Emergency in Power, Summer of 2015 and Section 71

by David Celestra Tan

Let us grant for the sake of argument that there could be a shortage of 200 to 500mw of power supply in Luzon this coming summer. (Mindanaoans are probably saying “welcome to the club”!)  Let us assume also that in that calculation the Department of Energy had factored in what Meralco and other DU’s had already contracted, the enhanced availability of IPP’s, and any new generating capacity that will come on line by March 2015.

The Department of Energy is saying to deal with this problem the government needs to contract 500mw of rental generators for at least two years at a cost of P6 billion for two years. It would be the largest modular generator rental deal in the world, a testament to the country’s continuing inability to properly plan and anticipate its power supply needs. And to negotiate it fast,  it needs Congress to grant Emergency Powers to President PNoy under Section 71 of the Epira Law of 2001.

I estimate that mobilization and installation costs plus the support grid connection, step up transformers, and fast tracking costs would easily cost another P2 billion. Considering the magnitude involving at least 350 modular generators, a good portion of that capacity may not even be ready and commissioned in time for the summer of 2015.    And given the country’s record of renting generators, a fair amount of that 500mw will probably be extended a year or two.

We are talking P8 billion for capacity costs alone for two years.  If that 500mw run 5 hours day for 90 days, fuel costs will easily run P2.5 billion a year.  Will they be trying to mitigate these costs by trading it in a reserve market or WESM spot market? Will they be buying the gensets outright and trying to privatize it and make it part of a “reserve” market?

We try to understand the dilemma of DOE Secretary Petilla and President Pnoy. If they don’t do anything and the summer of 2015 come rolling in with brownouts, it can imperil the ruling party’s 2016 election strength. If they spend the P8 billion and the brownouts do not happen, they will be criticized and even sued for recklessly spending PSALM’s resources, which eventually will pass this on to the consumers.  They are between a rock and a hard place.

But is that all they can do for contingent planning?

How about good old fashioned energy conservation campaign for the summer? This could be led by the President himself and actually could be a welcome unifying movement for the nation which had not seen much reason to rally as a country outside the Manny Pacquiao victories and the Gilas basketball exploits. (yeah, yeah those international beauty contests victories too! But Bench’s “Naked Truth” doesn’t count!)

Levity aside, Energy conservation for the summer can reduce peak demand by 250mw especially with a voluntary “turn off your light for one hour” campaign at night.

How about a program to make the various independent power procedures insure their plants elevate their capacity availability for the summer? How about making them responsible for replacement power during this critical period?

Not a few have pointed out the existence of installed private generators totaling 3,000mw. I mean each self-respecting major buildings and establishments have one ranging from 50 to 5,000 kw. The Phil Chamber of Commerce has recommended the Interruptible Load Program (ILP) under which these large establishments can run their generators at a rolling 3 to 5 hours a night if called upon during the summer. Even if the government reimburses them for fuel differential of say P6.50 per kwh, that will only cost about P1.6 billion for 90 days.

Assuring these establishments cooperate can be a judicious use of a Presidential Emergency Power under Section 71. And if they don’t cooperate? Just turn off their power under the summer power rationing emergency during nights. Sort of making the ILP an Involuntary Load Program.

One lesson in power that we kept unlearning is “short term problems need short term solutions”.

This situation actually highlights the inadequacies of Section 71 of the Epira law that requires the government to declare an emergency and secure Congressional approval. It similarly exposes the drawback of giving the President a discretionary right to deal with a perceived power shortage which then can be misused against the public interest. This will be the subject of another article.

We are between a rock and a hard place.

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14 Years After Epira

The Epira Law, 14 years after it was passed, is still one of the most talked about topics within the Philippine power industry. The looming power crisis which our very own Department of Energy forecasts to occur sometime in early 2015 intensifies the argument if the law indeed brought benefits to the consumers.

14 Years After Epira: What Happened?

14 Years After Epira: What Happened?

Strong calls from the civic society groups and other NGOs echo as loud as the bells for the government to made reforms in it. Some groups are even lobbying for its total abolition.

Is there really something wrong with EPIRA? Is it such an imperfect law which is imperfectly implemented? The article EPIRA: an imperfect law imperfectly implemented answers the question.

