Meralco’s Lower Rate Temporary, Due to Luck Not Rate Reform

David Celestra Tan, MSK
16 October 2016

We Meralco consumers have been enjoying lower electric rates for more than a year now and it has been God-sent albeit temporary. The current reduction of P1.54 per kwh in generation rates have been due to the opportune drop in world oil prices and can change in cycles. We can achieve a more permanent and enduring P1.50 per kwh reduction through systemic reforms by banning self-negotiated contracts. The MVP Group is cartelizing 100% of Meralco’s power requirements and one day Luzon consumers will wake up with a price shock. Remember Dec 2013?

There is a concerted media campaign touting that Meralco’s rate is now low, that the Philippines is now the 3rd highest rate in Asia and no longer 2nd to Japan. Australian International Energy Consultants once again said it is because the other Asian countries are subsidizing their power. And while IEC is quoted to be saying it is due to the drop in fuel and coal prices, it also gives credit to a claim that Meralco has been aggressively negotiating competitively priced power supply agreements (PSAs) with new suppliers.

The IEC press release is evidently designed to convince President Digong, the DOE and ERC, and consumers that Meralco’s rate is fair and reasonable and that part of it is Meralco’s “aggressive negotiation of competitively priced power supply agreements”.

Let us get past the chaff and go to the grain of Meralco’s rates.

A. Generation Rate

1. It is true, as IEC studied, that between January 2012 and January 2016, Meralco’s generation rate had come down by 28%. MSK’s research showed P5.4643 per kwh in 2012 and down to only P3.9238 per kwh, a reduction of P1.5405 per kwh.

2. It is also true that the major reason is the drop in world oil prices and coal. MSK’s research showed that from 2012 to 2016 world oil prices dropped from $90.72 per barrel to only $34.13, a reduction of 62%. Indonesian Coal prices went from $105.61 per ton to $52.32 in the same period or a drop of 50%.

We dare to say that the ONLY reason for the lower Meralco rates is due to the lucky and opportune drop in world oil prices that also cause reductions in coal prices. A major columnist of Phil Star asked MSK why Meralco’s generation rate is not dropping as much as the big drop in the world oil prices. Good question but the answers were not printed.

B. Systems Loss

1. Since Meralco’s systems loss is a percentage of generation charge, it went down from P0.6594 per kwh to P0.4173. In percentage, 12% in 2012 (0.6593/5.4643) and 10.63% (0.4173/3.9238). Let us grant that the difference of 1.37% can be attributed to Meralco’s operating efficiency.

2. Is the glass half full? Meralco is supposed to have a limit of 8.5% in systems loss. The excess systems loss charge in 2012 was P0.1949 per kwh and in 2016 it is P0.0837 per kwh. Since we already have lowered expectations, yes it is an improvement. As in the generation charge, if the fuel prices go back up, systems loss will also go up. ERC needs to correct the systems loss rules by limiting it to maximum 8.5% to all consumers and by making the computation transparent.

C. Transmission Charge

This is something we are curious about in IEC’s choice of periods to compare. In January 2012, NGCP’s transmission charge was P0.9840 per kwh. In April 2016 it was P0.9549 per kwh. However, for some reason NGCP’s rate dropped unusually to P0.8361 per kwh in that month of January, a difference of 0.1188 per kwh. IEC’s study of the improvement in Meralco’s rate looked much better with its choice of January as the comparison months and this additional reduction of 0.1188 per kwh. We guess IEC serves its master. If they want to do a study in the future, it will be more helpful to see comparative April rates when supply and demand of power will show the true rates.

D. Distribution Charges Plus Supply and Metering Charges

Meralco’s distribution, supply, and metering charges came down by 7% or 0.17 per kwh as a result of the expiration in June 30, 2015 of an P0.1888 per kwh recovery of an under-recovery in 2011. Let us not forget that Meralcos distribution charges are results of the PBR rate setting methodology that we believe is irregular and must be modified. Meralco customers should not be charged profits or advance recovery until the utility actually incur the investments, not projections, not promises.

E. Universal Charges

Various universal charges for missionary subsidy, environmental, RE FIT, and PSALM Stranded Costs totaled 0.4764 in 2016, an increase of P0.36 per kwh from the P0.1188 per kwh in 2012. Watch for Renewable Energy subsidies and PSALM’s stranded costs to rise further. RE is now proposed to be 0.24 per kwh from 0.12 and PSALM has a lot of losses to recover from the people.

Back to the Issue of Meralco’s rate reductions.

1. It is clear that the reduction of P1.54 per kwh in generation rate was due to the lucky drop in world oil prices. OPEC and Iran are inching towards agreements on oil production controls and oil prices are expected to rise sooner than later. Coal and Natural gas will follow suit. Let us enjoy the current lower Meralco rates because it is only temporary.

