Why is MSK Petitioning ERC for P29 B Meralco Refund due to Windfall Revenues from 2013 to 2018?

David Celestra Tan, MSK
9 January 2020

Your electric consumers’advocacy group MatuwidnaSingilsaKuryente Consumers Alliance Inc. (MSK) filed a petition with the Energy Regulatory Commission for a refund of P29.6 Billion for over recovery of allowed annual distribution charges to consumers from 2013 to 2018.

Meralco’s current rate was computed in 2013 and was based on lower energy sales of 30.61 Billion kwh a year and an annual growth of 3.5%.  Meralco sales have been growing at an average of 6.78% per year in the last 9 years, resulting to windfall revenues of an estimated P29.6 billion up to 2018.

Over recovery refers to collections or charges made by a regulated utility like Meralco of more than what was allowed or intended by the regulators ERC.

This excess recovery is separate from the PBR rate setting methodology that determines the Annual Revenue Requirement (ARR) which is the total revenue Meralco is allowed to make from consumer distribution charges after considering its expenses, investments, and allowed return. This ARR figure is then translated into a per kwh rate by dividing it with a projected annual kwh sales. The quantity projection is equally important because it determines the per kwh rate that Meralco is allowed to charge consumers. But it is not an object of careful methodology much less public consultations by ERC.  If the projected energy sales is too low, the resulting per kwh rate is higher than intended. Under the current PBR method, the actual recovery of Meralco is determined every regulatory period of four (4) years and adjustments are made for over and under recovery.

The current rate of P1.38 was for the third regulatory period that was for July 2011 to June 2015 and based on a forecasted sales of 30.61Billion kwh for 2013. Based on a 3.5% annual growth, the current Meralco rate would be valid only if the sales of Meralco for 2018 is 36.005 Billion kwh.  But their sales for 2018 was 44.31 Billion kwh or higher by 8.31 billion kwh resulting to P11.46 billion windfall profits for that year alone. If we allow that 50% of that should cover increase in legitimate operating overhead, there is at least a P5.73 billion over recovery for 2018 alone.

MSK’s analysis of the utility’s annual financial reports show Meralco’s operating overhead increased from only P21.7 billion in 2009 to P26.699 Billion in 2010 when the current owners took over from the Lopez group or an unprecedented 22.61% increase. The following year 2011 their operating expense increased another 21.48% to P32.434 billion. That is a cumulative increase of 45% for the two year 2010 and 2011 and followed by another 15% increase in 2013 to P36.111 billion. Despite these expense increases Meralco’s robust energy sales increases still caused undeserved profits in the billions per year.

Further, it appears that the current distribution charges per kwh for the 3rd regulatory period erroneously used a projected sales for 2013 of only 30.61 billion kwh which is the “FQ” value in ERC approval 2013-056 RC, Meralco’s actual sales for that year was 36.11 billion resulting to windfall revenues of 5.5 billion kwh for that year alone. At a rate of P1.38 per kwh that was an over recovery from the divisor alone of P7.59 billion for 2013.

In MSK’s petition, it is asking ERC to immediately order a provisional refund of at least 50% or P14.84 Billion while it is determining the true extent of over charges and due interests for 2013 to 2018.  It is unconscionable to allow Meralco to continue enjoying the use of the excess charges for their corporate benefit and to the disadvantage of the consumers.

In our petition MSK asked ERC to investigate why in computing the per kwh rate under ERC Case 2012-054 RC,  the regulator only used 30.61 billion kwh annual energy sales shown as “FQ” value in the approved formula, when the actual energy sales of Meralco during that year was already 34 billion kwh? It appears the Annual Required Revenue approved for that year by ERC was P44.24 billion which was divided by the FQ value of 30.61 billion kwh, resulting to a per kwh rate of P1.38.  Had they used the correct energy sales of 34 billion kwh, Meralco’s per kwh rate should have been P1.3012 per kwh. There has been an excess charge of P0.08 per kwh.

In addition to this P1.38 per kwh regular charge for the 3rd regulatory period of 2013 to July 2015, the ERC also allowed Meralcoto charge a supposed under recovery for the 2nd regulatory period of P24 billion equivalent to P0.15 per kwh, resulting to the total kwh distribution rate of P1.55 per kwh.

These are no minor discoveries that a government agency that is specifically tasked by law to look after the consumer interest like the ERC should show concerned interest.  Instead on December 5, ERC actually blocked MSK’s first attempt at just submitting the consumer complaint. An ERC lawyer just decided that she did not want to allow MSK to file a petition allegedly because it is a rate case that has pre-filing requirements. First, it is clearly a consumer complaint and not a rate case. Consumers now need to meet complex documentations to file a complaint with the ERC?  Why was this lawyer including the receiving clerks at the docket office whose job is it to only accept petitions, pre-empted the commission in the adjudication of complaints?

The Honorable Commission probably was not aware that their people downstairs are doing this to protect Meralco? Is the regulatory capture of ERC that pervasive that the agency is subservient from Top to Bottom? What will it take to remind them that they work for the people and the EPIRA law that created them, the ERC, specifically mandated them to protect the public interest? (We are happy to report that the security guards at the ground floor and on the upper floors did not stop MSK from entering the building)

These never ending over charges are getting out of control and must be reduced by the ERC before they become so big that Meralco will no longer be able to refund them once Meralco had already declared them to be legitimate profits and already repatriated them as dividends to their foreign controlling stockholders? Consumers will be the losers. Should this not be a concern of the ERC?