Grid Systems Operation must be returned to Transco, Urgently!

By David Celestra Tan, Matuwid na Singil sa Kuryente Consumer Alliance Inc.
16 September 2014

Every transmission project undertaken by the concessionaire National Grid Corporation of the Philippines (NGCP) is added to its rate base to determine its transmission charges to the consumers. Every rule it makes as System Operator in grid connections, metering points, and ownership of sub-transmission lines result to transmission charges to the distribution utilities and passed on to the consumers.

There is an urgent need to insure that all the transmission projects have the right rhyme and reason to improve the efficiency of the national grid and reduce grid congestions that add a mysterious burden to consumers called “line rental” charges.

At lot of these decisions are being made by the NGCP including the Transmission development Plan in its role as Systems Operator.

According to the WESM website,” In simple terms, the MO (WESM Market Operator) is responsible for coordinating all the commercial aspects of WESM transactions while the SO (Systems Operator) takes care of the physical implementation of these market transactions”. The roles of the MO and SO in scheduling and dispatching power are defined in Chapter 8 of the Philippine Grid Code.

The appointment of an Independent Market Operator has been at least initiated by the DOE. However, the appointment of an Independent Systems Operator (ISO) is not  commonly brought up.  The Systems Operator dictates how the grid will function including the rules of grid connection.  That is currently performed by the concessionaire National Grid Corp. of the Philippines, which is dominated and managed by State Grid Corp, of China.

The economic and efficient dispatching of power supply to the national grid needs to be operated by a truly independent system operator to assure the fair and competitive access and the transmission of power in the most cost effective manner. Allowing the transmission services provider to also act as the system operator, who makes the access and competition rules and establishes metering points as revenue-gates, creates a conflict of interest that lead to profit-motivated systems decisions that cause higher charges to consumers. This is essential especially in an archipelagic country like the Philippines where the distribution of power generation capacity among the different islands are important for power reliability and economy. For example, in the decision on whether to expand the submarine cable capacity between Panay Island and Negros Island, it is easy to see that it would be more sensible to encourage the building of more power plants on the island of Negros itself instead of building another very expensive submarine cable system, the cost of which will become part of the transmission charge of the consumers. But in a conflict of interest, NGCP as the Systems Operator will not raise this cost-benefit issue but will go ahead and build the submarine cable because it will add transmission revenue to real NGCP, the transmission services provider.

NGCP has been observed by generators and distribution utilities to be making rules that appear to be motivated by a desire to retain and expand service coverage and hence revenue for the transmission company NGCP.

The independent systems operator is supposed to implement rules of connection for generators and distributors in ways that will be economically and technically efficient. The Epira Law also mandates that it must provide access to all users and promote competition in the power marketplace.

NGCP however has been overreaching its transmission service coverage using its authority as systems operator.  It must concentrate on expanding and upgrading the HV transmission system to efficiently and economically transmit major power sources to the load centers.  The congestions in the transmission systems have been causing  a significant increase in charges to the consumers referred to as “line rental charges” which is apparently a term used by PEMC to refer to line congestion and transmission systems losses.

A lot of conflict has been on the ownership of sub-transmission lines of 69kv in most areas and 115kv in the Meralco area and the connection lines of the embedded generators.   NGCP has also been at loggerheads with power generators in its attempt to extend the boundaries of its service ownership up to the power substations of the power generators.

Part of the problem is the method of setting and approval of the Transmission Development Plan which , like its cousin Power Development Plan prepared by the DOE,  is a hodge-podge of projects driven purely by the private sector with little locational strategy.

NGCP has been applying to build a 230kv submarine transmission system to connect Mindoro Island to Luzon at a cost of P12 billion that the Luzon consumers will pay for starting from the planning stage.  It was based on a dubious claim that Luzon consumers will benefit from a 300MW coal power plant that can be built on Mindoro island when the nearest coal reserve is 18 kilometers away in another island of Semirara. Luzon consumers can source that 300mw from the  generators in Luzon island itself without paying for a P12 billion transmission system.

Actually, it does not impact NGCP whether the transmission lines they build specially the expensive submarine cables are actually used economically. They get to include the project cost in their rate base and they make money on those whether or not they meet the projected energy traffic that they used to justify the projects.