2. Meralco’s supposed “aggressive negotiation of competitive power supply contracts with new suppliers” sounds good on the surface but since they negotiated exclusively eight (8) coal power supply contracts totaling 4,100mw with their own majority owned new generating companies, it is hardly credible to believe that they would negotiate aggressively with their own selves. (And yes, Meralco continue to claim in its public pronouncements that it does not make money on the generation charge because “it goes to the suppliers”, who will eventually be all “Meralco PowerGen”.)

3. Let us remember that the published rate of these self-negotiated contracts is only what we see now. Tucked in those negotiated contracts are escalators in various provisions that can eventually bloat the actual rate and sock it to the unsuspecting public down the road. Meralco even has the temerity to ask the ERC to make key financial information and formula confidential and not disclosed to the public. This is something that even the Lopez group never tried in their time.

4. MSK Ibaba ng P3 Campaign

On October 8, 2014 the Matuwid na Singil sa Kuryente Consumer Alliance (MSK) shared with the Department of Energy’s Multi-Sectoral Task Force to Find Ways to Reduce Electricity Prices our recommendations on how to reduce Meralco’s power rate by Php 3.00 per kwh. Nothing came out of those months of supposed multi-sectoral meetings in search of reducing rates but the then Energy Secretary Petilla bravely passed a DOE Policy mandating Competitive Selection Process.

Of MSK’s P3.00 per kwh target reduction. 87% or P2.60 will not even come from Meralco’s pockets but from various pass-on charges on which Meralco had been claiming for many years they don’t make money and only act as collectors. Generation charge, transmission charge, systems loss, VAT, universal charges. Only 13% or P0.40 per kwh will come from Meralco’s excess distribution charges due to the questionable “performance based ratemaking” or PBR.

MSK believe that by stopping the anomalous self-negotiation of power supply contracts the generation rate can be reduced at least P1.50 per kwh. Meralco generation had dropped P1.5405 per kwh but that is due to the fortuitous drop in world fuel prices and not due to changes in the regulatory system. For generation, it is the introduction of Competitive Selection Process to replace negotiations. If this were adopted, Meralco’s generation rate would have dropped by about P2.25 to P2.50 per kwh

As part of the Ibaba ng P3 campaign, MSK had filed with the ERC more than a year ago a petition for rules change to modify its Performance Based Rate making system (PBR) for distribution charges. We have yet to hear from the ERC on the public hearings to assess this very important concern of the consumers. We believe the distribution charges of Meralco can be reduced by about P0.40 per kwh by eliminating the improper profits of Meralco on forecasted investments instead of incurred investments as required by Section 25 of the Epira Law.

IEC Studies

As they have done in 2014, the Perth-based International Energy Consultants study as commissioned by their client is to show that Meralco’s generation rate is fair and reasonable.And the Meralco press release is apparently timed to sway public resistance to the seven (7) midnight contracts that the MVP Group hurriedly signed with various new generating companies all majority owned by Meralco PowerGen. So far two columnists have sung the same tune.

We wonder what IEC’s basis was for declaring that Meralco’s lower rate is partly due to Meralco’s “aggressive negotiations for competitive power with new power suppliers”. It must have been a sight to see IEC, being present in the negotiations, watching Meralco negotiateaggressively with its sister company Meralco PowerGen! IEC by the way lists among its major clients EGCO of Thailand and Quezon Power its Philippine subsidiary, EGCO is Meralco PowerGen’s strategic partner for the 460mw Mauban coal expansion called San Buenaventura.

Let us enjoy Meralco’s low power rates now while they last. Let us hope the government will do something now while it still can to stop Meralco’s monopolization, cartelization, and self-negotiated contracts. Let us correct ERC’s anti-consumer rate setting methodologies and systems loss rules. Low world oil and coal prices will not last forever.

We are just currently lucky. What we need for sustainable lower rates are systemic and regulatory reforms.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Congratulations to the Philippine Daily Inquirer for its impressive and updated new layout. Tasteful and effective in delivering and emphasizing news. Kudos.


P41.8 Billion Reaons Why We must Distinguish Clean Energy from Renewable Energy

David Celestra Tan, MSK

12 October 2016

Solar lobby groups continue to push for the Philippines to adopt Renewable Energy as a national energy policy target. Many Legislators and policy makers automatically mouth Renewable Energy as a sacred goal for the country.

Do they really mean Renewable Energy or it is Clean Energy and Climate Change that they are trying to address?

Are they one and the same? Why is there a need to distinguish Renewable Energy from Clean Energy? There is a 41.8 billion reason.

