Meralco’s P0.18 Reduction In 2015 Is A Camouflaged Refund of Overcharge in 2011

David Celestra Tan, MSK

The rate reduction of P0.18 per kwh that Meralco announced in July 2015 turned out to be actually a refund of overcharges for the years 2007 to 2011 and not a reduction in rate.

At the public hearing at the Energy Regulatory Commission last January 7, where MSK is an intervenor seeking to determine whether the rate reduction was sufficient, we noticed that the 0.18 per kwh is actually for over-recovery for the Second Regulatory Period which covers 2007 to 2011. Meralco is even calling it “under recovery” in its filing papers apparently so it will not sound alarming to the public.

This is a stroke of Meralco’s hoodwinking genius. The P0.18 per kwh we estimate amounts to P6 Billion a year or a total of P24 billion for the 4 year period up to 2011. Now in 2015 they presented it as a rate reduction for which the Meralco electric consumers are supposed to be grateful. It is a deception to call an “over recovery” an “under recovery” which is the term used when a distribution utility does not charge enough. But when it is returning the money it means they over recovered.

These overcharges validate MSK’s position that the Performance Based Rate making methodology adopted by the Arroyo ERC in 2007 resulted to excessive and illegal overcharges to the Meralco consumers. MSK had filed a petition with the ERC to repeal the PBR because it is a violation of the EPIRA laws requirement that the retail rates must be based on investments incurred. PBR allows charging of projected investments not yet incurred. The consuming public deserves to know the truth and to see the wolf in a sheep’s clothing.

In June 2015 Meralco petitioned the ERC for an immediate provisional authority to reduce its rate by 15% which translated to an average of P0.188 per kwh. The MSK consumer group is among those who endorsed the immediate approval of the reduction because it will benefit the consumers. It however sought to determine whether the reduction is sufficient. Up to now Meralco had not filed for its regular rate for the 4th regulatory period covering July 2015 to June of 2019.

The next logical question that begs to be asked is if Meralco overcharged to the tune of P6 billion a year up to 2011, what about the distribution rates they charged the consumers for the 3rd regulatory period of July 2011 to June of 2015 for which they charged a higher rate? There could be overcharges also in the range of P24 billion for that 4 year period. This means Meralco had been overcharging its customers all along.

It also means Meralco had been benefitting from those billions of overcharges and using the money as working capital. That is easily P600 million per year and P2.4 billion over the four year period in cost of money savings. Meralco must similarly compensate the consumers for the use of this free capital.

Meralco which is majority owned by Metro Pacific had announced record profits of P18 billion for the current year and had disclosed to the SEC that it had paid hundreds of millions of bonuses to its top executives. MSK had similarly written the ERC and Meralco to effectively discontinue the on-going hearings which appear to be only for the purpose of justifying the process of Meralcos dividing the net distribution charge of P1.3939 per kwh among its various distribution charges and customer classes. In its letter, MSK said the hearings are moot because Meralco already received a provisional authority for the interim reduction. It asked ERC to require Meralco to file its formal application for the 4th regulatory reset instead of wasting public money on the hearings that will not benefit the public much.

Meralco must be honest in telling its customers that it overcharged P6 billion a year from 2007 to 2011 instead of making everyone believe that it is magnanimously reducing its rate by P0.188 per kwh starting 2015. Why was it calling it an under recovery? Yet to be disclosed is the most probable overcharge for the 3rd regulatory reset covering 2012 to 2015. This could mean another overcharge of P6 billion a year.

We call on the ERC to immediately address these overcharges and save the consumers from further injustice.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

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Is PEMC’s claimed P8.29 Billion Market Benefit of RE Valid?

David Celestra Tan, MSK
24 January 2016

In the face of the heavy subsidies being charged to the electric consumers for Renewable Energy power, PEMC released a study by Jonathan de la Vina, its market specialist showing that the infusion of 682mw of RE power to the WESM resulted in a market price reduction of P8.29 billion for the year and hence there is a net benefit to the consumers of P4.23 billion after deducting a FIT charge of P4.06 billion.