The current drafts of the continued implementation of the PBR rate did not show that the ERC is aware of the erroneous and outdated energy sales projections and the consequent windfall profits in tens of billions that Meralco is allowed to overcharge the consumers. We thought maybe the new Commissioners of the ERC would welcome this input and discovery of MSK. We are not trying to betheir adversary, much less a nuisance. In fact we should be on the same side protecting the consumers.

We trust that the ERC will give similar urgency to protecting the consumers from excess charges as they do when Meralco asks for rate increases. If there are onerous contracts, this is an onerous computational methodology with similar major improper charge to consumers in the multi-billions…..per year.

This anomalous and onerous situation is on going for almost a decade. Let us not look the other way.

Please.

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

True Competition in Power…. Our Simple But Very Elusive Dream

David Celestra Tan, MSK
29 December 2019

The supposed aim of the EPIRA Law was simple enough. To assure sufficient supply of power at fair and reasonable costs. To achieve that, it is supposed to create true competition to give consumers the benefits of least cost.

Agreeing on that general objective turned out to be the easy part even at the legislative bill’s birth as the Omnibus Power Bill.

To create true competition, it is supposed to privatize the power sector that had been a government monopoly, unbundle the industry into five sectors, deregulate it where there will be competition in each one. To insure that it will work, the Energy Regulatory Commission was created and supposedly strengthened with motu proprio mandate to protect the public interest, i.e. insuring that there is true competition and the consumers receive least cost power. The Department of Energy was tasked with providing the policy direction towards those aims.

It is the how that became a battle of vested interests. And the reason the bill took more than six (6) years to complete and pass in June 2001. By that time though, the law that was finally named The Electric Power Industry Reform Act of 2001 (EPIRA for short) or Republic Act 9136 was so full of loopholes to accommodate the all out lobbying of the vested interests, mainly Meralco.

Cross Ownership

The first battleground provision was on cross ownership where clear minded legislators wanted to prohibit any cross ownership among the three main sectors, generation, transmission, and distribution. This was thought to be critical to creating true competition.
A powerful Mindanao Senator quietly negotiated cross ownership to prohibit only between the Transmission Company and the power generation and distribution. There can be cross ownership between a distribution utility and generation companies which found its way in the law as Section 45, the most hypocritical, inconsistent, and deceptive provision of the law.

The senior Senator Juan Ponce Enrile was totally against cross ownership because he knew its implications to true competition but he compromised once he realized the law will not pass unless the vested interests and their allies get their way. In fact, Senator Enrile proposed only 30% of its power requirements that a DU can buy from an associated generating company. Meralco itself had been lobbying for 35%. In the last two days of finalizing the Epira Law, it magically became 50%! Worse, it is 50% of the DU’s demand, not also energy requirement. A subtle but big difference. Even the Senator was surprised.

I am not sure whether even Senator Enrile and the Osmena cousins imagined that this opening can spawn the creation of not only an 800-lb gorilla in power distribution but also an 800lb gorilla in power generation.

Essentially, the government owned power generation monopoly will be taken over by a private power generation cartel who has the added advantage of having also the distribution monopoly, something even the government monopoly did not have.

Cross ownership prohibition would have insured that even if there is an 800lb gorilla in distribution, there would be enough 200 to 400 lb gorillas in generation competing healthily against each other to reduce the pass on generation charge to the consumers. The distribution charges even by an 800-lb gorilla are thought can be regulated by an ERC. (Or so we thought)

In June 2015 the Department of Energy passed a rule mandating the subjecting to Competitive Selection Process (or bidding) the procurement of power supply for the captive markets. It is amazing to see most distribution companies, Meralco and even electric coops in the off-grid areas, continue trying to play games to control who wins at what price. Everyone is trying to outsmart true competition.

The Simple Dream of True Competition will remain to be very elusive until the ERC Shares the Dream.

The several versions of the ERC’s new CSP guidelines prominently included loopholes for swiss challenge, unsolicited proposals, and exemptions for negotiated contracts. So far it had held in abeyance its supposed new methodology in computing the concentration of generating capacity to determine compliance with market domination limits. We have yet to see a new commitment to true competition.

 

It is a new year. Another year to hope.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

An Uncontrollable 800-Lb Gorilla in Distribution like Meralco is Disruptive of Social Order.

And What They are Trying to be is Even More Menacing.

 

David Celestra Tan, MSK
23 December 2019

An American riddle goes:  “Where does an 800-Lb Gorilla Sit?  Answer:  Anywhere it wants to!”

“800-pound gorilla” is an American English expression for a person or organization so powerful that it can act without regard to the rights of others or the law. It is so powerful (either by size or by influence) that it does not need to heed the rules or Threats of others.

In American economy a dominant organization that can overpower competition and government is called an 800-Lb Gorilla. It dictates on the market and stumps on competition and many times even captures government regulation. American free enterprise on which the Philippine economy is patterned is founded on a truly functioning market competition to protect the consumers. And it frowns upon 800-lb gorillas.  It is vigilant on anti-competitive behavior and has a strong anti-trust legislation. When AT&T became so big as to dominate 70% of the telecom sector, they broke it up into baby-bells. In recent years they investigated Microsoft, Apple, Amazon, and Facebook for anti-competitive behavior.

In our country, Meralco as a distribution utility is no less dominating as the proverbial 800-Lb Gorilla. They serve 74% of the energy needs of Luzon and about 65% of the whole country. Its mega-franchise covers Metro-Manila and the National Capital Region, 36 Cities, 75 municipalities, the nerve center of the country’s economic, industrial government, and education activity.

To feel the imposing dominance of Meralco as a distribution utility, all of the country’s 138 electric distributors combined is not even half the size of Meralco’s 7,399mw, fully 68% of the 10,876mw demand of the main island of Luzon. And it is also the fastest growing at an average of 6.8% in the last 9 years. This is probably faster in 2019 when the POGO’s and business process sectors boomed in Metro-Manila.