Technically, Renewable energy is generally defined as energy that is collected from resources which are naturally replenished on a human timescale, such as sunlight, wind, rain, tides, waves, and geothermal heat.

 In many countries including the USA, Renewable Energy is used interchangeably with Clean Energy. But in the Philippines it is important to distinguish Renewable Energy from Clean Energy in establishing energy mix policy.

The RE lobby groups including some senators have been pushing for as much as 30% of the country’s energy mix to come from RE. And many other senators and congressmen including some business leaders and policy makers are jumping on an RE bandwagon in the name of climate change. If we don’t watch it, the country and congress will pass policies to try achieve that “noble” goal of 30% renewable energy and feel like they are saving the world.

In the Philippines “Renewable Energy” refers to subsidized energy under the Feed In Tariff law as defined under the Renewable Energy Law of 2008 or Republic Act 9513. There are six (6) RE technologies. Solar, Wind, Biomass, run of river hydro, Ocean Thermal, and something called Hybrid. Note that under this law, geothermal is not covered by the Feed In Tariff subsidy program although technically geothermal is considered “renewable”.

The FIT subsidies on these technologies range from P1.00 for biomass and run of river hydro to P3.80 per kwh for solar and wind. If the Philippines adopts a 30% renewable energy target as defined by the RE law of 2008, it means 4,500mw of RE nationwide. Considering the number of powerful lobbyists pushing for solar, fully 75% of this will be solar and wind. 75% of 4,500mw will be 3,375mw which can produce energy of about 11 billion kwh a year. At a P3.80 per kwh subsidy, solar and wind would require a consumer subsidy of P41.8 billion PER YEAR. We estimate that the country uses 46 billion kwh a year, about 30 billion kwh in Meralco area. Solar and wind subsidy alone will cost P0.91 per kwh. At the 20 year typical contract of Solar, P41.8 billion a year totals P836 Billion in consumer subsidies.

Climate Change

The mother objective of all these green energy movement is climate change. And climate change actually requires clean energy or zero carbon. Clean energy means renewable energy PLUS big hydro, geothermal, and natural gas, and even nuclear energy. It even includes energy efficiency programs. All these clean energy technologies are grid competitive and do not require any consumer subsidies. Big hydro and nuclear can even be lower than the current coal energy price of P3.75 per kwh and be infinitely cleaner than coal.

There is therefore 41.8 billion reasons why the Philippines should not be lured and misled into adopting a “renewable energy” target instead of the enlightened “clean energy”. It is critical that the policy and objective must be CLEAN ENERGY and not Renewable Energy.

If our policy objective is clean energy, there will be more attention to the encouragement of hydro projects in Mindanao, in Luzon, and in the Visayas. It means more exploration in geothermal energy. It means more enlightened holistic studies on a rational nuclear option. It means putting a reasonable limit on the heavily subsidized solar and wind. It means more government support for run of river mini-hydro’s and biomass projects.

Let us not be hoodwinked into adopting renewable energy in the name of climate change. Let us adopt CLEAN ENERGY instead. There is a world of difference.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Why are power generation rates in Mindanao going up? What can consumer groups do to bring down the rates?

By David A. Tauli, Mindanao Coalition of Power Consumers

06 October 2016

The rates for bulk power generation in Mindanao from incoming coal plants will go up to 5.40 pesos per kilowatt-hour starting in 2017.

In order to bring down the rates of these coal plants to around 4.00 pesos per kWh, power consumer groups should: (a) carry out massive and persistent lobbying of the government of President Rodrigo Duterte, (b) advocate reforms in the Energy Regulatory Commission, and (c) file legal suits against the electric power generating companies and distribution utility companies in Mindanao who have conspired to generate the high rates.

This note sets out briefly the why and the what.

There are two main reasons why the rates for bulk power generation from coal plants in Mindanao are high:

1. Distribution utility companies have entered into power supply contracts without carrying out least-cost acquisition of their supply of electricity, in violation of the laws that govern the electric power industry, particularly the EPIRA, and contrary to generally accepted practice in the governance and management of distribution utility companies.

2. The Energy Regulatory Commission has been captured by the electric power corporations that it is supposed to regulate, and consequently has adopted uncritically the procedures and data of the generating companies in the determination of the rates for bulk power generation.

Power consumer groups should lobby the Duterte government to carry out the following:

1. Direct the distribution utility companies to strictly carry out least-cost acquisition procedures for the power supply of their consumers, and boot out the officers, or revoke the franchises, of the distribution utility companies who do not comply. Non-implementation of least-cost acquisition should provide adequate legal grounds for such penalties.