Why is NGCP as transmission system concessionaire acting as Systems Operator Anyway?

Actually under the Epira Law that provided under Section 21 the privatization of Transco, it clearly defined the role of the buyer/concessionaire (NGCP) to “be responsible for the improvement, expansion, operation, and/or maintenance of its transmission assets and the operation of any related business.”

The responsibilities of the National Transmission Company (Transco) as defined under Section 9 clearly includes that of being the Systems Operator, a function that is not authorized to be included for transfer to the private concessionaire as specifically defined by Section 21 on Transco Privatization.

How NGCP, as managed by the State Grid of China, was allowed to arrogate unto itself the right to be the Systems Operator is perplexing.   NGCP, who as facilities investor and operator of the transmission grid, has a right to a fair return on its investment. However, for it to be the rule making body for grid connections as System Operator, is to give them the right to print money by making rules not for power transmission efficiency and market competition but to optimize its revenues, a prescription for unnecessary increases in pass-on charges to consumers.  This is probably the business model that the SM Group bought into.

Systems Operation is practically rule-making and policy making that could not have been intended to be sold by PSALM.

State Grid of China obviously has the technical and operational skills and financial muscle to do a good job as a concessionaire. And it is the Filipinos who put them in the position to be both systems operator and transmission services provider.  Chinas power grid is a monopoly and the State Grid of China’s operating mind set is that of a monopoly and not for opening the transmission system for the promotion of open market competition.  We need pronto a Systems Operator that will dedicate itself to creating a truly competitive generation market.

So why is this a problem for consumers?

NGCP makes its money as a return on the value of its assets used in the service of transmission of power. The more extensive its assets and system coverage the more assets it will have and hence the more revenues it will be allowed. It is determined by the ERC as the Maximum Allowed Revenue. (Don’t you love how those names seem to reassure consumers that they are protected?)  It is computed based on the value of its installed assets and because of Performance Based Rate making (PBR), also on their projected or promised investments.  As in Meralco, they do not have to make the investment as long as theoretically they deliver the “performance” that is prescribed for them.  PBR allows for regulated distribution utilities and the transmission company to make a profit even on investment that they only promised and have not yet incurred.

There is a need to insure that NGCP’s proposed projects are really based on what a competitive national grid requires and not just for expansion.  The ERC is supposed to have a Grid Management Committee that will oversee the activities of NGCP.

Anti-distributed generation and embedded generation

The Department of Energy, the Energy Regulatory Commission, and the Joint Congressional Power Committee may not be realizing that NGCP’s interpretation of the Grid Code and its role and discretion acting as the System Operator is resulting to increased centralization of power and anti-distributed generation and embedded generation, denying electric users and small distribution utilities the opportunities to save the P0.90 per kwh transmission charge for the consumers and the attendant 3% energy transmission losses.

Embedded generation is the production of power within the territory of the user or distributor and feeding power directly to their distribution system as opposed to generating power from large power plants from long distances that had to pass through high voltage transmission lines. This is an essential part of creating a reliable power system in an archipelagic country like the Philippines and unequivocally encouraged by the  Epira Law and the Philippine Grid Code.

Obviously if these embedded generators do not pass through the transmission system, NGCP does not generate revenue from that power.  NGCP, as the systems operator, makes the required grid-impact studies for power projects.  They however are observed to be foot-dragging and restrictive when it comes to embedded generators and owners of connection lines apparently to protect their revenue interest.

Embedded generation and distributed generation in increasing capacities and wider adoption is a technological wave of the future especially for the Philippines that has so many islands.

One way to assure that is to make sure the Systems Operator who implements the rules of transmission competition is truly independent with pure focus on technical and economic efficiency for the consumers.

Ancillary Services

NGCP as the system operator has been negotiating ASPA’s or ancillary services purchase agreements and passing on the cost to the consumers. These are supposed to provide reserve and voltage regulating services that may be needed by the national grid to make it reliable and stable.  Supposedly they have signed about 400mw of such ASPA’s but in the system debacle of November and December 2013 in the Meralco area, the reserve power services that the consumers have been paying seems unaccounted for. Were they instead traded in the Wholesale Electricity Spot Market (WESM) at P33 per kwh?

