or abuse of market power. Without doing any of this, the ERC approved the excessive rate hike of Meralco after a closed-door meeting on 9 December 2013.

6. This is not the first time market abuse has taken place in WESM. In the first 6 months of WESM’s operation in 2006, a government corporation, PSALM or Power Sector Assets and Liabilities Management Corporation, was found to have engaged in abuse of its market power. The Market Surveillance Committee of the Philippine Electricity Market Corporation (PEMC), which operates the WESM, found 3 trading teams of PSALM to have engaged in anti-competitive behavior. The generating plants involved in this abuse were Pagbilao, Sual and Ilijan — the same plants involved in today’s unjust increase. The abuse continues and continues unpunished by the ERC to this day.

7. If there is any agency that is fully aware of market abuse in the power sector, it is the Department of Energy (DOE), because it chairs the corporation that operates the WESM. There are clear market rules in WESM and players have been found by the company to have breached market rules. Secretary Jericho Petilla and all his predecessors, including Secretary Rene Almendras who is now in Malacañang, need to disclose to the public all the incidents of market abuse and run after violators.

8. Section 23 of RA 9136 or the EPIRA law obligates a distribution utility such as Meralco “to supply electricity in the least cost manner to its captive market…” But as early as 2008 four professors from the University of the Philippines found that Meralco was not doing this. The professors looked into the power purchases of Meralco in 2007 and the first quarter of 2008. They found that had Meralco optimized its purchases in order to give consumers the cheapest possible generated power, electricity rates could have been lowered by 88 centavos per kwh. On top of this, the study also found that Meralco’s purchases in WESM raised its power cost by 23 centavos per kwh.

9. This excessive rate hike could have been avoided if Meralco required the generating companies with whom it has a supply agreement to provide replacement power. Such a provision is normally included in power supply agreements anywhere in the world. Because all power generating plants are expected to experience some downtime, whether scheduled or forced, a provision in the contract requiring the supplier of electricity to provide replacement power to the utility such as Meralco at no extra cost to the latter, would have insured Meralco consumers against a rate hike in the event of a Malampaya shutdown. Instead, Meralco did not include this provision in its contracts with its suppliers.

10. Even if Meralco failed to include this provision, the excessive rate hike could still have been avoided if the ERC required the inclusion of this provision in the supply agreements of Meralco when these were submitted to the ERC for approval. But ERC did not think of protecting consumers by requiring this provision.

11. By conveniently omitting this provision in its contracts with its suppliers, Meralco is “forced” to buy electricity from WESM, at whopping prices, from the sister plants of its suppliers with scheduled and unscheduled outages. So when Meralco says it has to raise rates because WESM is high, what it really is saying is, WESM is high because we and our suppliers played you consumers in WESM. By failing to require its contracted power suppliers to provide replacement power, Meralco “forces” itself to go to WESM. And they all have a heyday at our expense.

12. Thanks to RA9136 or the EPIRA law, ownership and control over the power sector in the Philippines is far more concentrated today. Three groups: Aboitiz, San Miguel and Lopez, control 65% of installed generation capacity in Luzon, according to the DOE. Nationally their share of installed generation is 54%. There is a rule of 3 in economics: when 3 control that is a monopoly. Thanks to the games these players played at our expense, expect reports of mega profits and dividends for the individuals and groups who control Meralco and the Luzon grid.

13. Crucial information that should be openly and fully shared and discussed with Meralco consumers is not readily available from the companies or agencies concerned. Documents and reports that would help Meralco consumers fully comprehend the games being played at our expense by all the players, for which we are being charged excessively, should be fully and freely disclosed to the public.

This includes, among others:

• The Grid Operating and Maintenance Program (GOMP), an annual plan, and the actual maintenance program, including explanations for any deviations from such;
• Meralco’s supply agreements and the lack of provisions that would protect consumers from price increases due to plant outages, scheduled and forced;
• Meralco’s WESM purchases;
• Trading information in WESM particularly for the trading intervals where settlement price is above P10,000 per megawatt hour;
• Violations of market rules by WESM players and penalties arising therefrom;
• Status of sanctions against violators of market rules.

Furthermore, the ERC must report to the public the actions it has taken to curb market abuse, as well as its reasons for failing to act against market abuse. It must explain to the public why it granted the staggered increase to Meralco without the benefit of a public hearing and without investigating market abuse.

The DOE must also explain why it has been silent on market abuse. It is claiming it is investigating collusion among the parties involved but it already knows, as the chair of the company that operates the WESM, that market abuse is a regular occurrence in the Philippine power sector.

This Christmas, more than ever, it must explain its silence and inaction on the chronic abuse. – Rappler.com

The authors have been studying the power sector for over 5 years, and have written extensively on it. They are co-convenors of the Center for Power Issues and Initiatives. The photo shown above is that of Maitet Diokno, one of the 3 authors.

Electric line image via Shutterstock