2. Allocate to the residential consumers the generation of the hydroelectric power plants in the Agus and Pulangui rivers. This will ensure that households will enjoy low rates (a reduction of more than one peso per kWh) for electric consumption despite the machinations of the gencos and the distcos.

3. Direct the National Grid Corporation of the Philippines to carry out economic dispatch of all generating plants in the Mindanao Grid, disregarding the power contracts between distribution utility companies and the power generating corporations (many of which were fraudulently entered into anyway).

A study of the petitions for approval of electric power supply agreements that were submitted to the ERC by electric power companies in Mindanao will show that the ERC has been uncritically following the procedures of the gencos and adopting the data provided by the gencos (with superficial revisions to show that it is being critical in using the data) in the determination of the true costs of generation. While the ERC has been following the letter of the law in the proceedings for these petitions, it is evident from the records of the proceedings that the ERC has entirely lost the spirit of fairness, reasonableness and transparency in the determination of rates for bulk power generation. This may be true also in the case of applications for rate increases in distribution and transmission, but a study of those applications still need to be carried out.

This problem is matter of the personalities in the ERC rather than the rules and procedures, so its correction could be done only through the reformation of the ERC organization.

The filing of legal suits against the gencos, distcos, and the regulators and government agencies is a last resort, mainly because of the fundamental problems (to say the least) in jurisprudence in the Philippines. And because consumer groups do not have the money to pursue legal suits all the way to the Supreme Court. Before going the way of the courts, consumer groups should work with friends in the House of Representatives and in the Senate to carry out investigations of government agencies and regulatory bodies involved in the electric power industry in Mindanao.

Money being stolen from power consumers in Mindanao as a consequence of corruption and venality in the electric power industry goes into the hundreds of billions of pesos, greater than the profits of those involved in the illegal drug industry and in gambling. Which leads to the idea that maybe we should get the Duterte government to carry out tokhang in the electric power industry in Mindanao. God forbid.

MSK Petitions ERC for Meralco Refund of P2.39 Billion Overrecovery

David Celestra Tan, MSK
3 October 2016

Your consumer advocacy group, Matuwid na Singil sa Kuryente Consumer Alliance had filed a petition with the Energy Regulatory Commission to compel to Meralco to refund to the consumers an estimated overrecovery of at least P2.39 billion.

The overrecovery can actually be as high as P5 billion and was discovered by MSK during its crossexamination of Meralco’s rate setting experts on the computation of the recovery from 2011 to 2015 of an underrecovery from 2007 to 2011.

It might be recalled that Meralco offered to reduce its distribution charge in July 2015 from P1.59 per kwh by P0.188 which was the component of the rate intended to allow them to recover an under recovery from a previous regulatory period. Actually Meralco’s authority to charge that extra P0.188 expired on June 30, 2015 and it would have been illegal for them to continue charging that beyond that date. Nice media spin on their part to announce it as a voluntary reduction.

The P0.188 per kwh was computed by assuming an energy sales level in kwh for the years 2011 to 2015. That forecasted energy sales was based on an annual growth rate of 3%. Meralco itself had been announcing that its energy sales growth actually has been 6 to 7% per year.

MSK had filed for intervention to determine that the P0.188 per kwh reduction that Meralco volunteered and publicized was actually correct and sufficient.

Evidently Meralco had recovered almost double the amount it was authorized to recover. We believe that Meralco should not be allowed to profit from recovering an under recovery that was authorized by the ERC. It could be as high as P5 billion.

MSK had petitioned the ERC to compel Meralco to submit the true figures for the amount of the authorized underrecovery for 2007 to 2011, the amount they have recovered in 2011 to 2015, and to submit a refund schedule for the excess recovery plus interest.

During MSK’s cross examination, Meralco’s rate setting expert said that if Meralco’s, actual sales are higher, like when its sales grew 6% instead of 3.7% per year, that ERC rules allow them to keep the difference as profit.

This if true is a very dangerous rate setting methodology and exposes the Meralco consumers to rate abuse and manipulation. This also means Meralco, as a regulated distribution monopoly is effectively no longer regulated in its net profit as most people still believed. Is this really now the policy? The more we learn about the schemes between the ERC and Meralco the more we see the abuse of the consumers and the total lack of safeguards.

Meralco’s lawyers responded to the ERC that MSK’s request is irrelevant to the petition and that these issues must be included in the rate setting for the Fourth Regulatory Period of July 2015 to June 2019.

With these kind of rate methodologies, Meralco consumers continue to be overcharged and abused.

Let us hope the new ERC will demonstrate more caring for the electric consumers. Let us see if they will act to correct this overcharge immediately by ordering a refund.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.