Did NGCP demand the delivery of those reserve power when they were needed? This aspect has not been explained.

Awakening Transco

To assure that the national grid operates better and configured for technical and economic efficiency for the consumers, the appointment of a truly independent system operator is long overdue. As a minimum the government’s own Transco must be the Systems Operator, independent from NGCP.  It must do the Transmission Development Plan .. For holistic planning purposes the Transco board can include representatives from DOE, DOF and NEDA. To professionalize, it must be provided with the ability to hire, train, and retain good talent. More importantly it must be infused with a deep public service soul.

There is a need to review the Philippine Grid Code to clarify many grey areas to make sure none is misinterpreted for their profit-interest.   It should not be forgotten that the Philippine Grid Code and many of the rules approved by the ERC were actually written by the old National Power Corp. whose mindset was similarly monopolistic.  We need to update the rules according to the new paradigm of open market competition.

Quality of transmission facilities

Transco must be asked to assert itself as the asset owner to set standards on the equipment and facilities that are being installed and charged to the consumers.  It is in a better position to assure that the performance standards required by the Philippine Grid Code is complied with by the concessionaire.

We need the function of Grid Systems Operator to be returned as soon as possible to the Transco as mandated by the Epira Law of 2001 and NGCP as concessionaire must concentrate on being transmission services provider as clearly defined in Section 21.

Lets hope that the authorities can come to a realization of this defect in the power structure and will move to correct it. It impacts the transmission cost of the consumers, the efficiency of the power grid, and the sensible power development for our archipelagic country.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Meralco Can Be a Gentle Giant of a Utility

David Celestra Tan
14 September 2014

Electricity Consumers of Metro-Manila and the Calabarzon area will have to reconcile with the reality that we have a distribution utility that dominates 74% of the Luzon electricity use and 62% of the national consumption.

This size and domination by itself is not necessarily bad for the consumers. In fact the 800lb giant can use its market size and power to serve the best interest of consumers.

Meralco can be a giant of a utility that is gentle to its customers in a true pursuit of its obligation as a public service utility franchise holder to provide power in the least cost manner.

  1. It can use its tremendous market power by exacting the best generation pass-on cost for its customers by doing the following:

a.  Subjecting to open competitive bidding its power supply contracts. This will open the market for more independent private investments in power generation, more competitive technologies, and more competitive rates.

b.  Proactively strategizing its power supply and energy mix with focus on a continuing search for lower cost solutions for its customers. They should strategize base-load, intermediate, peaking, and reserve power. They would be working hard to integrate the approximately 2,000mw of existing cheaper and cleaner hydro power facilities in Luzon in their energy mix and would push for development of all feasible hydro resources. Meralco would be working hand in hand with the DOE in the search for “best for the country and consumers” power development.

c.  Meralco would be diligently administering its power supply contracts to avoid undue costs to the consumers. They would be monitoring downtime compliances and make the IPP’s responsible for replacement power. They would be paying them only for actual energy delivered and not when they are not operating. They would be involved in fuel procurement and assure adherence to fuel efficiencies.

In November and December 2013 the generation rate of one of its coal generators spiked by 20% when there was no evident upheaval in the international prices of coal. And Meralco did not even raise a hoot. They would be using their market power to insure that their coal IPP’s would step up generation and capacity availability during the Malampaya natural gas shutdown. They would be insuring that the procurement of the replacement distillate fuel by its three natural gas power suppliers were at truly competitive manners.

d.  By doing all these, the giant Meralco can actually reduce its average generation cost from the current P5.50 per kwh to P4.00 per kwh within 3 to 4 years.

They would be reducing their true systems loss charges to residential and commercial consumers which is their biggest market segment, down to 8.5% instead of the current 12 to 14%.

  1. Meralco would be judicious in their distribution charges starting with a fair accounting of rate base and would ask for rates only on investment incurred, as opposed to the current PBR practice where their rate counts promised investments not yet made and may not actually be made.
  2. Meralco investors would recognize that its business is a public service utility that has been granted a government market protection as an electricity distribution business monopoly in its franchise area. Cost of power is critical to the standard of living of its customers and the business competitiveness of the country. In return for such protected market monopoly, it must be satisfied with the fair and reasonable return on its investments incurred with straight forward accounting of assets base.
  3. Overall it must conduct business on arms-length basis, devoid of conflict of interest, with singular focus to insuring the best service and least cost for its captive customers.

