Meralco’s Seven (7) Midnight Coal Contracts Pre-Empted Duterte Government’s Say in Energy Mix, CSP, Electricity Rate Reduction, and Economic Development.
David Celestra Tan, MSK
14 August 2016
It is not an exaggeration to say that Meralco, by moving fast before the elections, actually checkmated any new Government, which turned out to be Duterte, before they could sit in the table and learn how to play power chess.
President Rody won because of his promise to eradicate drugs, crime, and corruption. But that would be only a third of his legacy. The other third would be infrastructure development and the last third would be in economic and fiscal policies and programs. In the latter, Meralco and its cartel are stealing his thunder if they can get away with it.
- Energy Secretary Al Cusi’s Energy Mix Target Subverted Before it Could Start.
By forcing the issue on these 4,100mw of coal projects, Meralco subverted any effort of the Department of Energy to rationalize the country’s energy mix under which they initially hope to limit coal to 30%. These new coal projects will supply easily 90% of Meralco’s needs for the next 25 years. Since Meralco uses 62% of the country’s energy needs, their coal contracts is equivalent to 56% of the country’s power supply. Add to that the 3,000mw of coal projects in Mindanao and the Visayas and it’s easy to see the Philippines will not come close to limiting coal to 30%.
Meralco has a long record of overcharging the public and still say with a straight face that they are doing the consumers a favor. Things have not changed under the MVP Group and now it appears they are hoodwinking even the government and its new team.
The Philippine Star reported as recently as July 29 (90 days after the Meralco signed the coal contracts) that “Business titan Manuel V. Pangilinan has been among those pressing the government to come up with a clear-cut policy direction on the appropriate power fuel mix the country needs as it pushes for cleaner technologies.” “We need a policy direction (on) what is the appropriate fuel mix for our people. And once that’s decided businesses will build the plants, whether it’s a gas plant, coal plant, or renewable plant. So we just need direction” MVP said. This after being fully aware that the 4,000mw coal midnight contracts Meralco signed will preempt any government goals in energy mix. It was a regrettable double talk, the equivalent of a head fake and back door play in basketball. In trying to justify their opposition to CSP and insisting on self-negotiating power supply contracts, MVP also has been quoted in interviews that “the CSP policy is illogical as it allows gencos to decide whether or not to participate. This gives gencos the ability to dictate prices. You shifted the power to price over to the gencos and we’ve seen what happened in December 2013 when prices spiked. The 2013 incident pertains to when Meralco’s rates shot up by P4.15 for December and P5.30 for January because it had to source power from the WESM where distributors such as Meralco buy their power supply from Genco’s”. “The market power should be with the DU’s which are obligated by law to find the least cost. But if you are a power generation firm then you are not under that obligation.” Well said concept.Meralco’s President Oscar Reyes for his part came up with a new spin. “Without any generation capacity Meralco would effectively be only a price and supply taker”meaning by negotiating they have a say in the generation buying price and not just the generator or the WESM. He implies that by negotiating it would be good to protect the consumers.
Wonderful words….sana!. But the truth is since Meralco as the “price setter” is negotiating with sister company generators, they become one as the price setters and the Meralco captive consumers the helpless price takers. Consumers are the ones paying for the charges but they have no say in it. In the least the DU power supply that will be charged to them will have to be subjected to a true competitive bidding, giving them an ounce of safeguard against pricing abuse. This is exactly the reason for a Third party administered CSP.
Meralco buys only 5 to 8% from WESM, the price of which skyrockets when Meralco’s own contracted generators go out and supply is reduced. This includes the periods of generous downtime allowances provided by Meralco when the generators are still being paid their capacity fees. It’s a double whammy to consumers because the consequent higher prices of WESM are passed on to them. (Consumers really get no respect).
Remember also that during the crisis of December 2013, Meralco was reported by the market investigators to have instructed their IPP Therma Marine to bid the highest P62 per kwh contributing significantly to the higher market settling price that ravaged the consumers.
The country’s energy had already been mixed for us by the MVP group and its cartel.All coal and worse they are all negotiated sweetheart deals. Did someone say Indonesia is a major source of Coal which also happens to be the country of the reported owner of Meralco?
Secretary Cusi may need to stick around for 25 years before he could start reducing coal’s share to 30%.
- Aspiration to reduce power rates in the country
Any aspiration of the new government to reduce power costs will have to start with power generation because that is 60% of the total bill. And it is the sector that had been non-transparent with negotiated sweetheart prices since 2001 when the power industry was privatized and deregulated. These Seven (7) negotiated contracts will effectively shoot down any meaningful power cost reduction program of the new government and the succeeding governments for the next 25 years.
- National Integrity and Governance
Only a few months ago the Philippines was about to make its power generation sector truly competitive with a new policy to stop self-negotiated power supply contracts that are passed on to the consumers and to require competitive bidding by the DU’s including Meralco which will make the procurement process competitive and transparent and will open the power generation sector to more independent generation companies. We were so proud and everything was in place. The ERC only needed to implement.
