ABOLISHING ERC AND CREATING A NEW POWER REGULATORY AGENCY NOT THE KEYS…..IT IS HEART AND SPIRIT. (Part 1)

David Celestra Tan, MSK
23 May 2018

Part 1

In February 2014 we wrote in the Philippine Inquirer about the Epira Law being an imperfect law that is imperfectly implemented.  As it relates to the Energy Regulatory Commission that it created under Section 38 the imperfections of the law pale in comparison to the damage done to consumers and country of the imperfections of the regulatory agency itself in the implementation of even its very clear mandates under the law.

Current pronouncements of abolishing the ERC to be replaced with a new Board of Energy or Philippine Power Regulatory Commission will unlikely make much difference for it would be impossible to legislate against what truly ails the power regulatory agency which is a consistent lack of a true regulatory soul that would be committed to balancing the interest of electric service providers and those of the electric consumers that need to be safeguarded under a deregulated sector.

It is hard to get excited about the publicized creation of a new regulatory agency when you hear the sponsors starting on the wrong foot.

“The ERC needs to be an independent body”. Excuse me sirs, the ERC degenerated to what it is because it successfully parried in 2004 attempts of the DOE to coordinate policy. “Independence” only meant they didn’t want to be interfered with in whatever they were doing. And see the result?

.A reported new sponsor of an ERC abolition is quoted by the papers to say “if the ERC becomes an attached agency of the DOE, it would still be prone to corruption activities.”

.”I think if the ERC becomes an attached agency of the DOE, that would be more subject to a lot of abuses, whereas if we leave the ERC as an independent body, I think we just need to strengthen it more so we can take out the issues of corruption and abuse,” he said……So sad.

We are for strengthening the ERC more. The ERC being allowed too much independence, whether by omission or commission of the Executive Department, whether directly by the office of the President or through the DOE, is actually part of the problem.  The implication that issues of corruption and abuse at the ERC were results of interference from DOE is something new to us. We have not heard that before so we are wondering where that premise is coming from. It has been too independent (and unfortunately also too non-transparent and divergent) since 2004.

In fact in the current imbroglio about the Meralco’s seven (7) midnight power supply contracts totaling 3,551mw, and the resulting cartelization of the power generation sector, consumers have been begging unsuccessfully for the DOE to intervene to break the impasse and assure future power supply.

Imperfections of Epira Law as it relates to the ERC

Let us start by remembering that the success of a deregulated power sector and the achievement of lower power cost to the consumers depended on the creation of a truly competitive power sector. One where truly independent power generation investors can also come in an atmosphere of open and level playing field competition to assure the continuous inflow of more and better power supply. A successful deregulated sector in turn needs a strong and truly independent ERC.

  1. The Epira law put too much burden on the ERC to make power deregulation work. The ERC was a new creation after the old ERB was abolished. And it struggled mightily under the weight of its monumental mandate.
  2. Rather than making the ERC concentrate on rate making and promoting competition, the Epira law gave it responsibilities like inspections and provisions of operating permits to power plants and self-generators, functions that the government bureaucracy turned into full scale processes that duplicated the work of the DOE or the grid operator the NGCP.
  3. The Epira Law failed to unequivocally prohibit cross ownership between a generator and a distribution utility. (Thanks to the powerful vested lobbyists) And worse under Section 45 failed to require competitive bidding for power generation supply contracts that would be passed on to the consumers. The Epira Law Implementing Rules that was written by the DOE made it worse by writing Rule 11 which further opened the loophole for concentration or domination of generating capacity. It dropped “ownership” and “operation” as part of the criteria and limited it to only “control” in clear contravention of the Epira Law that it is supposed to faithfully implement.
  4. The Epira law made its language too vague on many key areas that opened the door for manipulation. (Thanks again to the powerful lobbyists). Under Section 43(f) the EPIRA Law opened the door for “alternative rate making methodologies” which unfortunately was parlayed into a “performance based rate making” (PBR) methodology that is disastrous for consumers.

Imperfect Implementation by the ERC

The ERC as the implementor of the EPIRA Law rules of competition and rate charges to consumers lost its regulatory soul after the first Chair Fe Barin was “kicked upstairs” because the powerful DU’s “could not work with her”. I guess we all know what that means. And the rest is history….the horrific kind for consumers circa 2002 to 2016

Many of the problems at the ERC have been self-inflicted.