The new owners of Meralco may have a different profitability expectation from the business model of the previous owners and hence have valued their purchase price of Meralco at those lofty levels. Maybe they can rework their investment economics on the distribution side if they are allowed a level of investment in the generation side to say a compromise limit of 25% of price competitive generation.

Actually, Meralco is not alien to doing what it takes to win customers, help them reduce their energy costs, and overall treating them well. They have been showing an impressive amount of ingenuity and innovation in taking care of their industrial customers, who are now charged a rate of P9 per kwh with a systems loss charge of only 3.5%, compared to P12.00 for its captive residential and commercial customers and a systems loss of 12% instead of 8.5% even in the highly concentrated areas of Makati, Manila, and Ortigas.

Of course by being a straight forward public service utility that is dedicated to serving the customers in the least cost manner and doing business on arms length basis, the stockholders of Meralco may not exact as much profit at the expense of the consumers. As a protected franchiser with monopoly in power distribution, they are nonetheless guaranteed a fair and reasonable return on investment, the moderation of which those investing in Meralco will have to accept as a business model coming in.

Investment here however can be viewed two ways. Is it the investment in the utility itself by the stockholders or it is the amount of money they agreed to buy their control of Meralco which most likely factored in a premium for projected opportunity profits in rate base and power generation sweetheart contracts. Somewhere there is a balance where investments in the utility itself can be allowed a regulated fair and reasonable returns without abusing the customers. As DU, Meralco should get its returns from the distribution services and incurred investments and should not be from making money in power generation where their self-negotiated contracts would be in conflict with their obligation to the customers to supply power in the least cost manner.

The opportunity to make money is as sacred a right as democracy and religion. It is actually an engine that is a critical part of what makes civilizations and societies dynamic. However, we must make our money the old fashioned way, by earning it, especially for those who elect to be in the public services sector where the customers are captive and do not have a choice. In my book, “earning it” in the distribution utility business means making money while providing a very good service at a truly competitive price, something that can be assured only if its subjected to open competitive bidding in the market place.

Meralco can be a gentle giant of a utility if it wants to. Let’s hope we can see a transformation in our lifetime.

PBR is a farce: Meralco’s Rate Padding Schemes Showed in its PBR Application

(Based on the audit report of ERC foreign consultants, PB Associates in relation to Meralco’s application for new PBR rates)

1. Introduction

Meralco has the highest distribution rates in the Philippines. The 5000mw Meralco is about 30% higher than the 300mw Visayan Electric in Cebu and the 260mw Davao Light in Davao.

The difference is about P0.85 per kwh.

Meralco has been caught many times padding its rate-base under the old RORB system and overcharging the consumers. From luxury estates to overpricing of purchases from Lopez companies and engineering and construction contracts to Miescor and preferred material suppliers.  A 10% overprice in equipment means a 10% overcharge in the rate-base.

It was no wonder that they refused to be audited by the COA for asset base validation. It was only after realizing the backlash from public opinion that they agreed with some reported prodding from the ERC officials.

ERC’s approval of Meralco’s rate setting methodology from RORB to Performance Base Rate Setting or PBR resulted to even higher distribution charges by at least P0.40 per kwh and a grave betrayal of consumer trust.

What makes Meralco PBR application remarkable was their show of gump and arrogance in fully displaying very naked attempts to overcharge the consumers. It seemed they were very confident that they can get away with it.

