Meralco’s Needs True Concern for Consumers in Annual Malampaya Shutdown Costs

David Celestra Tan

18 March 2017

About 20 typhoons hit the Philippines every year like clockwork. It is only a question of where they would hit and how bad the damage would be.  Meralco is hit additionally  by two disasters every year like clockwork. Similarly it’s a question of how bad the damage to consumers will be.  One Every summer when power demand shoots up and hydro power supplies are down. It is no longer as bad because of solar power but nonetheless there is frenzy in power shortages in the summer months. These are also the months when those who want to ram the approval of their coveted coal projects go into high gear with their media and lobby campaign with legislators threatening power shortages and calling for fast approval of projects.

The Second disaster that hits the Meralco area every year like clockwork is the Malampaya alternative fuel shuffle. When it happened in November 2013, Meralco nonchalantly applied for approval of a whopping 4.15 per kwh pass on charge, 90%, in generation rates and got ERC’s approval in one sitting just before Christmas of 2013. Meralco and ERC were foisted to whack the consumers with almost P10 billion alternative fuel charge.  If that was not enough they followed it with a 100% increase application for January.

The Malampaya consortium is the only supplier of natural gas to the three natural gas generators contracted to Meralco. A total of 2,565mw.Malampaya shuts down annually for preventive maintenance. Everytime that happens the three generators, First Gas Sta. Rita, First Gas San Lorenzo, and Ilijan, buy alternative fuel which are more expensive.

In 2013 Meralco’s media machinery tried to blame all of the P10 billion additional charge to the Malampaya shutdown and the shutdowns of many coal power plants that mysteriously went off line in the same period.  MSK’s analysis of Meralco’s power sourcing showed that the P10 billion additional charge was not only a result of Malampaya but the suspicious behavior of Meralco’s other power suppliers and the apparent market manipulation that caused the WESM market to shoot up to P62 per kwh.

These annual Malampaya hurricane has been hitting Meralco consumers since 2007 when the First Gas Power plants totaling 1,500mw started operations. And the ERC and the Meralco consumers have been dutifully approving and paying for them without question were it not for the mind-boggling amount in 2013!

This year the Malampaya shutdown happened from January 28 to February 16. Meralco applied on February 18, 2017  with  the ERC for an additional charge of P0.9174 per kwh for recovery of P2.4 billion in additional cost of alternative fuel used by the three Meralco suppliers using Malampaya gas. It turned out the actual fuel increase being claimed was P1.751 Billion and the ERC gave a provisional authority last March 6, 2017 for Meralco to start charging the consumers with a lower P0.22 per kwh additional charge for the first month compared to the original P0.30 per kwh Meralco was applying for.

Your association, MatuwidnaSingilsaKuryente Consumer Alliance Inc., entered its intervention in the application to determine if the additional charges are fair and reasonable and to look into the mitigating measures that Meralco has been taking to protect consumers from avoidable charges.

The first hearing was held last March 14 at the ERC main offices in Ortigas center, Pasig City. The 2nd one was held March 17 at 2pm.

We discovered during the hearings that Meralco is passing on the fuel differential for the whole month of January 26 to February 25, 2017 (30 days) instead of only for the period that coincide with the Malampaya shutdown of January 28 to Feb 16 (20 days). Asked during cross examination why there is no breakdown ,Meralco’s witnesses said that’s how First Gas and Ilijan bill them and they don’t ask for further details. They just passed on whatever is invoiced to them by the power generator.

My observations in the first two hearings.

1. Meralco’s nonchalant attitude towards the annual additional charge to consumers

Meralco was apparently not prepared to answer deeper questions on their mitigating measures to protect the consumers. It is clear that to them Malampaya surcharge of P2.4 billion is only a computational and passive exercise. Their culture does not seem to really take to heart their continuing mandate as a public services distribution utility franchise holder to protect the consumers and assure least cost power.

Well what can we expect from Meralco when it is doing business with its sister company?

2. Meralco’s lack of true mitigating measures to reduce cost to consumers of the annual Malampaya shutdown.

In the 2nd hearing last Friday March 17 at 2pm, a more senior lawyer of Meralco, Atty. Valles attended.  He tried to answer questions in ways that suggest that Meralco is taking measures to protect the consumers and not just passively passing on what their suppliers bill them as was admitted by Meralco’s billing and rates supervisors in the previous hearing of March 14.

Congressman Ted Casino of Bayan Muna asked Atty. Valles how they insure that the fuel being charged to consumers were competitive in the market and that there were no lower suppliers. Ted asked if their generators submit a canvass of the different suppliers of alternative fuel to Meralco. Atty. Valles this time said they receive such a canvass and Meralco studies it to see if they are satisfied that the prices are competitive.  Ted then asked Atty. Valles if they can submit copies of such procurement canvass for Alternative fuel and Meralco communications to First Gas and Ilijan of their approval or comment. Atty. Valles demurred and said return the documents to the generators and they don’t keep copies of those communications.  He also mentioned about confidentiality agreement between Meralco and First Gas. MSK argued with Mr. Valles that if Meralco wants to pass on these more expensive fuel to the consumers they must at least support the charges.

The ERC’s hearing officer Atty. Ivan Galura, instructed Atty. Valles to submit these supporting documents validating that Meralco indeed did something to assure the prices of alternative fuel are procured competitively to mitigate the costs to the consumers.  We assume that this validating document will be presented by Atty. Valles in the next hearing on March 27, 2pm.

Atty. Valles also said Meralco coordinates with NGCP and the other power generators on preparations for the Malampayashurdown.  He was vague though on whether such coordination included looking for mitigating measures to protect the consumers.

Atty. Valles presented a witness who made a presentation on the terms of the power supply agreement between Meralco and the Malampaya generators, First Gas and Ilijan.  In essence they were saying that they needed to run the 2,565mw of Malampaya power plants to assure there will be no brownouts in the Meralco area. They disclosed also that under the terms of the power supply contract that interruption in Malampaya fuel supply is considered a “force majeure” event and that the power generators can therefore buy more expensive alternative fuel to keep the plants running. Atty. Dimagiba of Laban Konsyumer Inc., another intervenor,  argued that the PMS shutdown of Malampaya is not considered force majeure as defined by law.

So far there appear only two mitigating measurers being taken by Meralco.   One is to spread the pain of the Malampaya additional charges by dividing it into three months. Two is that they sign for additional supply to cover the drop in the output of the Malampaya generators.

Your association will endeavor to introduce mitigating measures for the future to find a solution to protect the consumers since such does not seem to be coming from Meralco.

We will update you as things develop.  Next hearing is March 27 2PM at the ERC Offices, 15th floor Pacific Center, Ortigas Center Pasig.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Matuwid.org

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