The Supreme Court Decision was supposed to be a Consumer’s Checkmate on Meralco’s 7 Midnight PSAs….It Turned Out to be a Stalemate! Bummer! (Part 1)

David Celestra Tan, MSK
26 May 2019

Consumers and Cause Oriented Groups were overjoyed when the Supreme Court issued a decision last 17 May 2019 granting the petition of Alyansa Para saBagongPilipinas (ABP)to declare the extension of the CSP policy by ERC from November 7, 2015 to April 30, 2016 to be beyond its authority and therefore illegal and null and void. We all felt it is a major consumer victory and checkmate of the monopolizing Meralco.  Alas, Meralco power supply contracts will be subjected to true competitive selection process or bidding.No more negotiated contracts between sister companies! It is going to be a wonderful world for consumers! So we thought!

Sorry Aya, Sorry Noel, Sorry Neri, Sorry Meralco consumers.  I think we are wrong! When we read the full SC decision in GR No. 227670, there were odd things about it. Parts of it are out of tune. It is like listening to the victory song in Les Miserables and hearing the enemy marching in the background. Did the Supreme Court make a mistake?  We asked a retired Justice.  He said we may disagree with the decision, but the SC rarely makes a mistake in writing its decisions. It means whatever they wrote and the words they used are intended to be there. Just to repeat, the SC doesn’t make a mistake in writing decisions. Whatever is there is intended to be there.

Having said that, Lets talk first about the Great Things about the Supreme Court Decision.

1. It reiterated the constitutional obligation of the government agencies, particularly the DOE and ERC in protecting the consumers and promoting true competition.

“Section 19, Article XII of the 1987 Constitution provides: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

The State grants electricity distribution utilities, through legislative franchises, a regulated monopoly within their respective franchise areas. Competitors are legally barred within the franchise areas of distribution utilities. Facing no competition, distribution utilities can easily dictate the price of electricity that they charge consumers. To protect the consuming public from exorbitant or unconscionable charges by distribution utilities, the State regulates the acquisition cost of electricity that distribution utilities can pass on to consumers.

As part of its regulation of this monopoly, the State requires distribution utilities to subject to competitive public bidding their purchases of electricity from power generating companies. Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities.

Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution utilities”.

 It is a breath of fresh air!

2. It clarified that the function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued by the DOE.

“Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that the “pass through of bulk purchase cost by distributors is transparent [and] non-discriminatory. ”

“In any event, even in quasi-judicial cases, the ERC is bound to apply the policies, rules, regulations, and circulars issued by the DOE as the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA. To repeat, the DOE’s rules, regulations, and circulars issued pursuant to the DOE’s rule-making power under the EPIRA have the force and effect of law which the ERC is legally bound to follow, whether the ERC is exercising executive, quasi-legislative, or quasi-judicial powers.”

This is an important reminder because since the tenure of the 3rd ERC Chair, the ERC has been arrogating its stature as an independent body, creating its kingdom, co-equal even to the courts, and  free to write its own guidelines based on its own interpretation of the law. Many of those are contrary to the policies handed down by the DOE. 

It is this mind-set that apparently emboldened the ERC to ignore the Supreme Court ruling in 2005 that public service utilities should only be allowed a 12% return on their investment. They still adopted the PBR rate setting methodology that essentially deregulated the profits of distribution utilities which in Meralco’s case has been reaching 25% per year, double what the Supreme Court ruled was the limit. Never mind that the Epira Law of 2001 clearly says the Distribution Sector is regulated.

We hope with this new Supreme Court ruling on the limits of its discretion, the ERC can be more sanguine and usher in an era where both the DOE and ERC are pulling in the same direction.

At the same time we hope it will serve as a reminder to the DOE that they have a big responsibility to see that their own policies are actually implemented.

There are however Curious omissions and additions in the written decision of the Supreme Court

These are the things that are odd and sticking out like sore thumbs in such a wonderful and enlightened interpretation of the law.

Next: The omission and addition to the Supreme Court decision that would stalemate the DOE and the Consumers.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Advertisements

The Root Cause of Power Plant Shutdowns are not Technical But Contractual and Financial

2 May 2019

POSITION PAPER ON LONG TERM SOLUTIONS FOR STABLE POWER SUPPLY

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Submitted to:

The Joint Congressional Power Committee

Hon. Senator Sherwin Gatchalian

Hon. Carlos Uybarreta, Congressman, 1Care Party-list

Public Hearing May 2, 2019

Dear Sirs:

We thank the JCPC for this opportunity to contribute to the national debate on what to do to avoid power shortages that hound our country almost always before Christmas and before the summer.

The MatuwidnaSingilsaKuryente Consumer Alliance Inc or MSK is an association of Meralco consumers since 2011 dedicated to seeking regulatory and policy reforms to protect consumers from excessive electric rates that result from exploitive charges, anti-competitive behavior, monopoly, oligopoly, and contracting manipulations, and cartelization and negotiated sister company sweetheart deals.

Once or twice a year we are confronted by power shortages due to power plants supposedly shutting down due to mechanical problems and or need for preventive maintenance.
We would like the authorities to consider the following for the long term solutions to this recurring brownouts.