If we follow the logic of this claim, the country must pursue RE power in an unlimited manner because of this mind-boggling financial benefit. And understandably the supposed government supported National Renewable Energy Board that acts as promoter of RE bristled at the findings.

We have concerns on these claims and have written Mr. de la Vina for more information on the methodologies used in his market study.

1. The P8.29 billion claimed market price reduction is based on a P1 per kwh reduction. We wonder how they came up with this nice rounded number value. They claim that RE replaced expensive diesel plants from the market. We are trying to reconcile that with the fact that Solar produces energy in the afternoon and diesel normally runs in the evening for peaking. The avoided cost presumption may not be valid.

2. Newspaper reports say PEMC compared the market price of WESM with the 682mw of supply from RE and without the 682mw. Since the 682mw RE supply were present in the market, we wonder what methodology they had to estimate what would the market price be if a 682mw supply is taken out. Of course, if you reduce supply in the spot market, the price will go up.

3. This leads us to the next question. Was the claimed P1 per kwh market price reduction due to the fact that it is RE or just the fact that there is an additional supply of 682mw of power? In other words, the market price would have been reduced anyway if that 682mw of additional supply came from cheaper coal or natural gas at P4.25 per kwh and or diesel at P7.50 per kwh instead of the P8 per kwh average price of RE.

We are for the promotion of clean energy but it must be the right technologies and solar and wind which are heavily subsidized must be within reasonable limits. Biomass and mini-hydro and even geothermal, are grid competitive. Solar and wind should not be lumped together with them as a program. We are concerned that Mr. de la Vina’s numbers could justify the unlimited pursuit of P8 per kwh solar and wind, the subsidizing of which is a rich-country solution that the Filipinos cannot afford, especially with our overpriced power.

The Philippines only contribute 0.35% of global warming. Why should we make Filipinos pay for the climate change damage cause by the First World countries that cause 65% of it? These rich countries are welcome to use the Philippines to host these solar and wind energy if we have the natural energy resources for those RE, but it must be done in such a way that there is no heavy burden on Filipino consumers. Just doesn’t make sense.

We are quoting our letter to PEMC below.

MATUWID NA SINGIL SA KURYENTE CONSUMER ALLIANCE INC.
Unit 327, Eagle Court Condominium, Matalino Road,
Brgy. Central, Diliman, Quezon City

www: matuwid.org/ landline: (02) 436-79-43

25 January 2016
Mr. Jonathan De La Vina
Philippine Electricity Market Corporation (PEMC)
9th Floor, Ortigas Avenue Robinsons PCI Equitable Tower, Ortigas Center 1605

Dear Mr. De La Vina,

We request for details to understand the methodologies used in your study of the RE Impact on the WESM prices and your widely reported conclusion that the RE projects reduced the price of WESM by P8.29 billion and therefore resulted in a net savings to consumers of P4.25 billion after deducting the FIT subsidy of P4.04 billion.

1. From the press reports, this was based on the contribution of RE to the supply in Luzon and Visayan Grid of 682.91mw, consisting of 130.81mw of biomass, 110.9mw of solar, 426.90 mw of wind, and 14.3mw of run of river mini-hydro.

2. We understand that the reduction in the WESM price as a result of these additional RE power is calculated in your study to be P1.00 per kwh. We request for information on how the P1.00 per kwh reduction was arrived at. From the reports it was implied that your study ran the model of WESM prices without the 682.91 mw RE and with RE. The difference we assume was the P1.00 per kwh.

3. We request for information on the methodology of the comparison of the two that led to the conclusion that the difference was P1.00 per kwh.

4. Since 537.8mw of the 682.91 mw RE or about 79% are of the intermittent type (solar and wind), how was the cost of ancillary and reserve services factored in the study? Further, let us note that the diesel plants in Luzon, Bauang and Navotas are already contracted with capacity fees by Meralco for peaking and reserve and charged to the consumers. If they are displaced by Solar and Wind, Meralco consumers still pay. How was this factored in the net economic benefit of RE to the consumers?

a) Solar tends to produce power only for 5 to 6 hours from 11am to 5pm which on average are non-peak hours. Did your WESM data show that the expensive bunker c plants are also normally dispatched during these same hours to make the displacement basis of the study viable?