2. Performance Based Rate-Setting (PBR)

a.  Just like many evil schemes, PBR evokes some agreeable form of “performance” basis for consumer service. Unfortunately, PBR as approved by the ERC refers to a rate methodology under which Meralco’s distribution rate shall be based not only on the historical investment (or assets actually used to service the customers under RORB) but also for the programmed investments that they promised to make for the coming years to achieve a level of performance.

b.  Since the rate is prospective, Meralco enjoys a recovery even if they have not and will not make the investment. It is therefore easy to see that PBR will result to higher rates than the old RORB which despite its loopholes is at least based on existing assets and incurred investments.

c.  In the first year of PBR alone, it is estimated that Meralco gained an additional revenue of P6 billion and a penalty for non-performance of P300 million for a net gain of P5.7 billion a year on the PBR scheme.

d.  Origins and Basis in Law

  1. Under Section 43 (f) of the Epira Law of 2001“the ERC may adopt alternative forms of internationally-accepted rate-setting methodology as it may deem appropriate. The rate-setting methodology so adopted and applied must ensure a reasonable price of electricity.”
  2. It is important to note however that Section 43(f) preceded this provision as follows: “in the public interest, establish and enforce a methodology for setting transmission and distribution wheeling rates and retail rates for the captive market of a distribution utility taking into account all relevant considerations, including the efficiency or inefficiency of the regulated entities”. Some emphasis has to be put on “in the public interest”.
  3. It should be understood by both Meralco and the ERC that while the Epira Law is providing for a possible adoption of alternative forms of internationally-accepted rate-setting methodology, the adoption of the PBR should be in the public interest. This is a prerequisite for such adoption from the old method.
  4. To serve the public interest the adoption of alternative methodology should result to either (a) a reduction in rate or (b) improvement in the service to the customers. In the Philippine setting these two benefits should be present to adopt a new methodology
  5. PBR appear to be in violation of Section 25 which clearly provides that the retail rate must be based on investments incurred.  Projected capital investments are only promised and not incurred.
  6. Meralco in its application did not really bother to prove that the PBR would be to the public interest but only tried to justify the charges to be reasonable and proper. Unfortunately they are neither. Abuses and overcharging were blatant and open.

3.  Examples of Meralco rate padding schemes that were revealed in the PBR application. Attached is a copy of the full report of PB Associates. This came from the ERC website.

a.  Claim for “Additional Expenditures” of P2.463 billion

Meralco was claiming additional expenditures totaling P2.463 billion over four years from 2008 to 2011.

  1. This included P1.839 billion for “regulatory compliance” activities covering “PBR, the Magna Carta, DSOAR, Business Separation Guidelines and other guidelines and rules that the ERC will implement in the immediate future”.
  2. Even the ERC consultants noted that
  • “these are generally normal business processes and activities that a well managed distribution business should be routinely undertaking”
  • “no details for the additional work were provided other than very general comments”
  • “Meralco has not provided details of the methodology used to quantify the additional regulatory compliance work as a result of new regulatory requirements, no its estimate of the additional work load in staff numbers, nor was any information provided as to the capability of existing staff to cope with a proportion, if any, of the additional work load.”

3.  Consequently the foreign consultants of ERC recommended only P320 million of the P2.463 billion requested or 87% less.

4.  The ERC however disagreed with the consultants conclusion to be “inappropriately harsh”. In Table 5.10 of its final determination dated August 30, 2007, the ERC approved a total of P358.2 million over the five year period from 2007 to 2011. This was 12% or P38.2 million higher than the consultants recommendation.

5.  Meralco wanted to charge the consumers for its cost of finding legal and tricky justifications to confuse and overcharge the consumers.

4. Purchase of Distribution Transformers from Lopez Companies

  • PB Associates had observed that “there appears to be excessive provision for distribution transformers leading to under-utilization” (p.23, 4.5.2)
  • Meralco claims that it has 147,930 units of distribution transformers with an average loading of 50%. Meralco also claimed that 6,080 of these transformers in their network serve solely-served customers whose average usage is under 50%.
  • The ERC reduced the expenditure for distribution transformers proposed by Meralco by a total of P1.446 billion for the two years 2010 and 2011 because it would further reduce Meralco’s utilization of distribution transformers below the 50% allowed for in the ERC’s asset valuation policy guidelines.
  • The Lopez group owns the Philec Transformer Factory and preferred vendors enjoy substantial contracts for imported distribution transformers.

