Government never protected consumers on power hikes

Manila Times.net
January 16, 2014 8:09 pm

by ROSE DE LA CRUZ

THE Department of Energy (DOE), which chairs the corporation that operates the Wholesale Electricity Spot Market (WESM), is fully aware of the market abuse in the power sector, including the “cartel-like” simultaneous maintenance of the plants supplying the Manila Electric Co. (Meralco), forcing the latter to declare a stiff price increase last December of over P4.15 a kilowatt-hour.

Yet, the DOE never lifted a finger to protect the interest of the consumers. The Supreme Court did by temporarily halting the price hike in late December.

This strong point was raised by economist Maitet Diokno, Wilson Fortaleza and activist Job Bordamonte in a story used by Rappler last month and their subsequent chiding of President Benigno Aquino 3rd as “missing in action” in the power rate row.

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, as is done globally since all power generating plants are expected to suffer from downtime in their lifespan, whether scheduled or forced.

The provision to provide replacement power to Meralco should be at no extra cost to the latter, which would have insured consumers against rate hike in the event of a Malampaya shutdown. Instead, they said that Meralco did not include this provision with its contract to suppliers.

But Energy Regulatory Commission (ERC) should have done its oversight function in ensuring the inclusion of this provision in the supply agreements with Meralco. But since ERC did not, it failed to protect the power consumers, they said.

Since Meralco conveniently failed to include this provision, it was “forced” to buy from WESM at whopping prices from the sister plants of suppliers with scheduled or unscheduled outages.

So when Meralco said that 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 and they all have a heyday at our expense, the economists and lone activist stressed.

The authors said that because of the Electric Power Industry Reform Act (Epira), ownership and control over the power sector in the Philippines is far more concentrated today by three groups: Aboitiz, San Miguel and Lopez, which control 65 percent of installed generation capacity in Luzon, according to the DOE.

Nationally, their share of installed generation is 54 percent. There is a “rule of three” in economics: when three 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, they added.

“It is an unconscionable rate hike and money grab that comes at a time when all our energies are focused on assisting [Super Typhoon] 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,” they said.

They traced the history of the market abuse tolerated by WESM in the first six months of its operation in 2006, when the Power Sector Assets and Liabilities Management Corp. (Psalm) was found to have engaged in abuse of its market power.

The Market Surveillance Committee of the Philippine Electricity Market Corp. (PEMC), which operates the WESM, found three trading teams of Psalm to engage in anti-competitive behavior. The generating plants involved in this abuse were Pagbilao, Sual and Ilijan—the same plants involved in today’s unjust power price increase. The abuse continues and continues unpunished by the ERC to this day, they said.

The supply gap being claimed by Meralco for justifying its price increase is more contrived than real, since the official explanation of Meralco that the three plants running on natural gas from Malampaya were undergoing scheduled preventive maintenance, leaving it to use two or three plants running on expensive fuel, to supply the Meralco consumers.

However, at a hearing of the House of Representatives Energy Committee on December 10, Energy Undersecretary Raul Aguilos confirmed that eight to nine generating plants went on unscheduled outage, which contributed to the spike in generating prices.

Breaking market rules
There are clear market rules in WESM and players have been found by the company to have breached market rules, yet Energy Secretary Jericho Petilla and all his predecessors, including Secretary Rene Almendras now in Malacañang, need to disclose to the public all the incidents of market abuse and run after violators, the authors said.

They added that 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 consumers, and which the ERC so hastily approved, violates the Epira or Republic Act (RA) 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 . . .”

Section 23 of 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 a kWh. On top of this, the study also found that Meralco’s purchases in WESM raised its power cost by 23 centavos a kWh, they added.

Malacañang’s legalistic excuse, to the effect that the ERC is an independent agency and not subject to the President’s control, misses the point since what people are asking for is for President Benigno Aquino 3rd to display his moral authority by demanding that Meralco roll back its charges. The consuming public needs him in his capacity as advocate-in-chief, they concluded.   source