Our sense is these expensive diesel plants are more dispatched during the peak hours of 6 to 10PM night time when actually the Solar is not producing electricity. We are wondering about the validity of valuing the impact of RE to the consumers by using diesel power as the avoided cost.

b) How about the energy injection pattern of Wind? Were they directly related to the timing of the infusion of diesel power in the market? How do we account for the cost of having those diesel plants ready to support the supply intermittence of Wind and Solar?

5. Did the market price study compare the WESM price impact if those 682.91mw of increased WESM supply from RE which has a FIT cost of P8.00 per kwh, is instead supplied by new coal or natural gas power plants at P4.50 per kwh or even by more diesel plants that can deliver power on call and whose current generating cost is P7.50 per kwh due to the lower cost of bunker. In other words, did the claimed reduction in WESM price because it is RE or it is just additional supply?

6. Did you run a financial model on the price difference of WESM when the RE capacity goes up to 30% or 4,000mw of the installed capacity of the country as targeted by the DOE?

Our organization is not against RE but we are concerned that an uncontrolled pursuit of the heavily subsidized solar and wind is a rich-country solution that the Filipino consumers cannot afford.

Your findings will potentially impact the policy direction of th

e country towards RE and its role in future power development.

We hope for your generosity in sharing the data with the consumers.

Very truly yours,

DAVID C. TAN
Co-Convenor, Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK)

CC: Hon. Senator Loren Legarda, Environment and Climate Change
Hon. Secretary Zenaida Monsada, DOE
Hon. Atty. Jose Vicente Salazar, Chair, ERC
Hon. Jose Alejandro, Chair, Power Committee PCCI
Hon. Melinda Ocampo, President, PEMC
Hon. Carlos Jericho Petilla, Former DOE Secretary – See more at: http://matuwid.org/is-pemcs-claimed-p8-29-billion-market-benefit-of-re-valid/#sthash.RZvyY3xX.dpuf

A Sensible Philippine RE and Climate Change Policy

David Celestra Tan
12 January 2016

The Philippines does not really have a handle on a sensible policy and strategy to address climate change. Even its Renewable Energy program that so far is really its only concrete attempt at a global warming solution is confused and misguided. Our current programs are out of control and will hit hard the Filipino electric consumers.

1. Putting Things Into Perspective

Global warming (also climate change) is a human race problem and indeed the Philippines must do its share in limiting it. However, our contribution to the solution must be sensible and realistic for the Philippines and the Filipinos. We must provide solutions that are suited to our energy resources, our archipelagic geography, our economic development timeline, and our people’s ability to pay.

We cannot ride on First World country solutions of the United States, Europe, China and India.

In the first place those are countries that contribute 65% of the greenhouse gases (GHG). The USA that contributes 20% had pursued solutions that are feasible and affordable by their affluent citizens and economy. Its shift away from coal is feasible because they are rich in natural gas from fracking. Their advanced financial sector supports RE installations.

The Philippines contributes a miniscule 0.35% of global warming but we suffer big from the earth’s climatic alteration due to global warming. Part of that had been because our power generation mix already included cleaner hydro, geothermal, and natural gas.

We similarly already have the highest electricity rates in Asia due to unmitigated abuses in rate setting and pass on charges and the way we are going with RE and transmission development, consumers will be paying a hefty price and aggravate our expensive power woes.

2. Our misguided RE program

We have a wonderful enabling law to support Renewable Energy. That’s the RE law of 2008. However, we are again failing in its implementation. First, RE does not mean only Solar and Wind. There is biomass, mini-hydro, and ocean. There is also hybrid.

Solar and Wind had been at the forefront of the RE program because they are heavily promoted by the technology providers and the companies who are used to the heavy subsidies in other countries. And heavily subsidizing them is a rich-country solution.