5. Anomalous Metering Expenditures and refurbishment

a.  The findings of the consultants on Meralco’s claims for meter expenditures showed disturbing manipulations (P.5 and 6 of PB Associates Report)

  • “Meralco provided supporting information that provides a breakdown of the 1,360,728 “excess” meters identified by PB Associates and shows an actual inventory of only 87,266 meters….We note that even though none of these meters existed, they remain on Meralco asset register. It is of concern that the 1,261,000 meters in these categories were still on the Meralco asset register at the time of the asset valuation. We suggest that the ERC require Meralco to cleanse the asset register of all non existent or unserviceable metering assets.”
  • “the information provided indicates that Meralco purchases approximately 206,000 new meters a year (excluding metering transformers) to support load growth. However, Meralco connects only approximately 97,000 new customers each year.”
  • Meralco is charging P518 million in 2008 for meter refurbishment costs. At an average cost of P52 per meter which means this involves recalibration only. This must be included in regular operating costs and not capitalized.
  • Meralco owns a substantial ownership in local meter company GE Meters.
  • The Consultants and the ERC reduced Meralco’s budget for meters byP1.43 billion for the four years that presumably would have gone to income of its sister company GE Meters.

6.  Over budgeting the Costs of Service Drops

Meralco was determined to be overcharging the service drops by P433 million because its actual service length is only 7.5 meters instead of the 30 meters it is claiming.

7. Other Overcharging attempts
  • P2.87 Billion of Meralco forecast capex for asset renewal could not be supported and was disallowed.
  • A total of P323 million was disallowed for the over recovery of stores costs.
  • P730 million that Meralco spends for “related business income” and it tried to pass on as utility expense was disallowed.

It is very discouraging that a public service utility like Meralco that has been exposed many times for padding its rate base and overcharging its consumers, continue to do so and seems to be getting bolder in their attempts.

We are asking the residential and commercial consumers of Meralco to read the whole PB Associates Report so they can decide for themselves if Meralco was overcharging.

For reference, the Meralco_PB Associates Report and the MERALCO_PB Associates Addendum are available for download.

Is Meralco Overcharging or Overpricing the Consumers?

David Celestra Tan
08 September 2014

Meralco maintains a high-powered public relations team to varnish their image so they are kind of sensitive on the accusations that they are overcharging their customers. Would it be more palatable to them if we instead refer to their electricity rates as “overpriced”?

Is there really a difference to the consumers? In either case, the customer pay more for the electricity than they should specially when the law clearly mandates a DU like Meralco to supply power in the least cost manner. As a public service utility, Meralco must understand that it will be subjected to higher standards of propriety in the way it conducts business. Distribution of electricity is imbued with public interest.

In my book the customers are being overcharged when there is nefarious intent in pricing the electricity. It is overpriced when the electricity rate is so high because of organizational inability to provide power in the least cost manner. The former is exploitation of the vulnerability of the consumers and the latter is just organizational ineptness or plain callousness.

If we need to make a distinction, overcharging is active, overpricing is passive. Overcharging is a result, overpricing is a consequence. Overcharging is an act of commission, overpricing is act of omission. Just two different ways of skinning the cat.

So is Meralco overpricing your electricity?

Meralco clearly does not want to subject to open competitive bidding the power generation services that it will pass on to the consumers, evidently preferring to self-negotiate and monopolize the distribution utility’s power supply. They determine among themselves how much generation rate to charge the customers. Cheaper and cleaner hydro power is not part of their energy procurement mix.

They appear to be passive in imposing compliance by their power generator suppliers to the terms of the contract and deficient in the vigilant monitoring system of downtime limits and fuel pricing and procurement and consumption efficiency. Is this organizational ineptness, plain callousness, or just lack of appreciation of what a public service utility should be.

They passively accepted the downtimes of their power generator suppliers, turned around and bought the deficiency from the WESM that soared to P62 per kwh. Then they nonchalantly sought ERC approval to pass on the 74% increase in one month rate without demonstrating true concern for the consumers until the public reacted to the hefty increase.

Meralco claims they don’t make money on the generation charges even if their sister companies are among the generators supplying Meralco.

Do these constitute overpricing or overcharging?

Is Meralco overcharging the consumers?

To answer this question we are adopting in the MSK website the 2007 report of PB Associates, the independent consultants hired by the ERC to evaluate Meralco’s then application for their new PBR rates. The report is quite revealing and educational for the consumers.

It is kind of long but try to read it. You be the judge on whether Meralco is overcharging or just overpricing?