  1. Regulating what should not be regulated

One reason the ERC is swamped and overworked, and hence had become slow and inconsistent, is because it is regulating things that it should not regulate. Do you know that if a utility wants to reduce its rates, they cannot do so without ERC approval? Heck, anyone who wants to drop their rates should be welcome.

The generation sector is supposed to be a deregulated sector but the way they approve the power generation sector, they are crossing the line towards regulation. In their job of determining “fair and reasonableness” of the generation rates they compute and establish profit limits. That is regulation. Instead to assure fair and reasonableness, they should insure true competition and establish protective industry rate benchmarks.  This would reduce substantially the applications and hearings at the ERC.

(to be continued)

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True Significance for Consumers of Meralco and Solar Philippines P2.99 Solar Deal

David Celestra Tan, MSK
27 April 2018

Did upstart solar entrepreneur Leandro Leviste of Solar Philippines just totally disrupted the once so ebullient in itself multi-billion solar industry with its audacious P2.99 solar rate for 85 megawatts of solar for Meralco?

The Philippine solar industry of mostly foreign companies with well connected local facilitators was having a field day with their successful lobbying for a feed-in tariff of P9.68 per kwh in the first round (50mw) and P8.68 in the second round (500mw) of FIT rates. We estimate the annual cost to consumers of at least P5.5 billion per year or a mind boggling P110 billion over the 20 year life of the government FIT commitments for solar alone.

Many of the old guards in the solar industry led by its chief FIT lobbyist Ms. Techie Capellan of the Solar Alliance must be wondering if the young Leviste, son of Senator Loren Legarda, is suffering from misguided juvenile exuberance when he went for the 85mw of grid solar at 2.999 per kwh to beat the original proponent’s then already eye-brow raising P3.50 per kwh. More so that only a few months earlier Leviste and his Solar Philippines just signed a P5.35 per kwh solar rate for 50mw also with Meralco.

In fairness to the young Lean Leviste, his P2.999 or US$0.058 per kwh is within the realm of the $0.03 to $0.05 per kwh rate of large solar projects in the Middle East and Latin America. So P2.9999 is theoretically achievable despite reports that those Middle East projects were provided with very special state sponsored project financing by the rich petro-dollars of those countries.

It is also possible that Leviste is taking a page from the Jeff Bezos Amazon playbook of “build scale even if you lose money now, conquer market position, and make money later”.

At the ERC Hearing on the proposed contract and rate last April 16, 2018, your consumer advocacy group, MatuwidnaSingilsaKuryente Consumer Alliance Inc. (MSK) endorsed the speedy regulatory approval of the 85mw P2.9999 per kwh project. We must have surprised both Meralco and the lawyers of Solar Philippines Tarlac who were obviously expecting an adversarial intervention from MSK.

Actually we have serious concerns on the loose ends of the contract but we endorsed it anyway because a P2.9999 per kwh solar rate is positively disruptive for the consumers. We want to see if young Leviste can really deliver grid connected solar at that rate.

For the record, we are concerned that the contract negotiated by Meralco with Solar Philippines does not specify at least a minimum quantity of energy that will be delivered by the 85mw project. Definitive delivery of energy we thought is essential if the consumers are to truly benefit from the P2.999 rate. With no Energy, the P2.9999 does not benefit consumers. The expert witness presented by Meralco was also evasive when asked which hours of the day the Solar project will deliver energy to Meralco consumers. Instead he said solar facilities normally deliver energy from 6am to 6pm. The smart looking guy must have hated whoever coached him into being vague, evasive, and smart alecky.

To think that Meralco and Solar in their published application for ERC approval claimed a net savings to consumers of P0.0033 per kwh from approximately 50 million kwh a year of energy delivery. So why is this, or a range of minimum to maximum delivery, not in the contract? Is it because Meralco as a utility is so used to negotiating supply contracts with only its sister companies that it cannot negotiate a truly iron-clad contract with a non-sister company (for now).

We estimate that an 85mw solar array can deliver at just 4 hours a day (12 noon to 4pm) 275 days a year (after a generous provision of 90 days a year of rainy and overcast days of downtime), a minimum of 93.5 million kwh a year.