Meralco’s mega-franchise area is bigger than the service areas of Manila Water and Maynilad Water combined!  And it is not just the  imposing size but the demonstrated voraciousness in the pursuit of self-dealing opportunities that makes it menacing.

Meralco’s financial might is just as overpowering. Its market cap is P428.3 billion, Annual revenues of P304.5 Billion, EBITDA of P37.2 billion, net income of P23.0 Billion, and cash resources of P36.42 billion. One call from Meralco and the banks shiver if its deposits are pulled out. One complaint from Meralco threatening to pull out their groups multi-million advertising can turn newspapers into pussycats. And don’t forget that we have elections every three (3) years.

Their annual advertising budget and regulatory compliance resources exceeds P500 million a year, ironically approved by the Energy Regulatory Commission and charged to the consumers as part of the PBR rate.

So, “How much does Meralco charge its customers?…. Whatever it wants to!

The Performance Based Rate making method allowed by ERC enables it to make  25% return on investment a year. It makes money on projected investments that it did not have to make.  Most of its power supply are negotiated. It tried to get away with 3,551mw of self-negotiated power supply with its own Meralco PowerGen with the gratuitous facilitation of the regulators who are supposed to protect the consumers. They almost got their way.

How much money can it make? ….. How much ever it wants to! 

As said so far they are making 25% per year. Their systems loss charges are essentially non-transparent charging Metro-Manila residents almost 10% above their 7.5% average and same as the outlying towns.  Their distribution charge is supposed to be P1.38 per kwh. But look at your bill if you consume 400kwh and more just like half of the consumers, and it is P2.98 per kwh. Meralco and ERC claims it is due to reallocation of the rate among different consumer classes. But it defies mathematical logic how an average of P1.38 per kwh will result from a high of P2.98 charged to a big portion of the residents and business establishments in Metro-Manila and the lowest is P1.01 per kwh.

What competitive rules does Meralco want to follow?…. Whichever it wants to!

Now rebuffed by the Supreme Court, it wants to do the CSP in its own way anyway. It managed to get a friendly version of the CSP guidelines passed in February 2018. Now it is resisting any form of safeguards that the DOE Secretary Cusi wanted on the CSP for the 1,200mw Atimonan coal project. The ERC for its part tried to get the DOE to adopt another Meralco friendly version of the CSP guideline. (Curious). 

Who does Meralco need to capture to assure he gets his way?… Whoever he needs to!

After being turned down in January 2016 by the then new ERC Chair Salazar to allow them to do CSP on swiss challenge basis, the ERC Commission apparently eventually gave in to Meralco in March 2016 for a friendly CSP and extended the CSP implementation to April 30, 2016. The consumer group Alyansa Para sa Bagong Pilipinas cried foul and complained to the Supreme Court, who found ERC guilty of extending the CSP without authority and ordered Meralco to undertake a CSP under a DOE CSP rules DC2018-02-0003. It appeared Meralco was ahead of the game. The DOE DC2018-02-0003 it turned out was very friendly to it with Meralco having full control of the CSP process.  And the DOE? It was relegated to being an “Observer”under Section 7 who cannot participate in the deliberations and needed to be invited by the DU to even become an observer. Do you think the DOE Guideline DC2018-02-0003 just happened to be everything Meralco wanted if it has to do a CSP as subsequently ruled by the SC? 

What does Meralco need to do to capture the regulators?… Whatever it needs to?

I guess there is no need to discuss the obvious. With so much multi billions a year at stake, resources, overpowering organization, culture, tenacity, and public information control, it can do whatever it needs to do maintain its firm grip on the evident regulatory capture, administration by administration.

How much of its 7,399mw power supply does it need to buy from itself? However much it wants to!

That’s what they are trying to do.

An 800lb gorilla would disrupt the country’s social, political, governance, moral, and economic order.

It is however not totally the evil deeds of Meralco. As a profit oriented private company, it is in its DNA to try to exploit opportunities to make money…as much as the rules (or implementors) are allowing. It is even possible that all these profit exploitations they are doing were presented to them to be legitimate earning practices by the people who sold the DU to them as part of the “sales pitch”.

It is really up to the regulators and policy makers to keep things under control and protect the consumers from being abused. Since 2001 when the Epira Law was passed however we have had eight (8) Energy Secretaries and six (6) ERC Chairmen, with no sign that this regulatory agency is starting to extricate itself from the firm clutches of regulatory bondage by Meralco. There is no argument that so far these government agencies have failed the public. That said, even when the opportunities are there, it doesn’t mean a franchised public service provider should exploit and abuse the vulnerable public if the policemen are not there to protect them. You don’t exploit the opportunity just because it is there. But then we cannot rely on the moral compass of the people running it.

We should really be able to rely on our regulators and policy makers. After all the Epira Law of 2001 that created them was very clear on their motu proprio responsibility to protect the public. We are just not implementing them with public interest in mind.

This is where the socio-economic disruption of an 800-lb Gorilla becomes menacing to consumers and governance. It is too uncontrollable…and irresistible.

What is even worse than having an 800-Lb Gorilla in Distribution?  Allowing another 800-lb Gorilla in power generation as is the evident corporate aim of Meralco PowerGen.

Ever wonder why industrial giants and fierce competitors like Ramon Ang of San Miguel, Aboitiz Family, Metro-Bank, DM Consunji, Ayala Group, Lopez Group, EGAT of Thailand, knelt down and commiserated to MV Pangilinan of Meralco to become his minority partners in the infamous 4,005mw midnight power supply contracts?