Faced by a Meralco threat, ERC Chairman Jose Vicente B. Salazar said “the commission would exercise its legal authority to defend the issuance of ERC Resolution 13 if challenged in court”.“While we respect anyone’s right to take legal action, we lament the failure to see the public’s clear benefit from the CSP. We will respect the legal process even as we seriously consider our own legal options to make sure we defend the public interest, as well,” Salazar was quoted to have said in a text message.
Then the unthinkable happened on March 15, 2016. Out of nowhere and without much public debate, the ERC moved the effectivity date of the CSP rule to April 30, 2016, thus parting the red sea for the filing and exempting of any new power generation projects Meralco wanted.
It is perplexing that the ERC, instead of coming up with judicious transitional rules for the country, threw in the towel, essentially abandoning the whole ideal of competitive generation rates to consumers for the next 25 years at least in the premier Meralco area and abdicating on its mandate to safeguard the interest of the consumers. They moved the midnight and parted the red sea. What made them do it?
- Who would care enough to stand up for the Filipino electric consumers? A defining moment for the Filipino spirit.
Meralco’s package of seven projects and contracts, if they really are allowed to avoid the CSP policy, would be damaging for the consumers and the country in more ways than one.
- a) It would be a disgraceful circumvention of our law. A damning indictment of our integrity and ability as a nation and people to implement our rules that are clearly made to protect the public interest. It is regrettable to see that our temerity to fool around with our own rules knows no limit for propriety and patriotism.
- b) Monopolization, or its buyer side cousin, Monopsony, are not just “high fallutin” terms for economists. They are actually blatant subversions of the rights of consumers to fair charges and to be treated with respect. In the power sector, what is involved is the provision of public services in least cost manner as clearly provided by the Epira Law of 2001.Activities by the private industry participants to subvert these rights, and to deny them least cost electricity, are nothing less than crimes against the consumers.There cannot be least cost power unless it is market determined through an honest to goodness competitive bidding. Our anti-graft laws have indicted government officials for using people’s money without bidding. Passing on generation charges to the people without bidding is like dipping into their pockets monthly. At easily P20 billion a year in higher charges nationwide, this is as big as drugs, crime, and corruption. Government officials who facilitate these subversions and who look the other way are even more guilty because it is their job to uphold and protect the public interest.
Who would care enough to stand up for the Filipino electric consumers? This is a defining moment to the modern day Filipino spirit.
- Economic Sabotage
It is also a subversion of the country and economic sabotage to perpetuate schemes that will preclude competitive power for it deprives the country its ability to be economically competitive, to create jobs and to assure the right of 90% of our 100 million people to make a decent living and take care of their families.
The next 40 years is predicted by Japanese business leader Lee Sawaki to be the golden age for the Philippines whose young productive population of 20 to 65 years and average of only 23.5 years, gives it a “population bonus”. Japan, Taiwan, Singapore, Korea, and even Thailand had become prosperous because of it. But they had finished their “population bonus”. It’s the Philippines turn. Those countries were able to capitalize because they also had low power costs that made their manufacturing and commerce competitive. The Philippines cannot achieve its growth opportunity unless it brings down its power costs. Do we have the national resolve to do what is right to make this country truly great?
That economic growth can be sabotaged by Meralco’s cartelization of power generation with the era of arbitrary power charges if the government and regulators would allow them to evade CSP and impose their will on the government officials who were duly elected by the Filipino people.
Should we not wonder why every time approving power supply contracts need to be justified, there is a corresponding threat of brownouts and power shortages? Of the 4,100mw of Meralco coal contracts, only 70mw will come in this year, 455mw in 2018, 928mw in 2020, and 2,553mw in 2021 to 2023, 5 to 7 years from now. 3,551mw of them rushed to signing on 26 April 2016 to beat the new ERC deadline of April 30, 2016. There is time to do a proper CSP. vNow that power generation is a cartel what is there to assure that there is no orchestration of power supply? Who will protect the consumers?
It is not Too Late for Pres. Duterte’s Government to Arrest this Crime Against Consumers. Those negotiated coal projects still need to be accepted and approved by the ERC.
We appeal to President Rody to help rescue the electric consumers nationwide especially in the Meralco area. Let us hope he will not allow Meralco’s Power Cartel to steal his thunder for good governance.
Next: IPP’s Surrender to Meralco’s Market Domination, and The Rise of The Power Oligarchy
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
David Celestra Tan is a pioneer in the IPP industry and a founder and former President of the Phil.Independent Power Producers Assn. A CPA by education, he has been in the power industry for 35 years and evolved into utility economics. Through his blogmatuwid.org in retirement he seeks to share his expertise in power policy and strategy for the public good towards reducing the power cost in the country and eliminating abuses and monopolization. He assures the consumers and participants in the movement that he has no vested interest other than as a consumer and will not benefit financially from any of the advocacies and certainly will not participate directly or indirectly with any potential bidders in a true CSP.