The true significance however of the transaction goes beyond the landmark P2.9999 per kwh solar rate.

The transaction that was done through a rare competitive selection process or CSP by Meralco, with all its imperfection as a swiss or price challenge, resulted to a mind boggling savings to consumers of P2.35 per kwh (P5.35 minus 2.9999).

The 85mw P2.9999 per kwh solar contract is very significant for the consumers and country in that it settles once and for all the debate with Meralco that

1. Subjecting its power supply contracts to competitive selection process or bidding will bring significant savings to the pass on generation charge to consumers. In this case its achieved least cost power is 44% lower than its previous P5.35 per kwh solar rate. If those 4,005mw of coal and natural gas base load contracts negotiated by Meralco with its sister company, MeralcoPowerGen were subjected to CSP, consumers will be happy with a 10 to 20% savings. That’s about P0.30 to P0.60 per kwh or a total of P14 billion a year in savings to Meralco captive consumers or P280 billion over the 20 year lives of the 3,551 mw coal midnight contracts.

2. The 85mw solar procurement also settled the debate on whether competition among non-affiliated companies result to genuine competition and genuine savings to the consumers. As of now, the participants in those solar CSP were not affiliated with Meralco or the MVP group. Solar Philippines, Power Source, Citicore, and Equus of Singapore.

At the end of MSK’s day in the ERC court on April 16, 2018, we filed a petition to the ERC, requesting that the approval must include a prohibition from Meralco or any of its affiliates to buy into Solar Philippines or First Bulacan/Power Source.

Going back to the P2.9999 rate, if Solar Philippines eventually does not deliver any energy to Meralco, we the consumers benefit nothing from the supposed P2.9999 rate.

Let us hope this will be a truly significant project for the consumers. We wish you luck Mr. Leviste.Meralco consumers would be looking for the P2.99 solar with a delivery of at least 90 million kwh a year.

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

The Correct and Legal Way to Determine Concentration of Power Generating Capacity (Part 1)

David Celestra Tan, MSK
1 April 2018

The creation of true and robust competition in the power generation sector is key to achieving least cost power for consumers. The EPIRA Law had established under Section 45(a) the limits on generating capacity a group can own, operate, and control to 25% of national installed capacity and 30% of regional capacity (Luzon, Visayas, and Mindanao).

The policy for CSP is just the first part of the formula to assure competition. CSP or competitive selection process (bidding) of power generation contracts are fairer to the consumers, as opposed to the long practice of allowing negotiations between a distribution utility like Meralco and generators, usually their sister companies.

The second part is the way the EPIRA law restrictsthe  concentration of power generating capacity to 25% of national installed capacity and 30% of regional capacity (Luzon, Visayas, and Mindanao) under its Section 45(a).

Unfortunately, the Department of Energy in 2002 that was tasked of drafting the Implementing Rules and Regulations of RA 9536 watered down this restriction of the law by disregarding “own and operate” and limited only to “control” in determining market concentration. This has been as much the reason for the uncontrolled consolidation of power generating capacity as the apathetic implementation of the CSP policy. Rule 11 did not disregard “own and operate” by accident. It clearly was a carefully calculated (and illegal) emasculation of the main law which otherwise unequivocally provided that all three, own, operate, and control to be the criteria for limits of concentration. (as we wrote before, whoever perpetuated this must be tried for treason!)

The Energy Regulatory Commission for its part promulgated its Resolution No. 26 Series of 2005 entitled Guidelines for the Determination of Installed Generation Capacity in a Grid and the National Installed Generating Capacity and Enforcement of the Limits of Concentration of Ownership, Operation, or Control of Installed Generating Capacity which took effect on 22 February 2006.

This is essentially an adaption of the “control” limits under Rule 11 and removal of “ownership and operation” as factors for limitation.

So what’s the big deal?  A lot. And a lot because it is one of those subterranean reasons for the continuing lack of true competition in the power generation sector and the resulting higher pass on generation rates to consumers.

Understanding the Basics

If we are to achieve least cost power, we need a truly competitive power sector, where there are enough players who would be truly competing with each other. We would have enough players if there is a limit on how much of the country’s power generation capacity a particular group or related group can own, operate, and control.In countries that are vigilant against monopolies and market manipulation, four players would be enough. However, in the Philippines we probably need minimum six players. Limits on market collaboration must be strictly imposed.