Because Meralco controls the market for power, the 800-lb gorilla of power distribution, they are essentially the gate-keeper to the power generation industry.  They are not only the 800-Lb Gorilla, there is no one even close to being a 150-Lb Gorilla. The two 2nd and 3rd biggest are The Aboitiz group’s Visayan Electric in Cebu only has 500mw and Davao Light has only 400mw.

Anyone who wants to build a power plant in the 300mw and above range will need to

Gain access to the huge Meralco market.  San Miguel saw it, Aboitiz knew it. Metrobank did too and sold its Global Business Power 1,000mw portfolio to the MVP group.

You cannot blame EGAT because they enjoy the most expensive coal power price that are passed on to the Filipino consumers. And their 460mw expansion that became San Buenaventura was reportedly originally offered at P4.80 per kwh and became P5.30 per kwh (10% higher) and became owned 50% by Meralco PowerGen.

The Ayala Group? They also saw it but was left out of the Meralco cartel. They sold their stake in GN Power to Aboitiz and decided to go “clean” energy. So does the Lopez Group which is now concentrating on natural gas.

Even the supposed solar energy initiative of Meralco in Bulacan turned out to be controlled by the MVP Group.   How much of the Solar Philippines agreement with Meralco will end up being owned by the MVP Group? Only time will tell.

Not many people realize that had the 3,551mw midnight 7 PSA’s gone through, it would have created a 14,000mw coal power cartel because the five (5) Meralco Powergen partners already owned more than 10,000mw of coal power plants in the country. This is Meralco imposing its will on the DOE and the President on the country’s energy mix and climate change goals.

We are sure at some point, Meralco media operators will claim that Meralco’s 4,005mw (including San Buenaventura) would be less than 50% of Meralco’s demand by the time they come on line in 2025. Unbeknownst to most people is that the 4,005mw actually represent 65% of the energy (kwh) needs of Meralco, way over the 50% allowed by Section 45 of the Epira Law.

How can it get away with it? Of course you can if you have been allowed to be the 800-Lb Gorilla in distribution and if also allowed to become the 800-lb gorilla in generation.

How will the electric consumers be treated by an 800-lb Gorilla? Anyway it wants to!

What’s unfortunate is the Epira Law for all its imperfections has enough provisions that can protect the public if used by an enlightened government. Yes, even by ERC. In fact it can easily shrink that 800-Lb gorilla to 600-Lb and be not as menacing. And the cards are there to further shrink it to a healthier 400-Lb Gorilla that will be more respectful of us the consumers.  

It will be sad if it is not done under the current government. We hope that at some point we realize that electric power service is about public service.

As we say in MSK, if not now when? If not you, who? 

Happy New Year!

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Whats Wrong with Meralco’s Atimonan One Project And How to Resolve it

David Celestra Tan, MSK
18 December 2019

Whats Wrong with Meralco’s 1,200mw Greenfield CSP?It is not that they specified Super critical high efficiency and low emission technology.

And it is not that there was no one else who submitted a bid other than Meralco’s own Atimonan One Energy and that the bid was declared a failure.  Neither is it that another failure of bidding will give Meralco the right to negotiate the contract with its subsidiary MeralcoPowerGen!

It is that Meralco and its supposed TPBAC never really gave legitimate competitors a chance to even consider the bid adequately and to compete.It looks and smells like manipulation all the way and it just stinks! One wonders if these guys really think Filipinos are so stupid they will not see a caper three kilometers away?

Atimonan One is a 1,200mw coal power project that is one and the largest of Meralco’s seven “palusot” negotiated power supply contracts it hurriedly signed in April 25, 2016 that the Supreme Court later ruled needs to be redone to comply with the Competitive Selection Process policy of the DOE.

It is also the first of the seven that Meralco is trying to do a remedial CSP. The first 1,700mw they bid and signed are for immediate needs that were not part of the Midnight 7.

In early July 2019 Meralco tried to slide the Atimonan One CSP through under the urgent projects umbrella of the 1,700mw that will be needed only a few months later or December 2019. With only one week to buy bid docs and 40 days to prepare a multi-billion dollar bid, no one else submitted a bid other than Meralco’s own Atimonan One Energy (and the other players, in the evident charade, backed out one by one).  As apparently expected or hoped for, the 1,200mw CSP was declared a failure. One more such exercise and failure, and the multi-billion project would be negotiated according to DC2018-02-0003 and the proposed ERC CSP guideline. Except, DOE Secretary Alfonso G. Cusi refused to play along the evident inclination of his bureaucracy, and steadfastly put in some consumer safeguards, things that it appears Meralco is not willing to follow.

Many of the things surrounding the 1,200mw CSP just did not make sense. Since it is now clear that Meralcodoes not really need the greenfield power plant until late 2024, they could have allowed 150 days to prepare a bid. Even 120 days. Had Meralco done that in July 2019, they would already be close to awarding to Atimonan One by this month. And the winner would still have five (5) years to build the plant.  Had Meralco allowed reasonable time, even if only Atimonan One Energy ended up as the lone bidder, it would probably be not as repugnant.

Talking about time, to put this into perspective, Meralco had known as early as 2014 that the DOE intended to require CSP. Why did they not fast track negotiated projects then? Why did they not file with the ERC by November 7, 2015?   Instead they spent all their time lobbying for the rules for CSP to be voluntary. For it to have a right to swiss challenge, all mechanisms for rigging.  Now it has been 6 years and they have not contracted for new greenfield projects. Is it the law or their desire to circumvent them?

(On the subject of CSP rules, one wonders why to this day, elaborate rules on swiss challenge biddings, unsolicited proposals, and allowable negotiations  kept on showing up in the ERC’s draft rules of CSP?)

