Monday, December 30, 2013

Jericho Petilla: Regulatory capture personified

December 30, 2013 8:16 pm
Ben D. Kritz
Ben D. Kritz
As promised, Energy Secretary Carlos Jericho L. Petilla submitted his resignation last week, after failing to fully restore electricity supply to all the areas damaged by last month’s Typhoon Yolanda.
The Philippines’ online community, which almost daily sets new standards of gullibility for itself, initially lavished praise on Petilla for his “integrity” and “honoring his word,” despite the fact that it was obvious the moment he uttered his mayabang “I will resign if power is not restored by Christmas Eve” that no such thing would ever happen. And sure enough, roughly six minutes after Petilla announced his resignation, it was firmly rejected by President B.S. Aquino 3rd, without so much as a whisper of protest from Petilla, leading a friend of mine to comment that former Customs chief and well-known “resigner” Ruffy Biazon “ought to sue Petilla for gimmick infringement.”
Petilla never intended to resign, and if he did, that notion would have been quickly squashed by his overlords in the power sector, before whom Petilla has demonstrated that he is completely helpless. After doing nothing to stop the astonishing rate increase imposed by the Manila Electric Co. (Meralco) on its five-plus million customers, Petilla was apparently caught off-guard by the firestorm of public anger; after some of his people faced hearings in the House of Representatives, Petilla “ordered” the Department of Energy (DOE), the Energy Regulatory Commission (ERC), and the Philippine Electric Market Corp. (PEMC) to “investigate” whether there was collusion between Meralco and power suppliers to drive up electricity costs.
That all sounds very consumer-friendly, but why the DOE and its various sub-agencies would be investigating something they allowed to happen in the first place ought to be questioned. In his role as Energy Secretary, Petilla is the man in charge; furthermore, he serves as chairman of the PEMC, the parent corporation of the Wholesale Electricity Spot Market (WESM), the presumed source of the obnoxiously high power costs. Thus, he is in the odd and obviously unworkable position of being both the head of a for-profit market and its chief regulator. The ERC is technically an independent body, but the “anything goes” nature of trading on the WESM seems to put the regulator in a difficult position: If high electricity prices are allowed at the WESM (the responsibility for which ultimately belongs to the DOE Secretary and the Board of Directors he leads), the ERC has little justification for disallowing a rate hike by distributors to compensate for them.
Being in a compromised position is bad enough, but the way Petilla picked up that ball and ran with it is what makes the entire issue a demonstration of gross personal failure on his part rather than a simpler organizational problem. Despite the DOE’s supposedly “investigating” price-fixing, Petilla last week issued a jaw-dropping statement indicating just how low his regard for the “consumer protection” aspects of his job really are, public advising Meralco to appeal the 60-day Temporary Restraining Order (TRO) issued by the Supreme Court against the rate hike, and saying that it could cause financial difficulties for Meralco who would be forced to borrow to cover its power purchases.
Here’s a fun fact. In its third quarter business summary (which is available online to anyone, even Secretary Petilla), Meralco had this to say about its financial position as of the end of September: Free cash flow of P11.1 billion, and net debt of negative P34.6 billion, or in other words, a we’re-totally-not-in-debt-at-all gearing ratio of minus 0.49. Figures on how much power Meralco bought during the elevated price period vary, but seem to be around P3 billion—the company may borrow to cover that because it may be financially advantageous to do so, but it certainly doesn’t need to borrow.
With Petilla on their side, it’s little wonder Meralco seems to have been emboldened to use the confusion caused by the issuance of the TRO in the middle of the company’s bill-generation cycle to actually ignore the Supreme Court order, as one correspondent from Parañaque alerted us.
She writes: “Last December 26, I went to Meralco Tambo to pay my bill [received in December], anticipating a manual calculation of the supposed increase and deducting it from my bill, in accordance with the TRO at least effective December. The cashier and officer in charge said I had to pay in full, because the bill was generated before the issuance of the TRO, regardless if payment was being done after the TRO date. Meralco will then act on the final outcome of the hearing, they said.” Apparently, there were several angry customers at Meralco’s Tambo Business Center, all being told to pay the full bill and TRO be damned. Not being satisfied with that answer, our correspondent asked to speak to someone higher on the totem pole but, “They asked me to wait for a long time, so I just left.”
Two days later, however, on December 28, Meralco posted this statement on its Twitter feed in response to a customer query about the December bills: “Kung natanggap ninyo ang inyong bill bago ang December 20, 2013. Maaari kayong magbayad katumbas ng inyong November bill. Gayundin, maaari kayong makipag-ugnayan sa pinakamalapit na Meralco Business Center para sa karagdagang impormasyon.” [“If you receive your bill before December 20, 2013, you can pay your November bill equivalent. Also, you can contact the nearest Meralco Business Center for more information.”]
How many people might have unwittingly paid their entire December bill (Meralco has said roughly two-thirds of its customers had already been billed before the TRO was issued) is anyone’s guess, and since it is a virtual certainty the rate hike will eventually be allowed—barring a ridiculously-unlikely determination by the DOE or the Department of Justice that price-fixing did in fact occur—those customers will not be getting that money back. Perhaps Meralco’s new spokesman Jericho Petilla can at least thank them for helping to keep the company afloat through its oh-so-difficult financial challenges.  source