The EPIRA law rightfully said “own, operate, and control” for the reason that in any of those capacity, the power generator would be in a position to influence the availability and pricing of the power.  When the EPIRA IRR under Rule 11 dropped “own and operate” and only retained “control” as the determining factor, they were suggesting that a power generator who own or operate the power plant is not in a position to influence the decision on whether to run the plant or price its power. Tell that to the marines!

In the spot market, that is referred to as “withholding supply capacity” and “manipulation of prices”.

Rule 11 thus defined “control” to mean

“The capacity of such facility shall be credited to the entity controlling the terms and conditions of the prices or quantities of the output of such capacity sold in the market in cases where different entities own the same Generation Facility.

In cases where different Persons own, operate or Control the same Generation Facility, the capacity of such facility shall be credited to the Person controlling the capacity of the Generation Facility.” c

Could this be the reason why the multi-ownership of power generating plants became modus operandi among the big guys? Only the part owner who “controls” the capacity will be credited with the capacity for purposes of determining concentration of generating capacity. The other owners and operators of the power plants are not counted with the capacity.

The 3,551mw of the controversial Midnight power supply contracts although all owned 49% to 51% by Meralco PowerGen will not count and not be subject to limit computation since another entity will beassigned to control “the terms and conditions” of the prices or quantities of the output of such capacity sold in the market. Nifty circumvention of the law!

Rule 11 of the EPIRA IRR and ERC’s Resolution 26 of 2005 are the one-two punch against consumers that had been allowing for the consolidation, oligopolization, and cartelization of the power generation sector.

In many public fora your organization MatuwidnaSingilsaKuryente Consumer Alliance argued every chance we have to the ERC and DOE that Rule 11 is illegal and should be amended. An IRR cannot effectively water down and amend the mother law it is supposed to implement.

There was a flickering light at the end of the tunnel

There was a possibility that the ERC under former Chair Ducut and Executive Director Saturnino Juan tried to do something good for the consumers before they exitedby rectifying the illegality of omitting “ownership and operations” of Rule 11 or at least its Resolution 26 of 2005 in counting concentration of generating capacity.

In August 19, 2015 Exec. Director Juan signed an issues paper under ERC Case 2015-005 RM and on October 13, 2015 issued draft rules that would add an “ownership test” and “operation test” in addition to “control test” in determining  capacity concentration and compliance to the limits set by Section 45(a) of the Epira Law.

This planned rules change apparently held a Damocles sword over the plans of the Big Generators to consolidate power generation among themselves.

ERC Snuffs Out Flickering Light

This would have been a big step for the consumers.  But lo and behold, on the fateful day of March 15, 2016, the same ERC Commission session when they decided to postpone the implementation of the CSP policy (Resolution 1 of 2016) , the ERC decided to “hold in abeyance” the adoption of the new methodology adding ownership and operation tests in the ERC’s determination of compliance to market concentration limits. This was Resolution 3 of 2016.

The twin resolutions on March 15, 2016 (Resolutions 1 and 3 of 2016) were actually complementary to each other. Some people knew that the postponement of the CSP policy would result to the signing of significant contracts among related groups that would run counter to the “ownership and operation tests” envisioned under ERC Case 2015-005 RM. The obstacle had to be removed.

The pandemonium that accompanied the postponement of the CSP policy enabled the equally significant ERC Resolution 3 of 2016 to scape public and media notice.  In fact, it was not held in abeyance but filed away hoping that it is totally forgotten.

Two years later on March 20, 2018, the ERC announced its determination of market concentration limits

  1. National Installed capacity of 21,867.11 mw or 5,466.77mw limit
  2. Regional Limits

Luzon            15,175 mw installed, 4,552.79mw limit

Visayas           3,194.88mw installed, 958mw limit

Mindanao      3,496.26mw installed, 1,048.78mw limit

We assume that these are based on the old questionable methodology using “control test” only. We are not aware of any new methodology issued.

When will the government do what is right and look after the people, the electric consumers? Investors in power generation need to make reasonable returns on their investment but do we have to sacrifice the people always in the process?  Can we not find a balance?