A Way to Move Forward in the Public Interest

In all this conundrum we must not forget that in the end it is the public interest that should be primordial.

One way forward for the 1,200mw Atimonan One power plant is to make it part of a package solution for say 2,400mw greenfield power projects that would be more open and balanced. Atimonan One by itself can be unpalatable. But if it is made part of a whole package of power supply that can benefit the public in supply and least cost overall, there would be a net good effect on consumers.

And what are those?

Let us say Meralco and DOE agree for Meralco to hold a CSP for a total of 2,400mw of greenfield projects on open technology including this Supercritical HELE coal technology they like and natural gas. Four(4) power blocks of 600mw each.All due in 2023 and 2024. MeralcoPowerGen would be allowed to win only two of the 600mw projects If they are the lowest.(remember Section 45 of the Epira law allows them anyway to contract only up to 50% of their demand from an affiliated company generator).

Meralco should not have a problem winning two of them since they claim Super HELE is efficient, i.e. with lower fuel costs, and they have had at least a five (5) headstart against competitors on project development. All the bidders would be offering updated costs of the latest technologies since they are all greenfield projects.

This would most likely result to a win-win scenario where Meralco wins two 600mw packages totaling 1,200mw and other generators winning the other two 600mw of say natural gas. Meralco gets what they want and the consumers get a more diversified and cleaner power supply in natural gas.  Still better than an all-coal power supply originally negotiated by Meralco.

Somehow we have to get out of this impasse on the CSP activities of Meralco. Let us not wait until a power crisis is created and the people are  forced to swallow the bitter pill of self-negotiated emergency power supply….at any price.

One thing that will help now is for the DOE to come out with a clear position on the Guidelines for CSP. Are they coming up with a more enlightened one than DC2018-02-003?

Let us hope pushing the country to a power crisis is not plan B for these big guys.

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

TRAITORS OF OUR TIMES – IN THE POWER SECTOR

David Celestra Tan, MSK
8 December 2019

To say that the current Philippine power sector is a mess is an understatement. This supposed privatized and deregulated power industry is so only in form and pretention. Even before they finalized the EPIRA LAW that launched it, it already betrayed the ideal that all these are being done for the public interest, for the sake of a stronger and more competitive Philippines.

I have been in consumer advocacy for almost 10 years although my power projects were advocacies by themselves. I meant to retire in 2010 and just like anyone had this desire to give something back to the community. And You try to give back your god given possession that can have the most value to the most people. I just happened to see all these from a special vantage point at various stages.

I thought the perspectives were unique and wanted to leave for posterity those power industry insights. We have had successes in power reform but mostly frustrations because you always run into traitors – both the perpetrators and the facilitators. You keep on wondering why and why the Filipinos deserve this kind of treatment from its own people.

I guess we can say that my consumer advocacy is Part 2 of my involvement in power policy and deregulation. Born out of human desire to see the next chapter after being part of writing Part 1 and to help if you can in implementing them correctly, trying to explain and shedding light on any aspects that have become muddled by the vested interests or just the confused interests.

TRAITORS OF THE EPIRA LAW

Republic Act 9136 or the EPIRA Law of 2001 is a very Filipino type of legislation and national policy. It is replete with good aspirations for the public interest, for least cost power, for anti-monopoly and anti-competitive behavior. In fact the best part and the best of the Filipino is contained in Section 2, Policy of the State, where all the wonderful things the Filipinos can wish for in an electric power industry reform act (EPIRA) are just gorgeously written. But then just a few chapters in, you know that the law has been pulled towards different directions, many times actually betraying the very aspirations they so wonderfully set in Section 2.

That policy making and implementing formula remain true today. You read most of the DOE and ERC Circulars, Guidelines, and  resolutions.  They all start by enumerating the ideals that they are supposed to achieve, evidence that these bureaucrats knew what they are supposed to accomplish, but then proceed in the next part for implementation in ways that are totally inconsistent, directly contradict itself.  You feel like the first part was written from the heart and the second part written from the pocket. A smart alec friend of mine said the first part is supposed to make the public feel at ease and trusting at the noble and erudite ideas of the authors and once you drop your guard and done bother to read the rest, they got you and they try to get away with their real agenda. I can’t help but agree.

There are so many traitors in the writing of the Epira Law

1. The guy who watered down the original aspiration to totally ban cross ownership among the three main power sectors – distribution, transmission, and generation. They succeeded in redefining cross ownership to only between Transco and the rest and in fact bannered their conquest by titling Section 45 as cross ownership and anti monopoly. A lot of what ails the industry and working against the consumers are the evils of monopoly and market domination that emanated from this betrayal.

2. The guy who in the last minute allowed under Section 45 for distribution utilities to contract up to 50% of its power needs from an affiliated company. Even the big guys up to that point were lobbying only for 35%. This ushered in the era of negotiated power supply contracts that will terrorize the consumers for at least the next 15 years.

3. Not satisfied, the guy who marginalized safeguards on market domination of the power generation sector by writing a watered down Rule 11 of the implementing rules and regulations of the EPIRA law, contradicting the main law that it is supposed to implement. And the TWG and the Secretary of Energy who oversaw the writing of the EPIRA IRR. Whoever did this must be hunted down and tried for big time treason. If Meralco is blatantly trying to dominate 100% of its power requirements into the next decades, it is because they can do so under this effete Rule 11.