Monday, December 23, 2013

SC halts Meralco rate hike


Electrical post photo by Joey Rozzier
MANILA, Philippines (UPDATED) - The Supreme Court en banc on Monday issued a 60-day temporary restraining order (TRO) on the Manila Electric Company's (Meralco) P4.15 per kilowatt hour rate increase.
Supreme Court spokesperson Theodore Te said the Court has set the oral arguments on January 21 to discuss the staggered rate hike that started this month.
Te, meanwhile, clarified that the TRO does not cover the power firm's bills for December.
The tribunal's resolution stemmed from two consolidated petitions questioning the validity of the Energy Regulatory Commission's (ERC) implementation of the record rate increase starting December 9.
The class suits were filed by militant lawmakers from the Makabayan bloc of the House of Representatives and by private organizations led by the National Association of Electricity Consumers for Reforms.
third petition was filed Monday by militant groups led by Anakpawis requesting the Court to issue a writ of mandamus against the price increase.
Meralco president Oscar Reyes had said that delaying the increase in rates would only prolong the consumers' agony as the power firm needs to purchase electricity from a wholesale provider.
Meralco earlier explained that the increases are warranted at the impending closure of the Malampaya offshore gas field project that recently underwent maintenance.
On Friday night, the ERC ordered Meralco not to implement further increases in its generation charge for January 2014 after the increase in the generation charge for December 2013 of P3.44 per kilowatt-hour.
'Collusion' under probe
The big time rate hike met controversy after several lawmakers called attention to a possible collusion among power suppliers.
The lawmakers said the six power players experienced "unplanned outages" during Malampaya's unscheduled maintenance, forcing Meralco to source more expensive electricity from the Wholesale Electricity Spot Market.
Justice Secretary Leila de Lima, meanwhile, said that even with the Court's TRO, the agency's Office for Competition (OFC) will push through with the investigation on whether the suppliers were in cahoots to force the rate increase.
"SC TRO on Meralco power hike won't affect DOJ-OFC probe as the petitions were the ones questioning the power hike," De Lima said in a statement after the SC issued the TRO.
"It is within OFC's mandate to determine whether there is collusion or violation of competition laws or antitrust laws," she added.  source

Thursday, December 19, 2013

CamSur power rate hike: P3.89/kWh

By Juan Escandor Jr. 
Inquirer Southern Luzon 
9:10 pm | Wednesday, December 18th, 2013 