In the next article we will tackle who are legally in compliance with the limits set by the Epira Law of 2001, Section 45(a)?

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

State of Power Industry or Do WE Have Enough Supply?

David Celestra Tan, MSK
25 March 2018

There is a high profile and obviously high budget media campaign going on to condition the people’s minds that the country needs more and newer power plants. This is amidst the stall in the approval of Meralco’s 3,551mw of coal plants that they negotiated with five (5) companies all controlled by sister Meralco PowerGen or MGen under the midnight loophole created by the ERC In March 2016.

(The inexplicable postponement of the CSP policy by the ERC caused the suspension of the five ERC Commissioners for unduly favoring Meralco and betrayal of public trust. There is now a tug of war in the judicial system over the suspension)

A few months ago CNN Philippines ran a special on the power industry titled “Do we have enough power supply”? We have no argument against the need for more supply and the need to build new ones to meet the country’s growing energy needs.

Just today I chanced upon a  broadcast again on CNN about the “State of the Power Industry”, anchored by Ms. Pia Hontiveros. Featured panelists were Mr. Rogelio Singson, new President of Meralco PowerGen, Sen. Win Gatchalian, Chairman of Senate Energy Committee, Ms. Mylene Capongcol of the DOE, and Atty. Victor Dimagiba of an organization called “Laban Konsyumer”.

Mr. Singson went to great lengths to point out that the country needs newer power plants. That 33% of the country’s power plants are 25 years and older. That the DOE is requiring that the country raise its reserve capacity from the current 15% to 30%. That the country needs dependable and cost efficient base load supply which is coal.

The young and eloquent Sen. Win Gatchalian chimed in that there is too much redtape in getting projects approved and that it takes up to seven (7) years to get a plant to operation. He said there is a bill to legislate the one-stop processing of these approvals so plants can be built within four to five years. It was great to hear the prodigious Senator enunciate that the country needs a balanced approach to power supply and must consider assurance of supply, lower cost of power, and cleaner energy. He pointed out the need for the country to have true competition so everyone can compete.

When Mr. Singson had the chance, he could not help himself but to plug for the approval of the 1,200mw “super critical” power project in Atimonan.  He mentioned about the 455mw expansion in Mauban is almost complete but that the 600mw Peninsula power project had taken more than 10 years to get the approvals. He even mentioned that the high cost of power in the country have driven industries to go to other countries.

DOE Veteran Ms. Mylene Capongcol and new consumer advocate Atty. VicDimagiba spoke about their take on the state of the power industry.

In general we have no argument about most of what was said. Our problem is in what was not said  in the state of true competition in the power generation sector, its cartelization by Meralco,  the adverse impact on the Filipino consumers and the industrial competitiveness of the country.  There cannot be a fair discussion of the State of the Power Industry without addressing these anomalies.

It seemed the CNN specials were designed to hammer into the minds of the people that we need additional and newer coal power plants so that when the seven (7) midnight contracts of MGen and Meralco, and the effective cartelization of power generation, are magically approved despite the deviant process, that the people will not resist and even say thank you.

That’s exactly the problem. We are only being told that we need additional power plants. But there is no argument there. The issue is the process and the lack of consumer protection in the process of contracting those power plants. In ERC’s case, the fact that they apparently facilitated the circumvention of the CSP rules and the consequent denial of competitive power to the consumers.

Do you know that the costs of those expensive media campaigns ironically are paid for by the Meralco consumers through the operating budget approved by the ERC?  Life isn’t fair is it?

State of the Power Industry or Do we have enough supply? What was the real point for the consumers?

 

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

WIN WIN SOLUTION FOR MERALCO’s 3,551MW MIDNIGHT CSP CIRCUMVENTION

David Celestra Tan, MSK
11 March 2018

Things are eerily quiet on Meralco’s Midnight power supply contracts and one wonders whether we will be surprised one day soon that the seven (7) midnight contracts totaling 3,551mw of coal projects have been approved by the government and rammed through the throats of the 25 million Meralco consumers.

Another scenario is the power crisis gambit is in play that had worked many times before for the special interest groups in forcing the approval of coveted power projects and prices. There will be a strategic quiet and letting the country teeter into power shortages. Interrupt power and punish the captive market of residential and commercial establishments and make them beg for “electricity at any cost, damn with the rules and legalities”.