Unfortunately these two technologies have drawbacks of low load factors with outputs of only 5 hours a days for solar. And their intermittence or output variation as frequent as every 15 minutes required expensive load following capacity support. Consequently, the RE subsidy called FIT that started with a palatable 0.045 per kwh charge to consumers can hit P0.50 per kwh if it reaches the 2,500mw as being lobbied by the promoters.

The solar lobby group originally wanted a subsidized rate of P19 per kwh or a subsidy of P13.50 per kwh for grid connected systems. They eventually settled at P9.68 per kwh which still now requires a subsidy from the consumers in the amount of P4.68 per kwh. Now that the Meralco average generation rate is P4.25 per kwh, the subsidy has become P5.43 per kwh. That’s a consumer subsidy of P1.6 billion per year for the first 200mw that got the 9.68 rate. Those that got P8.68 rate would still cost the consumers P660 million per year for every 100mw of solar installation. And there are about 2,000mw more of utility scale solar projects in development.

One wonders why with all these interests in solar, that the Department of Energy insists on doling out arbitrary subsidized rates of P8.68. Why not subject it to bidding because there are those indicating a rate of P7.00 per kwh.

3. Hidden Costs of Wind and Solar

On top of the FIT subsidies the hidden costs of solar and wind are hefty and those will also be passed on as well to the consumers in one form or another.

a. Solar and Wind are installed where wind resources and available lands for solar which are invariably far from the power transmission lines. This will require the building by NGCP of more transmission lines and those costs will add to the transmission charge.

b. The variability of the output over the course of the hour and day require costly load and frequency reserves called ancillary services. The costs of those of will be passed on to the consumers. In the island of Negros up to 1000mw of grid connected solar projects are in implementation and proposed. A concentration of solar facilities in one area will make the large output susceptible to output drops from passing clouds. If there is 1000mw of solar installations the sudden drop can be 75% or 750mw. That is a lot of hot standby power reserve that would be needed to stabilize the supply. And the cost of those will again be passed on to the electric consumers.

4. A more Sensible RE and Climate Change Policy

The Philippines needs a climate change policy that is suited to its unique environment, energy resources, and consumers’ capacity to pay. We cannot afford First world solutions.

a. Let us provide more aggressive support for roof-top solar and not grid connected solar. Grid connected large installations require heavy subsidies that will be passed on to the consumers. Roof-top solar is viable because the output is valued at the retail rate which range from P9.00 to P12.00 per kwh. And we have an enlightened enabling rule called Net Metering, one of the few forward looking consumer friendly regulatory actions of the Arroyo ERC.

The DOE can push for fiscal and guarantee incentives to the financial sector to support rooftop installations and assure that DU’s like Meralco facilitate connections instead of deterring them. Here once again Meralco is launching its own roof top solar ventures. Nothing wrong with that except that the rules must be clear for equal access to data and systems of independent and own-use installations for residential and commercial consumers.

Expand the deployment of this clean energy technology by encouraging mini-grids where neighbors can share the benefits of rooftop solar. Our read is this would not be a violation of Meralco’s distribution franchise which has exclusive rights to distribute power through their distribution system which is 13.8kv. Such neighborhood solar systems can be implemented also through the Barangays. A modestly successful Rooftop solar program can bring 2,000mw into the system in the National Capital Region alone.

b. Let us pursue and support more hydro-electric projects specially the large ones. The Agus complex must be progressively rehabilitated. Other hydro projects in Mindanao need to be aggressively encouraged by the Department of Energy. In Luzon, the Laiban dam project must be pursued as soon as possible both for water supply to the Manila metropolis and for power generation. There are hydro projects in the island of Negros and Panay island. Other existing hydro projects need to be rehabilitated and expanded. We have the potential of gaining an additional 1,500mw of capacity from these climate friendly generating resources.