NAGA CITY—Citing the almost simultaneous shutdown of power sources in the Luzon grid as the reason, a cooperative serving this city and nine towns announced on Wednesday an increase of P3.89 per kilowatt hour (kWh) in power rates in the December bill of its consumers. Emmanuel Rojo, spokesperson of Camarines Sur II Electric Cooperative (Casureco II), on Wednesday announced the increase in power rate from P11.50/kWh in November to P15.30/kWh in December for residential consumers. 
“This happens because the power rate was jacked up by the expensive price of power from the spot market with the highest rate at P62/kWh,” Rojo said. He blamed the shutdown for maintenance work of major power suppliers, BacMan and Masinloc power plants, which forced Casureco II to buy its power supply from the Wholesale Electricity Spot Market (WESM), a spot market trading electricity to power distributors. 
He said Masinloc, that made an unplanned shutdown from Nov. 11 to Dec. 10, provided 50 percent of its power supply, while BacMan, that shut down as scheduled from Oct. 16 to Dec. 15, contributed 40 percent to the total power requirement of Casureco II areas. Rojo said before the shutdown of Masinloc and BacMan, the power cooperative bought only 10 percent of its power supply from WESM but now it has totally relied on the spot market that sells power at an average of P9.46/kWh, which is at least P3 more than the cost of power from their regular suppliers. He said the power supply and power rate would normalize in February 2014. 
Casureco II is serving 10 areas that include Naga City and the nine municipalities of Pili, Milaor, Minalabac, Canaman, Magarao, Bombon, Calabanga, Tinambac and Siruma. 
Another cooperative in the province, Casureco III, which is servicing Iriga City and the towns of Baao, Buhi, Bato, Balatan, Bula and Nabua is buried in a billion-peso debt, but its officials see no quick solution in sight. 
Gargantuan debt 
Casureco III owed its debts to its power supplier San Miguel Energy Corp., National Grid Corp. of the Philippines, the Power Sector Assets and Liabilities Management Corp. and the National Electrification Administration. 
At a meeting near Malacañang Palace recently, Department of Energy officials met with stakeholders in Casureco III to try to find solutions to its financial woes. 
The meeting was presided over by Energy Secretary Carlos Jericho Petilla at a restaurant near Malacañang. Electricity in Casureco III’s franchise area had been restored on Dec. 6 after a week. At least 68,000 consumers in Iriga City and the towns of Baao, Buhi, Bato, Balatan, Bula and Nabua were affected.  

Trillanes calls Ducut, ERC incompetent

By Kristine Angeli Sabillo 
3:35 pm | Thursday, December 19th, 2013

Sen. Antonio Trillanes IV and Energy Regulatory Commission (ERC) Chair Zenaida-Ducut. FILE PHOTOS

MANILA, Philippines – Senator Antonio Trillanes IV on Thursday said Energy Regulatory Commission (ERC) Chair Zenaida-Ducut seemed to know nothing about the power industry as he lambasted the agency for being incompetent and unable to protect the consumers from power price increases.
The statement came a day after Ducut attended a Senate hearing on the recent power rate increase imposed by the Manila Electric Co. (Meralco).
“Based on their answers yesterday (Wednesday), they seem to be incompetent about their job,” Trillanes said over Inquirer Radio 990AM.
The senator said Ducut, who is also being accused of being involved in the “pork barrel scam,” “didn’t know anything about the power industry.”
“It showed yesterday… It’s just too bad that she was placed there to head the principal regulatory body that would guard or protect the interest of the consumers,” he said.
Trillanes said the ERC, which is mandated to promote competition and penalize abuse of market power, had been remiss of its duties.
“It’s very clear that the ERC did not protect the interest of the consumers. It’s very clear in the statements yesterday (they were not able) to control the market, to intervene when there [were] readings or red flags on collusion,” he said.
Last month, Meralco announced the increase in generation costs during the Malampaya natural gas plant’s month-long maintenance shutdown. With the shortage of natural gas, power plants had to shift to the more expensive liquid fuel. The distribution utility also augmented their energy supply through the Wholesale Electricity Spot Market (WESM), which bases its price on the movement of the market.
Shortly after, the ERC approved Meralco’s staggered rate hike of P4.15 per kilowatt-hour spread over the months of December, February and March.
The issue of collusion was raised after it was revealed that several power plants shut down for unscheduled maintenance, further aggravating the energy supply problem.  During the Senate hearing, it was also mentioned that some of these power generators were players in the WESM.
Nevertheless, Trillanes said he is still waiting for the result of the Department of Energy’s investigation on the matter.
He said he wanted a “technical investigation,” as well as the list of power producers who transacted with the WESM at the time of the Malampaya shutdown.   source