This can happen and will happen because most of the power generating plants in the country are controlled by the same groups that allied with Meralco in the caper of April 26, 2016. Let us remember that these are the same groups who were found engaging in power market manipulations in November and December 2013 and supposedly meted hundreds of millions in fines.  Except the final report has been frozen in the ERC.

I think the energy family led by the DOE should work for a win-win solution and not wait until there is already a power crisis. We vehemently object to the circumvention of the CSP policy but we also vehemently object to allowing a power shortage.  Both ways the consumers get screwed. We cannot allow power development of the country to be stymied by these Meralco transgressions.

And there are many pro-active options.

  1. The DOE can push for CSP biddings now for the desired capacity additions by 2021. This can be in the range of 1,000 to 1,500mw total. LNG and Coal. Meralco and the other DU’s can be the committed off-takers assuming they are sincere in bringing least cost power to the consumers.

These biddings will probably settle once and for all the debate on what is good for the consumers, an “aggressive negotiation” of Meralco with its sister company Meralco PowerGen or the true competitive bidding administered by a third party”?

These true biddings can also test in the market a more consumer friendly Power Supply Contract template that mitigates sweetheart provisions on fuel allowances, downtime allowances, and minimum off-take guarantees.  We now have to distinguish the contract terms for BOO and BOT. Pay only for delivered service and no payment for downtimes.

Most importantly this bidding will usher in for the country the long needed era of truly competitive biddings for power supply and the opening of the generation sector to all deserving and “good for the consumers and environment” generators.

  1. The DOE can also initiate a win-win solution for Meralco’s 3,551mw of midnight contracts. Perhaps a fair formula can be worked out so that about half of the 3,551mw capacity (1,750mw)  can be moved forward in a way that is fair for the consumers and the others are dropped and the proponents just participate in biddings. Also only 50% of this 1,750mw can be controlled by MeralcoPowerGen.

How about holding a run-off auction administered by a proven 3rd Party among the seven (7) contracts where they submit a more competitive bid with commercial operation of 2020 to 2022. The lowest 1,750mw get to move forward.

This is a one time compromise solution and must be considered as an exception and not the rule or precedent.

It is eerie when the Department of Energy that has the mandate to assure sufficient power supply for the future, is quiet about the subject. Let us hope the consumers and country are not hit by a power crisis hysteria again in a few months, perhaps as early as April and May when it is hot and the power needs of the country soars to the highest peak.

Is a Meralco “all or nothing” gambit in play? Will the consumers again be threatened and tortured with power shortages and be made to swallow Meralco’s 20 year sweetheart deals?

Why are we not seeing some affirmative action now? It is not too late for a win-win solution.

 

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

NEW ERC SYSTEMS LOSS LIMITS MUST BE ABSOLUTE NOT AVERAGE TO TRULY BENEFIT MERALCO and CEBU CONSUMERS

David Celestra Tan, MSK
March 1, 2018

ERC’s announcement that it is reducing the Systems Loss allowance of Distribution Utilities should be a source of joy to electric consumers, especially those in the Meralco area. It will however be of little benefit if the Systems Loss limit remain to be average not absolute.

It is a little tricky on how the Meralco consumers have been confused and overcharged, so please follow closely.

Meralco’s systems loss allowance had been 8.5% but the captive consumers comprising 75% of Meralco’s customer base, are charged from 9.5% to as much as 12% 5 years ago. Cebuanos appear to be paying even higher at 14% based on electric bills we saw. How is that possible and how is that legal?

That is through the magic of systems loss averaging that the ERC, in their infinite wisdom, allowed as the methodology in computing systems loss charges. Meralco had been charging industrial and large commercial establishments only about 3.5% in systems loss and charging the captive consumers comprised mainly of residential and commercial customers up to 12%. Last month my systems loss charge is 9.5% not the legal limit of 8.5%. The very low systems charge on the industrial customers pulls down the average to 6.5% which is what Meralco likes to brag about.

In fact in an act of subtle trickery, Meralco’s bill likes to show in the front page that our systems loss is only 4.4% of the total bill which makes many consumers believe that Meralco systems loss charge is only 4.4% compared to the limit of 8.5%. (Our systems loss is a percentage of Meralco’s generation charge).