In the electric coop areas, the National Electrification Administration can revive their mini-hydro program that promotes and supports the development of this generation option in many mountainous islands like Palawan, Mindoro, Mindanao, Catanduanes. The government owned banks, DBP and LandBank are already providing excellent financing packages.

c. Related to this, let us have a more comprehensive “rain water catchment” program so that the water that nature dumps on our country can be harnessed for water supply, agricultural irrigation, and energy generation. The country’s silted lakes like Laguna Lake in Luzon and the Agus lakes in Mindanao need to be dredged. Building codes should require open ground to allow water to sip into the ground instead of draining over the concreted roads and building yards, flooding communities along its path, and wasting into the sea. This will help replenish ground water and yes, help reduce flooding.

Promote residential, community, and building rainwater catchment programs for non-potable water uses like gardening, kitchen and toilet, cleaning.

d. Promote biomass projects all over the islands in the country. This will include agricultural feedstock development. Provide more incentives and facilitate land use for the energy crop plantation.

Biomass projects use steam boilers and turbines. Compared to solar and wind, they are more reliable and consistent generators of electricity. Biomass power plants are actually grid competitive in rates thus requiring little or no subsidy burden on the consumers. The DOE needs to develop more facilitative rules to support this technology and feedstock development.

We estimate the country has the potential for 2,000 to 3,000 mw of additional biomass power plants. And the economic contribution of livelihood projects in the plantation areas will be tremendous.

e. Promote co-firing of biomass fuel by coal power plants. South Korea requires its coal power generators to mix up to 20% of their fuel with biomass pellets. Of course this will also require the development of production capacity for biomass materials and pellets.

The estimated 7,500mw of existing and proposed coal power plants in the country can therefore be cleaned with the equivalent of 1,500mw of power.

f. Rapidly develop mass transit systems Jeepneys, cars, and busses are major contributors of greenhouse gases. Expanding the mass transit system will help commuters and reduce vehicles on the road. Provide special sitting-only green coaches to encourage car owners to take the train systems instead driving. Provide them with parking areas in Quezon City and shuttle services at the Business District destinations. A Quezon City car owner would rather pay P100 to 150 roundtrip to Makati than drive and spend on gas, parking, and labor through the EDSA traffic.

Equally important provide better planned passenger loading and unloading areas at each train station. Let us think about reducing vehicles on the road by phasing out old private vehicles of say 15 year old cars from EDSA and major thoroughfares. They will not pass emission tests anyway. A higher standard for Jeepney’s for reliability and emission must be studied.

g. Pursue an enlightened Nuclear program

Nuclear is still the cheapest way to generate power currently and there are newer technologies, smaller capacities of 100 to 300mw operate on lower temperatures. Let us develop natural gas facilities but nuclear must be part of the mix. Let us not be afraid. Down the road, fusion technology offers alternatives for cheaper and cleaner power but that is 15 to 20 years away.

These potential greening projects alone if achieved 50% will already contribute significantly to reversing climate change and the Philippines will actually have a contribution to the worldwide carbon offset solution that would be way more than its 0.35% damage to global warming.

Solar and Wind have their roles in the overall renewable energy and climate change programs but they are not only heavily subsidized they also have significant hidden costs that all eventually are paid for by the Filipino electric consumers. Let us pursue more practical solutions that are suited for the Philippines. Let us not offset the climate change damage of the first world countries by making our people pay for the solutions. 2,000mw of grid solar will require an annual consumer subsidy of P13.5 billion a year. This and the money that will be used to subsidize wind can be used to support a more comprehensive climate change strategy.

Let us go beyond solar and wind. Let us go beyond lip service for the other clean projects that can reduce carbon emissions. Let us go beyond the industry lobbyists and embark on a climate change program that is more sensible for the country and the Filipinos.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Market Domination and Counting Installed Generating Capacities

David Celestra Tan, MSK
8 January 2016

A wise USA regulator said “we know we want to deregulate, we just forgot why we are doing it!”. This characterizes the way the Philippines had been implementing its power deregulation law of 2001 or RA 9136 a.k.a Epira Law.