Proof of collusion in power rate hike cited

ERC execs testify at Senate hearing 
By TJ A. Burgonio 
Philippine Daily Inquirer 
2:36 am | Thursday, December 19th, 2013

The power generators are also players on the spot market from which Manila Electric Co. buys power at a higher rate in a possible conflict of interest, officials said on Wednesday. INQUIRER FILE PHOTO
The power generators are also players on the spot market from which Manila Electric Co. (Meralco) buys power at a higher rate in a possible conflict of interest, officials said on Wednesday.
Gaming in the spot market and shutting down without justification are clear indications of “collusion,” energy regulatory officials told a Senate inquiry into the huge power rate increase in Meralco’s franchise area that has a fourth of the country’s population.
Meralco is collecting a P4.15 per kilowatt hour (kWh) rate adjustment from its customers to recover some P9.6 billion in power generation costs.
At the Senate hearing, Melinda Ocampo, president of Philippine Electricity Market Corp. (PEMC), said all generators were trading on the Wholesale Electricity Spot Market (WESM).
“It’s clear there’s conflict of interest. It appears you shut down here and then you sell there; it’s higher there,” said Sen. Antonio Trillanes IV.
Later, in the nearly five-hour hearing, Energy Regulatory Commissioner (ERC) Gloria Victoria Yap-Taruc cited instances where collusion could be detected.
“If there’s gaming at the spot market,” Taruc said when asked by Sen. Alan Peter Cayetano how could the ERC determine collusion. “And if they said they should not be on outage, but they’re on outage.”
Collusion detectable
“Both are very much detectable,” Cayetano commented at the joint hearing on the possible collusion of power generators by the Senate energy and trade committees.
A preliminary investigation report by the Department of Energy (DOE) said that power plants had reneged on their commitments to fill the supply gap as a result of the scheduled monthlong shutdown of the Malampaya pipeline, causing power rates to shoot up.
The Malampaya gas pipeline was shut down for maintenance operation from Nov. 11 to Dec. 10. The power generation plants also shut down during the period, prompting Meralco to buy more expensive supply from the WESM and pass on the cost to its customers.
The shutdown of the pipeline also forced plants that use the cheaper natural gas from Malampaya and supply power to Meralco to utilize more expensive fuel.
Unscheduled shutdowns
Those who made unscheduled shutdowns in November were Sual 1, Calaca 1, Masinloc 1, GN Power 1 and 2, Masinloc 1 and 2, and Ilijan plants, according to Meralco officials.
Sen. Sergio Osmeña III, chair of the energy committee, said no collusion has been established so far.
Actual breakdowns
“As far as I see now, there is no proof of collusion. It might turn up next week. It might turn up in the investigation of the Department of Energy, but I myself don’t see any collusion at this stage. And I have been looking for it,” he told reporters after the hearing.
He said the power generators had actual breakdowns. He doubted that a power generator would shut down a 600-megawatt plant only to allow a 100-MW plant to run.
“There was no collusion because there was no cross-ownership,” he said. He, however, said he would determine how much each generator earned.
The hearing resumes in January.
Suppliers on WESM
Trillanes requested Ocampo to submit a list of the generators that transacted on the WESM during the shutdown and “then we’ll cross-reference with the owners of the plants.”
The senator, who called for an inquiry into the power rate increase, reminded the ERC about its powers to check cross-ownership, market power abuse and anticompetitive behavior of power generators.
He specifically mentioned ERC’s powers to impose price controls, injunction, divestment and fines ranging from P50,000 to P50 million on violators, citing Section 45 of the Electric Power Industry Reform Act (Epira).