Meralco and ERC like to say that the systems loss must be based on the cost of service to particular groups of customers.  They claim that the systems loss from technical and pilferage of power from industrial customers are lower and the cost of service and systems losses to residential customers are much higher. Comparatively three (3) times higher than industrial.

Even this “cost of service” philosophy is inconsistent with reality.  Everyone knows that the bigger pilferage of power comes from the industrial and larger consumers. Because they consume more, the incentive for pilferage is bigger.  What is harder to explain is why in the modern and highly dense service areas of Makati, Ortigas, Quezon City where Meralco’s power systems are supposed to be modern and where the customer base is dense and high energy consumers, the systems loss charge is 9.5 to 12%, much higher than the supposed limit of 8.5%.

At an average consumption of 1,200 kwh a month and a P5.25 per kwh generation charge, the systems loss overcharge is p0.05 to 0.18 per kwh. If that is P0.10 per kwh, it is P120 per month overcharge.

Meralco sells approximately 30 billion kwh a year, 60% to these captive consumers. The systems loss overcharge is about P2 billion a year, about 10% of its announced annual profits of P20 billion.

We had a chance to ask some ERC commissioners why Makati consumers and businesses are being charged the same systems loss as those in rural Quezon and Laguna provinces. Their answer?   Because they are the same class of customers. But they are not. One is rural and the other one is highly dense and modern cities. I mean if they are going to be true to the philosophy of cost of service, ERC must distinguish rural and highly modern metropolis.

ERC announced that it is reducing the systems loss allowance of private distribution utilities like Meralco and Veco to 6.5% from 8.5% and to 5.5% within 4 years. If that limit remains to be average, the ERC reduction will not benefit Meralco consumers because Meralco’s average systems loss is already at 6.5%. And since it is averaging, those of us captive consumers will remain to be paying 9.5% to 12%. It will make us feel worse because this time, we are being overcharged 3% (9.5 minus 6.5%) or about P0.1575 per kwh!

How to cure?  ERC must establish the new 6.5% systems loss limit as the absolute limit which means NO ELECTRIC CONSUMER SHOULD BE CHARGED HIGHER ABSOLUTELY THAN 6.5%.  If Meralco wants to charge the contestable customers like industrial lower systems losses then it is their right. But they should not be allowed to effectively recover that from residential and commercial customers by charging them higher than the systems loss allowance.

This could even be a form of inter-class subsidy, something prohibited by the EPIRA Law of 2001. There are legitimate systems losses like technical losses and a level of non-technical, mainly pilferage. The problem is not that there are systems loss charges. It is the excessive charge that the current ERC methodologies are not comprehensive enough to protect consumers from abuse.

Our fast modernizing country demand that ERC differentiate captive customers in the rural areas and captive customers in the modern cities. The systems losses in the modern cities should be much less, unless Meralco is admitting that with all their propaganda of modern facilities and big investments, that they are still losing 10% in Makati, Forbes Park, BGC, Ortigas where the losses should not be more than 3.5%.

On top of these, the ERC systems loss rules allow Meralco to only certify that the charges are accurate. It is like fox swearing that he is not attacking the chicken house!

Your association, MatuwidnaSingilsaKuryente Consumer Alliance, had actually filed a petition with the ERC a year ago to correct these anomalous rules. The petition had fallen on deaf ears.

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

The Lesson That Matters from the Ombudsman Suspension of the ERC Commissioners

David Celestra Tan, MSK
12 February 2018

When the Office of the Ombudsman handed down on December 21, 2017 its decision finding the Five (5) Commissioners of the ERC guilty of neglect of duty and abuse of discretion in favoring Meralco by extending the implementation of the CSP (Competitive Selection Process or bidding) for power supply contracts from November 5, 2015 to April 30, 2016, and suspended them for one year , it felt like it was a rare but major victory for the electric consumers.

MSK however did not view it as a conquest with the Ombudsman delivering to the consumers the heads of the four (4) Commissioners on a sling.  Rather it was a validation of MSK’s reading that the extension of the CSP was improper and illegal, a betrayal of the public trust by an agency unequivocally mandated by law to look after the public interest.

