Clear and Present Danger of Meralco’s Monopolization and Sister Company Generation

David Celestra Tan
18 January 2015

The clear and present danger of Meralco’s bilateral contract monopolization and sister company generation starkly stares all of us in the face. The electricity consumers, government regulators and legislators, and Meralco itself, except the former has been preconditioned by the latter and the middle had been looking the other way.

In the MSK’s advocacy to reduce Meralco’s power rates starting with the generation component where we see a feasible reduction to P4.00 per kwh from the P5.63 per kwh in July 2014, one thing that is surprising is Meralco dismissing it to “have no basis”, the government think tank PIDS also implying that there is no basis, and the ERC itself trying to dismiss the petition to “have no substance”.

Yet the facts and evidence stare us in the face and they are in Meralco’s generation components. Meralco’s PR machinery is currently having a field day trumpeting the reduction in its average generation rate to P4.70 from P5.63 per kwh in July 2014. The reduction though, as we wrote previously, is fortuitous and temporary because of the drop in the global price of coal and diesel and not a result of systemic corrections. It is easy to think it is a non-issue but we must always look at the long term presence of danger.

Meralcos generation cost numbers speak loud and clear

1. Coal power generators

From October 2014 to January 2015, Meralco’s non-affiliated power generation suppliers averaged in price only at P3.4885 per kwh whereas Quezon Power in Mauban averaged P4.65 per kwh or P1.16 per kwh or 33% more. Meralco doesn’t attempt to defend the rate disparity and argues only that QPL is not affiliated with Meralco which is technically true. But the 440mw power contract was negotiated with people close to the then controlling owners of Meralco under same sweetheart deal as the 1,500mw First Gas Power. QPL is now owned by EGAT of Thailand who is now the 49% partner of Meralco PowerGen in the 400mw expansion of the Mauban coal facility.

It is true also that the four (4) other coal suppliers, SEM-Calaca, Masinloc, SMEC Sual, and Therma Luzon Pagbilao, are negotiated contracts but they are nonetheless non-affiliated and the deals were arms-length.

The big price disparity and onerousness to consumers of sweetheart and arms-length power rates is quite clear.

In terms of financial magnitude, Meralco bought 1.01 billion kwh from QPL for the four months October to January. At the higher rate of P1.19 per kwh, the higher cost to the Meralco consumers for QPL power was P1.213 billion! Meralco buys 27.8% of its energy needs from the four (4) cheaper coal suppliers. If it were dedicated to least cost power and dealing on arms-length basis, one would think it would be buying more from these cheaper sources which now averages P3.4885 per kwh. Would they not be asking them to expand cheaper capacity. It chooses to negotiate a power supply contract with its own self for a 400mw Mauban expansion at the rate of P4.30 per kwh.

Meralco PowerGen had announced that it will put up 3,000 mw of new power plants all with negotiated and sweetheart prices and terms with Meralco. All these will be majority owned by Meralco.

If nothing is done by the government, Meralco’s 5500mw power supply will be monopolized by PowerGen at 3,000mw, First Gas at 1,500mw with another 1,000mw expansion, and Summit Group (a significant shareholder of Meralco) at 600mw. The five truly independent power generators (including SPPC-Ilijan) that currently saves consumers approximately P12 billion a year in lower generation rates will practically disappear.

2. Malampaya Natural Gas

Of the three (3) generators selling natural gas power to Meralco, San Miguel’s 1,200mw SPPC Ilijan is non-affiliated and supplies power at P4.4542 per kwh. The Lopez owned First Gas Power are charging P5.4151 per kwh for 1,000mw Sta.Rita and P5.5182 per kwh for the 500mw San Lorenzo, for an average of P5.466 per kwh or a full P1.01 per kwh or 23% higher. They are all using the Malampaya Natural Gas at presumably the same fuel prices and terms.

The two First Gas plants supply 35.6% of the energy purchases of Meralco. That translates to 3.394 billion kwh in the four months. At the higher rate of P1.0124 per kwh, the higher cost to the Meralco consumers is a whopping P3.346 Billion for October to January. The disparity in one year is approximately P10 Billion!

Similarly, all these three contracts were negotiated but again the difference is San Miguel is non-affiliated and the two First Gas contracts were sister company sweetheart deals that will be an albatross on the Meralco consumers for 12 more years.

In total, the Meralco consumers have paid P4.65 billion more for the higher contracted rates for Meralco’s sister company generators just for the four months from October 2014 to January 2015.

Yet, Meralco is trying to say there is no basis for MSK’s petition that the generation rates will be lower if they are not negotiated and subjected to open bidding and monopolization by sister generators are banned. May be that is to be expected from Meralco but for the ERC who is mandated by law to protect the public interest, to appear to be apathetic to the petition, is a great disservice to the people and country. Facts and Figures don’t lie.

It is tragic that no one in government seem to be alarmed in the face of this clear and present danger.

So long Pope Francis. We hope our government leaders and Meralco and Metro Pacific are moved by your wonderful messages on compassion, something deserved by electric consumers. God Bless .