1. Who is responsible? Looking at the wrong alley, barking up the wrong tree.

First of all, we would like to make the observation that in the debate on who is responsible for insuring that power plants are reliably on line and do not mysteriously shutdown due to “boiler leaks”, there seems to be inordinate focus on the Department of Energy, who although the policy and rule making body and responsible for monitoring and encouraging power supply, is not the contracting party with the power generator.

In the power plants that shutdown, Meralco is not sufficiently being asked to take responsibility to assure that their contracted supply, whose negotiated costs are being passed on to its customers, are reliably providing the generating service. Meralco is the one with contract enforcement capability and obligation to the public who is ultimately the one paying for the service.

In these public hearings, Meralco seems content on sitting back and exploiting the power crisis to justify the approval of their seven midnight power supply contracts.
We appreciate the valiant willingness of the Department of Energy officials to take the heat for any power crisis. However, we will not find the long term solutions if we keep on looking at the wrong alley, and barking up the wrong tree.

2. Insufficient Reserve and Need for Additional power supply

We agree with the calls for additional power supply. But we disagree that it should mean the automatic approval of the seven (7) midnight contracts totaling 3,551mw that Meralco negotiated with its sister company Meralco Power Gen.

While it is not an ideal resolution, we call on all parties, JCPC, DOE, ERC, Meralco, the Supreme Court, the Alyansa Para saBagongPilipinas, the Bayan MunaMakabayan Group, to come together in the national interest and break this impasse for a reasonable and not exploitive solutions.

a) Let us allow the implementation of about half of those projects of 1,750mw to come on line in 2021 and 2022. But with moderation of the negotiated rates and any onerous terms. Atimonan One is now P5.65 per kwh not the P3.75 it was advertised, higher than the current Meralco coal suppliers. ERC needs to moderate this in a compromise resolution.

b) The others of 1,750mw can be subjected to a true CSP, some of them for LNG fueled power plants.

c) We also call on the JCPC and DOE to sponsor separately truly competitive biddings for supply for distribution utilities outside Meralco. Ideally One coal and one LNG even modest 300mw each for supply to non-Meralco distribution utilities. This will have the added benefit of establishing market tested price benchmarks as opposed to the negotiated rates that Meralco has been trying to justify.

d) We are asking the JCPC, DOE, and ERC, to recognize the reality that in bringing least cost power to consumers, “competition always beats regulation”.

3. True Root Cause of Plant Shutdowns are Not Technical but contractual and financial

The additional supply will however still not guarantee that there will be no power shortages resulting from the unfortunate confluent shutdowns of power plants. Technical shutdowns are only symptomatic of the true reasons for the problems which is contractual and financial.

a. Contractual and Financial causes of shutdowns
Current power supply agreements provide for allowable downtimes per year of a total of 45 to 60 days. During these period, the power generators continue to be paid their capacity fees consisting of capital recovery and fixed overhead. This contractual arrangement therefore offer no financial benefit for the power generator to avoid or minimize downtimes. In fact it is to his convenience and financial benefit to maximize his allowable downtimes. This is an outdated provision from the BOT era in which we no longer are. BOO napotayo. (build operate and own).

And when the buyer (DU) and the seller generator are sister companies or business partners, we can predict it will be the customers who will be sacrificed.

Under this contractual provision, there is no reason for the power generator to make the needed investments to make his plant reliable and honestly avoid downtimes.
The result is these brownouts and it will not change unless this financial incentive and convenience is taken out.

b. We propose that the rate of the generator be restated to include compensation for downtime so that he will be paid only when his plant is available on line to provide the service. Some people will say it will increase the rate since the annual capacity fees will be spread over 10 months instead of 12. The average true cost to consumers would be the same.

c. Looking at the Meralco generation rates, customers are charged P5.40 per kwh during the operating periods of the coal plants, but are charged P7.00 to more than P10 per kwh during months with maintenance shutdowns. In the period from July to December 2018, Meralco had paid these coal plants as high as P18 per kwh which indicated that they were on maintenance shutdowns. So here we are in April and those plants are still down for maintenance? (see matuwid.org and Meralco website data)

d. The added capacity payments for downtimes however should only be for half of the 60 day downtime agreement because the generator and the consumers should equally share in the risks of downtimes. Why should the consumers absorb all those costs?
It will not result to higher true cost and will have the benefit of the generator being paid only when he is providing the service. No more incentives for being down.

e. Allowable downtimes should only be a legal excuse from delivering the contracted power service. However, it should not be used for guaranteeing capacity payments to the generator whose power plant is down. This is most unfair to the consumers and encourages downtimes.

We call on the DOE and ERC to consider this “no payment during downtime policy”. This is actually not being anti-generator but more like being fair to the consumers.

Until this is corrected, mysterious and confluent shutdowns will continue to hound the country.

We wish the JCPC more power in its search for solutions. We hope the JCPC, DOE, and ERC, will look into these proposed solutions.

Sincerely yours,

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

David Celestra Tan
Co-Convenor

Evelyn Viray Jallorina
Executive Director

matuwid.org
david.mskorg@yahoo.com.ph