4. The group who superseded the EPIRA LAWS provision that the rule making function of the transmission system that is called “systems operator” must be retained by the government owned Transco. Instead they allowed that transmission policy making and rules be transferred to the concessionaire and operator of the transmission system. Do you even privatize rule making functions that affect the public interest? Systems Operator is not the same as operating its system.It is akin to privatizing the justice system or the legislative system? Certainly with that kind of license to print money, the NGCP concession became very valuable.

5. The guys who put in the provisions in the EPIRA law that will pave the way for the adoption of the PBR, the reviled performance based rate making. The consumers were doomed even while the EPIRA Law was still being finalized in the first half of 2001.

Imperfect Law Imperfectly Implemented

It has been a double whammy against consumers. The imperfections of the Epira law need not be imperfectly implemented. With a good heart Loopholes can be closed or tightened. The EPIRA law for all its imperfections are so flexibly written that the implementors like the DOE and mainly the ERC could have executed them in ways that nonetheless safeguard the public interest.

Where art thou JCPC?

It has been for 19 years going badly for consumers. All we have is the opposite. We have atrociously high rates, monopoly, non-competitive markets, and undependable power development.  The promises of the EPIRA law only happened in shape and ritual. None of the genuine ideals of stable power supply and least cost power.

Actually there are structurally several levels of oversight to insure the corrective action is needed if the EPIRA Law is not achieving its stated goals in Section 2.

But a sign that we the consumers seem to have been left to the wolves is the invisibility of the Joint Congressional Power Committee that is supposed to be the last line of oversight over the effectiveness of the EPIRA and any needed updating.  The last interaction I had with anyone from them they said they don’t have any budget.  Or were they incapacitated intentionally so they don’t spoil the apple cart of the big buys?

Kawawa naman tayo. Or Kawawa lang ba tayo kung naiintindihan natin na kawawa tayo?

The TRAITORS? Or CONQUERORS?  Nahh I am not going to name them. There are so many. But don’t worry. We will try not to get deterred.

let us hope and pray for our Camelot or sky walker. A Duterte for the power sector wars. Or just get used to feeling sorry for ourselves….as you pay your bill because your power is about to get disconnected.

MATUWID NA SINGIL SA KURYENTE CONSUMER ALLIANCE INC.
matuwid.org
David.mskorg@yahoo.com.ph

HEROES OF OUR TIMES – IN THE POWER SECTOR (Part 2)

David Celestra Tan, MSK
29 November 2019

Part 2

3. Ex ERC Chair ZenaidaDucut (And Former ERC Executive Director Nino Juan)

Surprised?

We the consumers were not really happy with Ex Chair Ducut for most of her tenure. Mainly she failed to usher in the kind of reforms at the regulatory agency that will protect the consumers. She hesitated to correct the injustices of the systems that were put in place by her politico predecessors.

But she and her “ED” tried to do something right and correct one of the great travesty’s of the implementation of the Epira Law, just before they left the Regulatory agency in 2015.

Why are Meralco and their partners trying to corner the power supply contracts to the Meralco area for the next decades? Because they can.

This is courtesy of the humongous loophole engineered by their powerful lobbyists when the Epira Law’s IRR (implementing rules and regulations) was passed in 2003 where they successfully watered down  the EPIRA laws Section 45 that mandated to promote competition in power generation and avoid concentration of ownership of the power plants by limiting the ownership, operation, or control of power plants that can be owned by an entity and their affiliated companies to only 30% of the regional grid and 25% of the national grid.  Mathematically it means there would be at least four (4) generating companies that will compete in each area, thought to be sufficient to create beneficial competition for consumers.

This betrayal came in the form of Rule 11 of the EPIRA IRR that loosened the restriction of concentration of power generation facilities to only “control” instead of “ownership, operation, or control” as required under Section 45 of the EPIRA Law. 

Blindly using Rule 11 as guideline, the ERC for its part had been determining and announcing every year the maximum limits of installed power generating capacities and no one had been in danger of breaching the limit. We believe that at some point they also realized that by using only “control” they are not implementing correctly the requirements of the EPIRA Law itself which clearly included three criteria which are “ownership, operation, or control”. They also noticed that power generation groups were just forming partnerships and joint ventures to circumvent the “concentration” limits.

(Why all three criteria? One of the aims of the Epira law is to create a truly functioning market competition where power plants cannot manipulate the availability and pricing of their power output. An owner, operator, or controller of a power plant are in positions to influence the availability, withholding, and pricing of power. Do we wonder why plants owned by those who will benefit from spikes in WESM prices have their plants go conveniently off-line at the same time? Thus all three must be restricted)

If Meralco is determined to monopolize the power generation sector through its own Meralco PowerGen, it is because they can under the treasonous Rule 11 of the Epira IRR. And they evidently knew this when they bought Meralco.

Why can’t they be happy owning 100% of the 50% power supply they are allowed to contract with a sister generator by Section 45 of the EPIRA Law and instead would want to after owning 50% of the 100%? Hint, because they can rent seek on the whole 100%. 

Former ERC Chair Zenaida Ducut and her ED Nino Juan evidently knew this also and that it is against the public interest. So they tried to make amends to the consumers before they left. After months of staff work, on October 13, 2015 the ERC posted its draft new guideline inviting public comments as ERC Case No. 2015-005 RM.

“GUIDELINES FOR THE DETERMINATION OF INSTALLED GENERATING CAPACITY AND ENFORCEMENT, OF THE LIMITS ON CONCENTRATION OF OWNERSHIP, OPERATION OR CONTROL OF INSTALLED GENERATING CAPACITY UNDER SECTION 45 OF REPUBLIC ACT NO. 9136″.