It is a new year and the ERC will again have the fun time of counting the installed generating capacities in the country to assure ourselves that no one is dominating the power generation sector (brave but delusional words!) in compliance with the Epira Laws prohibition under its Section 45 for any generating company to own, operate, control 25% of the national grid or 30% of the regional grids of Luzon, Visayas, and Mindanao. (wonderful aspiration!). Then it will proudly announce to the public that no one is dominating the power generating sector, and we all commoners, sufficiently assured, dip into our harried pockets to pay our overpriced electricity bills.

1. Controlling the Capacity

The Arroyo ERC had been doing this annual routine by taking an inventory of the installed generating capacities in the country, computing the legal limits of 25% and 30%, determining who controls them, and establishing compliance by each power generator.

Note that we used the word “control” instead of “own, operate, and control” as defined by Section 45 of the Epira Law. This is because the Arroyo DOE and Arroyo JCPC inserted under Rule 11 of the Implementing Rules and Regulations it passed in 2003 to enable the Epira Law of 2001, by essentially saying “for purposes of determining market concentration of generating capacities, the capacity shall be credited to the company “controlling” the capacity. Haha. Whatever happened to “own and operate”?

And do you know the meaning of “controlling” in their devious world? It means the party marketing the capacity. Under the warped concept of Rule 11, it means even if Meralco PowerGen owns 100% of the generating plant it doesn’t count as part of its market domination as long as there is another party doing the marketing of the power output. Craftily worded and innocuous rule. Nifty circumvention!

2. Harmful market domination and Hopeful signs at ERC

We have been forgetting that the reason we are bothering to determine installed generating capacity is to determine the concentration of generating capacity to assure there is no harmful market domination.

The hopeful sign is that the new Pnoy ERC, not yet compromised by the pampering and foreign travelling sponsored by the vested interests, is reported to be wising up and will measure not only installed generating capacity but also market domination. In the latter they will apply the triple tests of “owning, operating, controlling”. Hence any power generation player, whether owner, part owner, operator, or “controller”, will be credited for the capacity for purposes of determine market concentration and domination. Now, that’s what we are talking about!

3. Double Counting of Capacity

Recently the professional spin doctors at the vested interests, and exclusively reported in one broadsheet, raised the alarm and introduced the new idea of “double counting” of the installed generating capacity. Good try.

An inventory of the installed generating capacity is one thing. A determination of market domination and concentration is another which is for the purpose assuring there is sufficient market competition, the holy grail of power cost reduction as aspired to by the Epira Law.

We agree that in determining the installed generating capacity of the country there should not be a “double counting”, lest it will not be accurate. But for purposes of determining market domination and concentration, any and all of the three (own, operate, or control) must be considered.

Even in the case of multi-owner plants, each of the owners should be credited with the whole capacity, because each partner has influence on the whole capacity and not just his proportionate share. Maybe the ERC can have a rule on passive minority investments not exceeding 10%.

We would like to caution however that in counting the installed generating capacity of the country, the ERC must use the net dependable capacity of each plant and not its gross installed generating capacity. The former is the true measure of what power supply can be available to the public.

4. A Meralco subsidiary effectively controlling 45% of national generating capacity?

Related to ERC’s exercise of determining market concentration, it might want to investigate and check the contracts of Meralco and its power generators which are reported to contain a provision that the capacity will be dispatched by a Meralco subsidiary. That would be “controlling” and if it is true, then there is a party that controls 6,000mw or 45% of the national installed generating capacity.

Let us hope the new Pnoy ERC will go back to the spirit of the Epira Law to assure true competition and guard against harmful market domination. Let us not forget why we are doing the annual exercise

And how was your new year!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Remaking the ERC – Purpose before Size

David Celestra Tan, MSK
2 January 2016

New ERC Chair Jose Vicente Salazar is engineering a shakeup of the ERC. We are sure there is a method to the ensuing madness caused by the reorganization and by officers leaving because they could not live with the changes or losing their clout. Some good people will leave and some undeserving ones can be promoted inadvertently but in the whole the collateral damage will be minor compared to the overall good. We can expect some natural tentativeness in decision making as the new Pnoy ERC finds its own bearings and head toward its rightful direction.