Court Findings

It was really the principle of the ruling and not the punishment that should matter to consumers and the country.

Based on certified documents submitted by both the complainant, the Alyansa Para SaBagongPilipinas (ABP) and the respondent Commissioners of the Energy Regulatory Commission, the Office of the Ombudsman, found the following:

  1. “In sum, respondents are guilty of Conduct Prejudicial to the Best Interest of the Service, aggravated by Simple Misconduct and Simple Neglect of Duty; while the alleged Abuse of Authority is deemed included in the findings of misconduct” (P. 18 of 21).
  2. “the CSP is an acknowledged mechanism to make the cost of PSAs more reasonable. Hence, accommodating companies request to be exempted from CSP was a deviation from respondents’ duty to promote public interest through the CSP requirement. (p.15 of 21),
  3. “Respondents, in dismissing the allegation that they have given undue favor to MERALCO claim that they denied its request to be exempted from CSP’s requirement. However, the issuance of the 2016 CSP Resolution, which provided a window period to DUs and GenCos to file their PSCs without the need to comply with CSP requirement, patently shows that they actually heeded MERALCO’s request.”
  4. “Respondents act of extending the effectivity of the CSP requirement, which effectively accommodated PSC’s entered by Meralco with its affiliates, and of other DUs, is beyond the authority entrusted to them by the EPIRA” “It is required that the regulation be germane to the objects and purposes of the law; and that it be not in contradiction to, but in conformity with the standards prescribed by law” (p.16 of 21).
  5. “Conduct Prejudicial to the Best Interest of the Service is a grave offense defined as any act which tarnishes the image and integrity of public office. By not implementing the CSP requirement which favored the filing of PSAs of Meralco and other DUs, respondents tarnished the image and integrity of their public office and reneged on their duty to protect the consumers by implementing the policy of the government against Anti-Competitive Behavior in the electricity market.”
  6. “Clearly, respondents’ acts as established by the evidence on record have prejudiced the public service and undermined the confidence of the public in the capacity of ERC to effectively implement the EPIRA and protect the interests of the public”.
  7. “By wrongfully denying the consumers the benefit of CSP, and allowing high valued and long term PSA’s and PSCs to be filed without complying with the requirement of CSP, respondents failed to do their duty to encourage market development, ensure customer choice, penalize abuse of market power in the restructured electricity industry, and enforce the implementing rules and regulations of EPIRA”

Punishment

The Ombudsman suspended for one year all Five sitting Commissioners of the ERC. Previously removed Chairman Salazar was instead penalized equivalent to six month’s salary.  Whether or not the suspension will stick depends on the grind of our justice system…. A lesson we learned many times over.

The punishment however does not really matter to the consumers. Let us not lose sight of the real issue which is the approval of the seven (7) midnight contracts signed by Meralco with various project companies controlled by its sister company MeralcoPowerGen.

Atonement and Respect for Consumers

As a measure of atonement and enlightenment, let us hope that the ERC Commissioners, if they are given reprieve from suspension, immediately and expeditiously approve or extend the operating permits (called COC) of the reported 5,000mw of existing power plants to assure that the power supply of the country during this Summer is not threatened.

And in a display of humility and respect for the consumers and the law, the ERC Commissioners should stay off the approval of the questionable seven (7) midnight negotiated by Meralco with its sister companies.

If the ERC Commissioners committed a misjudgment the first time “By wrongfully denying the consumers the benefit of CSP, and allowing high valued and long term PSA’s and PSCs to be filed without complying with the requirement of CSP, respondents failed to do their duty to encourage market development, ensure customer choice, penalize abuse of market power in the restructured electricity industry, and enforce the implementing rules and regulations of EPIRA”, them trying this time to one-up the consumers by nonetheless approving any of Meralco’s midnight contracts despite the Ombudsmans findings, would be a greater crime against the consumers and an even  more serious betrayal of public trust.

If these happen then the consumers really have lost and we as a nation have not learned any lesson from the clear Ombudsman ruling.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

david.mskorg@yahoo.com

Words to Live by: “Only a life lived in the service of others is worth living….after you have raised and educated your kids well”

Recent Movies I loved: Shape of Water, don’t miss it… Also “Worlds Greatest Showman” and Jumanji.