“The proposed amended Guidelines, on the other hand, provides that in the determination of the Generation Companies’ market shares and potential breach of the 30% and 25% market share limitation, it shall be separately determined based on three (3) separate tests, as follows:

    1. Ownership test;
    2. Operation test; and
    3. Control test.

The generation company and its related group, if any, should comply with all the above mentioned tests. In the event that the generation company exceeds the limits in either of the tests required, the ERC shall consider the same as a breach of any of the market share limitation. If a generation company and its related group exceed the limits as periodically determined and set by the ERC in accordance with the Guidelines, it is obligated to inform and report such breach and the reason therefor to the ERC within the prescribed period from the occurrence thereof.

Thus, the Commission seeks the comments from the various industry stakeholders on the proposed amended Guidelines pursuant to Section 4s(a) of RA 9136.”

While the draft revision did not go far enough, it would have been a big step forward towards correcting the legal infirmity of Rule 11 but also the control of market concentration and domination.

Then the Darth Vader of the CSP Saga Ex ERC Chair Salazar waved his lightsaber and just like that the wonderful magic module vanished, frozen into outer space.

On that fateful day and session on March 15, 2016, when Salazar’s ERC postponed the implementation of the CSP by more than five months, they also quietly “held in abeyance” the rules on the determination of market concentration by passing Resolution 3 of 2016. According to the Alyansa para sa Bagong Pilipinas, the two actions were interrelated because the new contracts that will result from the CSP extension will run counter to the limits of the new rules on concentration of installed capacity.

Ex Chair Zenaida Ducut’s one act of atonement to the consumers is a brave and enlightened regulatory move. It may have been kicked into outer space limbo, waiting for our Luke Skywalker to retrieve and bring back to save mother earth.

At least it is one bright star to wish for, an idea that we know will some day be activated to give us consumers some relief and protection from the abuses of the dark forces.  Thank you ex Chair Ducut and ED Nino Juan.

Who knows our Luke Skywalker might even come before 2022?

4. Senior Justice Antonio Carpio and the Supreme Court.

If I had the resources I would organize a national parade and 40 days of pomp and pageantry in honor of Supreme Court Justice Antonio Carpio and the Justices who supported him in two pro-consumer landmark decisions this year 2019 that will somehow put some discipline and wisdom into the starship ERC that had been lost in its regulatory orbit.

a) “You are an implementor not a policy maker”

In May 2019 deciding on the complaint of consumer group Alyansa Para sa Bagong Pilipinas the Supreme Court ruled that ERC exceeded its authority when they decided to postpone the implementation of the CSP policy from November 7, 2015 to April 30, 2016 that ABP alleged was intended to accommodate Meralco’s desire to negotiate power supply contracts with its sister companies instead of undertaking a CSP. Lo and behold, Meralco in 40 days was able to craft 7 PSA’s for 3,551mw with 5 different partners and beat the new ERC filing deadline in 3 days. Justice Carpio, in ruling that the ERC exceeded their authority in postponing the implementation of the CSP to April 30, 2016 instead of the DOE mandated November 7, 2015, Justice Carpio for the first time sent a clear message to ERC that they cannot just do what they want and that the DOE is the policy maker under the law and not the ERC.

The reminder just came in time to hopefully guide the new set of ERC Commissioners as they are just trying to learn the ropes in rate regulation and still seeking their regulatory reason for being, especially their “motu proprio” obligations to the consumers.

For the first time, the ERC may have been put in their right place. And the Supreme Court decision would send shockwaves to the ERC, DOE, and the Big Guys specially Meralco who had been acting with impunity, playing cat and mouse with each other at the expense of the consumers.

If we are now that much closer to a CSP regime that will assure true and open competition, we owe it to Justice Carpio. (let us just hope Secretary Cusi remains steadfast).

Concurring in the ruling were Chief Justice Lucas P. Bersamin, Associate Justices Diosdado Peralta, Mariano del Castillo, Estela Perlas-Bernabe, Marvic M.V.F. Leonen, Jose Reyes Jr., Ramon Paul Hernando and Rosmari Carandang.

Those who dissented were Associate Justices Alfredo Benjamin Caguioa and Andres Reyes Jr. while Associate Justice Francis Jardeleza abstained. (remember them!)

b) Justice Carpio was not done….thank God.

Just last month of October, Justice Antonio Carpio sent another stinging reminder to the ERC of its obligation to assure that distribution utilities provide power in the least cost manner.

In a decision written by Senior Associate Justice Antonio T. Carpio, the SC,deciding on the complaint of consumer group NASECORE said the ERC orders violated its (ERC’s) statutory mandate to approve rates that will provide electricity to consumers “in the least cost manner.”

With the ruling, the SC remanded the case to the ERC to determine the valuation of Meralco’s regulatory asset base, as well as the parameters whether expenses that are not directly and entirely related to the operation of a distribution utility should be passed on wholly or partially to the consumers, in order that electricity shall be provided to consumers “in the least cost manner.”

“ In partially granting the petition, the SC found that the ERC failed to properly consider COA’s findings as well as to comply with its statutory mandate to approve a rate that provides electricity to consumers ‘in the least cost manner’ as expressly provided in ERC’s charter.

The SC also reminded ERC that “Section 38 of the Government Auditing Code of the Philippines and Book V, Title I, Sub-title B, Chapter 4, Section 22 of the Administrative Code of 1987 specifically authorizes COA to examine accounts of public utilities in connection with the fixing of rates of every nature.”

We thank Justice Antonio Carpio, and the other Justices of the Supreme Court, for standing up for the electric consumers and for delivering clear messages to the wayward ERC who badly needs the reminding. We are eternally grateful.  Let us hope it helps them find their way back into being a regulator in the public interest.

