Meralco’s lonely fight to stay in the 20th century

June 8, 2016 7:00 pm Ben D. Kritz

http://www.manilatimes.net/meralcos-lonely-fight-to-stay-in-the-20th-century/266755/

LAST week, Energy Regulatory Commission (ERC) chairman Jose Vicente Salazar took to the media to make a case for one of the two significant regulatory improvements pushed by the Aquino era version of the agency, Retail Competition and Open Access (RCOA). As is usually the case with anything even faintly progressive or customer-friendly contrived by the ERC, the regulator finds itself mounting a defense against a single malcontent, distribution giant Meralco, the nation’s largest electric company.

At the end of last month, the brigade of attorneys that Meralco maintains as a private army filed an urgent petition in the Pasig Regional Trial Court for a temporary restraining order against the Department of Energy (DOE) and the ERC’s implementation of RCOA. It said the measure violated Section 29 of the Electric Power Industry Reform Act (Epira), which stipulates that electric distributors “have the right to engage in the business of supplying electricity to the contestable market.”

The logic behind this particular argument completely escapes me, as it would anyone who has not suffered a comprehensive brain injury.

What RCOA does is provide a framework that first creates a ‘contestable market’ by defining what a ‘contestable customer’ is, and then sets the guidelines by which electric distributors can appeal to those customers to peddle their service. As of now, a contestable customer is defined as one whose average electricity usage is at least 1 MW per month; between now and the end of June 2018, that ceiling will be progressively lowered to 500 kW, which means the contestable market will grow to hundreds of thousands of customers.

The significance of being a ‘contestable customer’ is that it permits one to choose an electric supplier, as opposed to a smaller ‘captive customer,’ who is obliged to purchase supply from the distributor for the franchise area.

Under the contestable market framework, eligible customers in Meralco’s vast franchise area can choose from a number of electric suppliers. They could very well choose Meralco, because nothing about the arrangement diminishes Meralco’s access to the market; all it does is remove Meralco’s franchise-based monopoly and forces the company to compete with other suppliers.

Resistance to that loss of privilege is the obvious subtext in Meralco’s complaint to the court, and in both a legal and logical sense, the argument is completely wrong. But this is nothing new for Meralco; the company has for years adopted a strategy of fiercely defending its territory. The other, somewhat earlier major reform, the Competitive Selection Process (CSP) also met with stiff resistance from the utility giant, for reasons that clearly benefited it alone.

Under CSP, electric distributors (like Meralco) are compelled to conduct a bidding process for the electricity supply they purchase from the generation companies; prior to CSP, power supply agreements were usually always simple negotiated contracts. Meralco, being a huge customer, enjoys a distinct advantage, at least here in Luzon where most of the country’s generating assets are concentrated, because for many generators, Meralco is really the only customer they can serve. The company argued strenuously against CSP, using every reason their army of attorneys could muster, and were shot down at every turn (as just a side note, one of those turns was a memorable exchange in an ERC public hearing between a Meralco lawyer and the author, in which the latter emerged victorious).

The standard framework of a few monopolistic giants providing basic utility services collapsed elsewhere in the latter decades of the 20th century, catalyzed by the breakup of the Bell Telephone empire in the US in 1982. Time moves a little slower here—our own telecommunications industry is a monolith that is yet to be cracked—but the trend has been gradually advancing since the embrace of privatization beginning with the Ramos Administration. While some reasonable arguments can be made that basic, vital utilities such as electricity and water should not be privatized, it is a demonstrated fact that privatization, if more than one supplier is involved, does lead to better pricing and better services in proportion to the amount of competition permitted.

Pushing ahead with RCOA will lead to improvements; they will probably not be as significant as most of the country’s long-suffering electric consumers would hope to see, but it will be a start in the right direction. Meralco, which already suffers from a rather dubious public image, would be well-advised to start living in the 21st century, and apply its enormous resources to being competitive rather than relying on cooperative regulation to continue feeding it.