Meralco rate hikes set to be slashed

Business 

Posted on March 11, 2014 11:21:01 PM 

By Claire-Ann C. Feliciano, Reporter 

This HEFTY POWER rate hikes sought by Manila Electric Co. (Meralco) are expected to be slashed after regulators declared underlying market prices as invalid. 

"The ERC (Energy Regulatory Commission) has decided to void the prices that came out in the market during [the supply months] of November and December," said Francis Saturnino C. Juan, the agency’s executive director, in a briefing yesterday. 

Higher prices charged by suppliers, particularly for electricity sourced from the Wholesale Electricity Spot Market (WESM), have been blamed for a combined P9.48 per kilowatt-hour (kWh) rate hike still to be charged consumers. 

A P4.15/kWh adjustment supposed to have been implemented in tranches starting last December has been suspended by the Supreme Court, while Meralco’s recovery of an even higher P5.33/kWh increase for January remains pending with the regulator. 

MUST OFFER RULE BREACHED 

Mr. Juan said the ERC decided to void the market prices "after determining that the WESM prices during this period could not qualify as reasonable, rational and competitive due to the confluence of factors accompanying the tight supply situation in the market." 

In addition to a maintenance shutdown at the Malampaya natural gas facility and outages -- both scheduled and unscheduled -- at other plants, the ERC ruled that there was also "widespread withholding of capacity and breach of the must offer rule." 

Under the rule, power generators are required to offer all available capacity in the market. "It seeks to prevent artificial shortage of supply by capacity withholding, which may drive prices to higher levels," Mr. Juan explained. 

The ERC, in a March 3 order, noted that a total of 2,035.13 megawatts (MW) was not offered during the Malampaya shutdown. 

Around 45% of this was supposed to come from hydropower facilities, which cited water supply constraints as reasons for noncompliance. 

The regulator said the withholding of capacity, whether justified or not, imposed a constraint on the market. 

"Under the circumstances obtaining when the Malampaya [facility] was on shutdown, this created an environment wherein higher offers were practically assured of clearing in the market to the detriment of the consuming public," the ERC said. 

"This was fairly evident from the way the market participants behaved and the market prices moved during the period in question," it added, declaring that this resulted in market failure. Mr. Juan said the regulator had ordered Philippine Electricity Market Corp. (PEMC), the WESM operator, to come up with new prices. 

This would mean that Meralco and other distribution utilities that bought from spot market would have to pay less, he said. 

"This means that there will also be a significant decrease in generation charge that will be collected from consumers," Mr. Juan added. 

While the new prices still have to be determined, he said these "are expected to be at least 70% lower on the average than the voided WESM prices, which stood on average at P22.13/kWh for November 2013 and P25.67/kWh for December 2013." 

Based on the ERC’s computations, the average regulated rate during November and December supply months should instead be P6.37/kWh and P6.11/kWh, respectively. 

These were calculated based on the average market prices during the January to October supply months. 

Asked how this would affect Meralco’s deferred rate hikes, Mr. Juan said the distribution utility would have to "do its own computation based on the new prices that will be determined by PEMC." 

Revisions to the December billing will remain subject to temporary restraining order issued by the Supreme Court. 

Mr. Juan said Meralco could also revise its petition to recover the P5.33/kWh increase for January. 

ADJUSTMENTS TO BE ‘TRANSPARENT’ 

Sought for comment, a senior Meralco official said the firm respected the ERC decision. 

"We view the ERC order as a positive development for our customers as this recalculation will reflect the true competitive cost of power for the supply months covered," said William S. Pamintuan, Meralco first vice-president. 

As this would mean adjustments to the generation charge, Mr. Pamintuan said the firm is "expecting a reduction on the deferred charges for December and January bills." 

He declined to provide estimates and also noted that developments at the Supreme Court, which is hearing a lawsuit filed by party-list legislators and consumer groups against the P4.15/kWh increase, would have to be considered. 

"The computation of the generation charge shall be transparent. Our customers can be assured that whatever adjustment will be made on the generation charge as a result of the ERC mandated recalculation will be fully reflected in their bills," Mr. Pamintuan said. 

PEMC President Melinda L. Ocampo, meanwhile, declined to comment, saying the firm had yet to receive a copy of the ERC order. 

"If directed by the regulator [to recompute prices], then we will do it. We will be studying the order carefully," she said in a text message. 

The ERC also ordered PEMC to probe the breach of the must offer rule. "Thereafter, the result of the investigation of the PEMC Enforcement and Compliance Officer shall be submitted to the ERC with the recommended sanctions and penalties, if any," it said. 

‘POLICE POWER’ EXERCISED 

Malacañang, for its part, said it welcomed the regulator’s exercise of its "police power." 

"We note finally that the ERC exercised government’s police power to stop the imposition of excessive, exorbitant, unreasonable, or very high price of electricity in compliance with its mandate under the EPIRA," Sec. Herminio B. Coloma of the Presidential Communications Operations Office said, referring to the Electric Power Industry Reform Act of 2001. 

"The ERC said that they studied the behavior of market players during that period and they found out that the prices do not qualify -- to quote their own words -- as ‘reasonable, rational, and competitive’," he added. 

Meralco has since moved to cut rates for February and March, noting that the cost of power from the WESM and other suppliers had gone down. 

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by Philippine Long Distance Telephone Co. (PLDT). Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld. source