“If we have the same owner and member of the board, then we have a problem,” Trillanes said, egging on the ERC to go after violators.
Not yet final
ERC chair Zenaida Ducut said the commission had approved Meralco’s request to impose the rate increase in installments over three months, but had to review the rate increase itself.
“We will look at the P4.15 if it’s the right figure,” she said. “It doesn’t mean that the P4.15 had been approved. There’s still a confirmation process.”
Meralco president Oscar Reyes said the P4.15/kWh rate increase was composed of P3.44/kWh in generation charge plus taxes.
Of the P4.15, P2 will be collected in December, and the rest in February and in March. By the end of April, there would be an “automatic rollback,” Reyes said.
While no amount will be collected in January, Trillanes observed that Meralco appeared to be imposing an additional P2 charge next month based on estimated additional generation cost.
Instead of the P5.6/kWh normal price, Meralco is imposing P7.3 in January, Trillanes said, indicating an attempt at overrecovery.
Reyes bristled at this suggestion, saying “We take exception to that. The P3.44 is a general charge that translates to an absolute amount.”
“Once we have recovered the absolute amount, we wish to assure your honor that there’s no single cent overrecovery. We will simply recover the absolute amount,” he added.
Who profited?
Sen. Ralph Recto, for his part, wondered who profited from the close to P10 billion that Meralco was seeking to recover.
“Let’s look at WESM. Who turned off the power and switched it on? Are they relatives?” he wondered, pointing out that P6 billion of the amount would go to the power producers on WESM.
“The power rate was increased by P10 billion. That means somebody profited from the P10 billion,” he said. He batted for the establishment of a regulator of WESM as an amendment to Epira.
Ocampo said that 31 power generators were registered with the PEMC, but clarified that the body was merely administering the spot market.
Tripartite committee
Energy Undersecretary Raul Aguilos said the tripartite committee composed of the DOE, ERC and PEMC had until the end of the year to complete its investigation of the alleged collusion.
If there was a finding of collusion, Recto said the rate increase should be suspended.
Since there are two billing periods, from November to December, and then from December to January, Recto wondered how much Meralco would charge for “underrecovery.”
Would it range from P5 billion to P10 billion?
Reyes replied: “I don’t think it’s prudent to discuss that. We’ll advise your honor.”   source

Gov’t to get P0.70 out of power hike

The government is poised to get a P0.70 cut in Value-Added Tax from the P4.15 per kilowatt-hour (kWh) rate hike of Meralco.
At Wednesday’s Energy Committee hearing, Meralco President Oscar Reyes bared that their hike increase basically consists of the P3.44 per kWh spike in generation charge and more or less P0.70 VAT add-on. Reyes added that the tax charge would ultimately go to the government.
Senate Majority Floor Leader Alan Peter Cayetano said who asked Reyes to repeat what he said for clarification later said: “This government has been apologizing for the rate hike, saying that they can’t do anything aside from the ERC (Energy Regulatory Commission)  because it’s the private sector. But it turns out they will get P0.70,” Cayetano said.
He further reckoned that, in a way, the government prefers higher prices for petroleum since it would translate to higher tax collections.
Meralco said its hefty rate hike was due mainly to the month-long shutdown of the Malampaya natural gas platform, which accounts for 40 percent of Luzon’s electricity needs.
The absence of natural gas during the maintenance shutdown forced the power utility to use more expensive types of fuel as source of electricity.   source