We the badly battered electric consumers in the Meralco area needs to recognize and be grateful to our Knights in their Shining Armor – Sec. Ikot Petilla, Sec Al Cusi, Pres. Duterte, Ex ERC Chair Zeny Ducut and her ED Nino Juan, and SC Justice Antonio Carpio.

These are the government officials who had to against the tide of government apathy, regulatory and policy capture and decided to boldly steer the whole government boat towards the right direction for the consumers. Certainly there are many private individuals who driven by true concern for consumers have been stepping up selflessly at personal peril to bat for consumers. We similarly need to salute them. Neri Colmenares, Aya Viray Jallorina, Pete Ylagan, and the indefatigable Uriel Borja?

Some day we hope our Camelot, our Sky Walker, will come along to save us from the injustice of Rule 11 of the EPIRA IRR. He or She might yet come before 2022.

There is reason to take heart and hope.

Next: Traitors of Our Times

 

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

HEROES OF OUR TIMES – IN THE POWER SECTOR (Part 1)

David Celestra Tan, MSK
29 November 2019

Part 1

The way we the electric consumers are being treated and overcharged, the way our distribution utilities and sister generators and partners try all sorts of schemes  to outsmart government attempts to create true competition and get away with them, the way our own government officials always succumb to the enticing power of the vested interests and fail to step up for the public interest, the way our approving agencies somehow funnel lucrative RE and ME government subsidies to evidently favored applicants, the way all these end up overcharging us the poor consumers, and the way the prospects for reforms in this country of ours seem bleaker by the day, it is easy to give up and think that our government officials are hopelessly apathetic to really looking after our interest, and that they are all part of this national conspiracy against us the people as electric consumers. Are they soul less or just clueless?

The more things and people change in the government agencies that oversee the power sector, the more things seem to remain the same or worse for the people.

Before we all give up on our race and country,  letus recognize a few knights in shining armors who over the years have done somethings to right the course for the electric consumers. Let us give them due credit and be inspired by their refreshing and hopeful statesmanship.

  1. First on our List is former Energy Secretary Carlos Jericho Ikot Petilla.

If CSP or competitive selection process have been in the news, a cornerstone of our power procurement policy,  and a raging battleground between Meralco and the rest of us, it is because Ikot Petilla saw the abuse of the consumers from negotiated power supply contracts and took the bold move to do something about it ….despite risking the ire of the major conglomerates. He passed a government policy to require competitive bidding for power supply contracts that will be passed on to the consumers and thus ushered in the CSP era in the main gridon June 2015 just before he resigned to run for the Senate, leaving us a lasting legacy. (CSP had been required in the missionary areas since 2004)

Up to that point, distribution utilities in the main grid like Meralco have been happily negotiating the power supply contracts that are all passed on to the consumers with whoever they choose and at whatever price and terms they can get away with.

Unfortunately IkotPetilla did not make it to the Senate in the 2016 election, denying us of one of the best Senators for energy that we never had.  Petilla ironically had the dubious distinction of putting in the CSP rules and at the same time had the bad luck of choosing an ERC Chairman who will not exactly be faithful to Petilla’s vision of a truly competitive generation market.  CSP may not still be perfect but at least it is a work in progress.  Without Petillas landmark move we still would not have a chance.  Thank you Sir, we are forever grateful. Hopefully at some point in the future, we will get the CSP done right.

  1. Current Energy Secretary Alfonso G. Cusi (and President Duterte)

a). One person who is fighting hard to insure that the CSP practice is adopted and done right is current DOE Secretary Alfonso G. Cusi. Before President Duterte got elected in 2016 and before Secretary Cusi got appointed, Meralco’s and ERC’s maneuverings to circumvent the CSP policy have already been in motion in April 2016.

After the Supreme Court declared ERC’s postponement of the CSP policy to be illegal and hence the resulting power supply contracts that exploited the extended time need to go back to the drawing board and undertake CSP’s, the challenge of insuring, under immense lobby pressure from friends and politicians, that the CSP process is done right and not manipulated fell on the shoulders of Secretary Cusi. And he has a tough job since he is also battling the CSP maneuverings of his own bureaucracy.

We understand he is working on new CSP guidelines to tighten the rules.

b.) He had done more though. One thing Secretary Cusi saw early in his tenure as Energy Secretary is the need to accelerate power supply capacity building. Key to that is reducing the red tape of permits needed by power plant developers. With his sponsorship, President Duterte signed into law Executive Order 30 that mandated that government agencies must act on applications of approvals of projects of national significance within 30 days. Even the controversial 1,200mw Atimonan One project got a certification. EO30 and the CEPNS mechanisms would help mitigate the biggest stumbling blocks in getting critical power projects finished which are local and government approvals and endorsements.

Already many critical power projects all over the country are moving forward faster to alleviate power supply in their areas. Unless they have problems with complying with the CSP rules.

Secretary Cusi’s EO30 and EPNS vision will benefit power projects in the future as we try to catch up in our capacity building.  Thank you Sir. And thank you President Duterte.

c.) Curbing abuse in missionary subsidies

Another thing that Secretary Al Cusi had noticed that past Secretary’s did not pay attention to is the multi-billion rise in missionary subsidies in the off-grid areas.  These are passed on to the consumers.  When the government owned Napocor applied to increase the generation charge to the poor islands in the off-grid islands by P3 per kwh (Can you imagine socking missionary areas with a P8.50 per kwh generation charge compared to P5.50 in Manila?) Secretary Cusi ordered NPC to stop it and instead to look for ways to save the P1 billion by improving efficiency and eliminating waste in generation costs where NPC’s cost had risen by P3.5 billion only in two years from 2016 to 2018.

On behalf of the electric consumers in the off-grid areas, we thank you sir.

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