Let us all hope that the new year will find us with a better ERC, more faithful to its mandate to protect the consumers, better able to balance things with the power and service providers, and more effective in bringing order in this very confused regulatory environment where only the influential get their way. Consumers hope to enjoy improved safeguards against abuse.

As obvious to most and to new ERC Chair Salazar, the ERC he took over has been a broken institution that’s stuck in the mud, immobilized by the heavy load of its immense and broad mandate, left astray by the failure of succession of politico chairmen to provide principled consumer-sensitive leadership, and mistaking the formalities of its quasi- judicial processes as substitute for true, judicious, practical, and timely regulation. It had been process and not purpose driven. The how more important than the what.

The ERC is certainly congested. Decisions are too slow and too uneven and inconsistent. The big winner in the Arroyo ERC had been Meralco and the Abotiz group. They got all the rate increases they wanted specially PBR rate methodology that essentially did away with regulated rate of return. The systems loss charging system is non-transparent and anti-consumer. Its new Meralco owners are on their way to monopolizing the generation sector in mockery of the anti-monopoly aspirations of the Epira Law.

The common observation is while the Arroyo ERC could decide fast on the very complex applications of Meralco and the Aboitiz group, they took so long in deciding on more simple applications of the nation’s 119 electric cooperatives for their system improvement capex programs. Unable to undertake their needed system improvements to meet the demands of their fast growing service areas, their services are deteriorating. Systems losses are rising and their financial viabilities are in jeopardy. Palawan, Gensan, Bacolod, Dumaguete, Aklan, Iloilo, Camarines, Marinduque, Mindoro, etc.

Newspaper reports say Chair Salazar is trying to grow the ERC bureaucracy to 500 people from the current 300. Consumers realize that a bureaucracy is needed to provide the regulatory enforcement necessary to protect them. But that is as long as the bureaucracy is being applied in the right objectives and in the right priorities.

We hope that the shakeup is not about just throwing bodies at the regulatory congestion. There must be a clear definition of purpose. Let’s hope it is guided by an enlightened regulatory soul with clear notion of its two fold purpose which are to 1) assure reasonable price of electricity and 2) to assure ample supply of electricity by insuring fair return on investments of the service providers. The Arroyo ERC only took care of the latter and totally forgot about the consumers.

We believe the ERC had been congested less because of lack of personnel but more by misguided application of its regulatory power and resources.

1. Generation must not be Regulated (Surprise!!)

One thing new Chair Salazar can rethink is the ERC’s approach to the generation sector. The ERC is actually regulating the generation sector when it is supposed to be a deregulated sector under the Epira Law. In the name of assuring the fair and reasonableness of the generation rates that will be passed on to the consumers, the ERC’s methodology is to regulate the profits of the generators. They impose limits on profits by using “weighted cost of capital”. And all the hearings and theoretical data analyses lead to delays and unfortunately not necessarily fair, reasonable, and consistent rates.

ERC can decongest itself by assuring fair and reasonableness through market mechanisms and not by quasi-judicial and bureaucratic theoretical processes. It had taken the first step by mandating the CSP of power generation supplies. It then must establish benchmarks using cost of service data existing in the market. And of course it must properly implement the CSP rules, assuring sham biddings.

It must stop the monopolization of the generation sector, a necessary in safeguarding the consumers. It does not need to create new tough rules. All it has to do is implement the anti-monopoly and market domination limits set by the Epira Law. It must call for the review of Rule 11 of the Epira IRR that provided the loophole for monopolization in violation of the mother law which is the Epira.

2. Properly Regulating the Distribution and Transmission Sectors

The franchised holders of these two natural monopolies must be made to accept the limits of return on investment in exchange for the market protection under the franchise granted by the people through the government. Most business risks are passed on to the consumers. Forex, fuel fluctuations, typhoon damages, etc.

The Performance Based Ratemaking (PBR) effectively did away with the 12% return on rate base and also violated Section 25 of the Epira law that retail rates must be based on economic input incurred. It allowed charging to the people forecasted investments that may or may not be made.

ERC must require that the procurement of equipment and services that become part of the rate base are also done competitively. A 10% overprice in assets is a 10% overcharge in the return.

NGCP’s right to operate its system did not mean it must be the systems operator, which is a rule making function that is clearly not intended by the Epira Law to be privatized. Put simply, ones right to judge someone does not make the person a “judge” in the judicial system. Two different animals. By the trick of language, that effectively was done by the NGCP Concession law passed by the Arroyo Administration. Now that anomaly is causing unnecessary transmission charges to the consumers because you have one private institution whose profits are affected by the rules he himself makes. Good thinking legislators. Unless this is changed we will see transmission charges to double in about 5 years.

The ERC by its own PBR rules on transmission assets are actually constraining the development of power generation projects because they cannot be connected unless the connection facilities are approved by both the NGCP and ERC, two very red-tape laden processes.

3. Bloating the ERC Bureaucracy through the Open Access Rules

The ERC bloated itself by overreaching regulatory rules where they are actually not necessary.. Regulating the generation sector by judicial and table analytical process is one. Another is the expanded and tedious rules they made in the issuance of the Certificate of Compliance that power generators needed to start operations. It was intended only to be a ministerial function to determine whether a generator has all the needed compliances with government permits like environmental and market rules. ERC turned it into a full blown regulatory process. Rate reductions also go through similar rigorous processes. Leave it to the businessmen at the distribution utilities and generators to decide if they can handle the rate reduction. Why slow down something that will benefit the consumers?

The ERC is doing it again. It will be inundated with regulatory work by its creation of the RCOA (retail competition and open access) rules where it is forcing large electric users to be part of the open access market. The option of open access includes the right of the end user NOT to bother with the complexities and risks of open access and to just stay as captive consumers of the DU. Why force them?

Hundreds of thousands of larger electric users will become part of that RCOA market and ERC rules say if there are disputes the ERC will be the arbiter. The ERC already has problems resolving the various applications of the country’s 135 distribution utilities, applications of own use generators, rate approvals, permits to operate, and approvals to built point to point grid connection facilities by power generators. Some say there are about 350 applications at the ERC that are unresolved. This can quadruple easily with disputes in retail open access contracts, something the ERC is creating by its own rules and guaranteed to require more manpower to handle.

If it wants to introduce competition for the benefit of the captive consumers, do it with bulk power supply competition thru true CSP and not by asking each user to undertake their market trading. ERC must understand that many businessmen, while can benefit from lower power costs, would rather focus on their main businesses and not be distracted by the complex rules of its retail power supply.

4. Quasi-Judicial Method Instead of Market mechanisms

With the new Chairman not enamored by the ERC’s judicial process, he can revisit ERC’s philosophy of using quasi-judicial processes in performing its mandate of protecting the consumers and reducing rates. Instead they must adopt market mechanisms and competition towards the pursuit of “least cost power” for consumers.

It must provide consumers easier avenues to communicate their concerns and not have to go through a formal judicial process that require the cost and expertise of lawyers. Justice must be more important than the formalities of the process. 5. The ERC Chairman has a full plate

Remaking the ERC is a tough job but having an uncompromised Chairman, and a non-politico at that, is a great start. Chairman Salazar has a full plate though.

There is the challenge of closing the avenues for market manipulation in the wholesale spot market and unhesitatingly punish the offenders. Many of the big players have been caught manipulating the market in the WESM fiasco of 2013. Now consumers are watching whether we as a nation have it in us to punish the offenders whoever they are. Implementing the CSP would be a daunting challenge. Meralco would be fighting hard to arrogate for its subsidiary Meralco PowerGen the monopoly of its 3000mw power supply.

Chairman Salazar will be under tremendous political and corruptive pressure.

There is of course no argument that whatever regulatory methodology the ERC adopts, it must be efficiently structured so that it can dispense with such regulatory function in a responsive, judicious, and timely manner that is true to its mandate.

So far we like what we are seeing in what Chair Salazar is doing. With a clear heart for the consumers, we have faith that he will see rightly.

We wish him well for the New Year. We hope though that we are not mistaking hulk for effectiveness.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.