Meralco forms RES subsidiary

by Lenie Lectura
01 December 2016 from Business Mirror

THE Manila Electric Co. (Meralco) has established a subsidiary that will serve as its retail electricity supplier (RES).

The utility firm said on Thursday it filed an application for RES license on November 29 with the Energy Regulatory Commission (ERC).  Its RES unit shall be known as Vantage Energy Solutions and Management Inc.

“As a distribution-utility affiliated RES, Vantage Energy intends to promote retail-energy services, which include wholesale contracting, energy trading and sourcing, marketing, selling and aggregating electricity, billing, collection and the provision of other value-added services to contestable customers [CCs],” Meralco said in a disclosure to the stock exchange.

Meralco had said filing an RES license application was one of the options being considered, following  the temporary restraining order (TRO) issued by the Supreme Court (SC) on October 10 prohibiting all orders, resolutions and decisions rendered by a Regional Trial Court in Pasig City.

Meralco filed with the same local court a TRO and/or writ of preliminary injunction against the issuances of the Department of Energy (DOE) and the ERC, particularly assailing Sections 2 and 3, Article I of the 2016 Revised Rules Governing the Issuances of Licenses to RES and Prescribing the Requirements and Conditions therefor; the Revised Rules for Contestability; and, the Resolution Imposing Restrictions on the Operations of Distribution Utilities and RES in the Competitive Retail Electricity Market.

On July 13 the same court granted Meralco’s petition. The ERC and the DOE filed their respective petitions for certiorari and prohibition before the SC. Later on, the SC acted on DOE’s petition.

Aside from filing a RES license application with the ERC, Meralco said then it was also looking at “examining the legal remedies,” possibly filing for an appeal, considering the TRO that has been issued.

When sought for comment if Meralco was still pursuing this, Meralco Senior Vice President Alfredo Panlilio, in a text message, said “legal procedure still ongoing.”

Based on the rules, an end-user with an average monthly peak demand of at least 1 megawatt (MW) is mandated to enter into a retail supply contract (RSC) with an RES by its mandatory contestability date of December 26. The deadline, however, was later moved by the ERC to February 26, 2017.

Subsequently, an end-user with an average monthly peak demand of at least 750 kilowatt (kW) is mandated to enter into an RSC with a RES by its mandatory contestability date of June 26, 2017.

The lowering of the threshold to cover an end-user with an average monthly peak demand of at least 500 kW is set on June 26, 2018, subject to the review of the performance of the retail market by the ERC. 

The ERC has also decided CCs who fail to finalize an RSC with an RES shall have the option to be served by the distribution utility as a supplier of last resort.

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Will MVP’s Legacy Eventually Include Fair Treatment of Consumers?

Super Successful business executive Manuel V. Pangilinan, widely known as MVP, recently celebrated his 70th birthday, and was paid a glowing 12 full page tribute in the national broadsheet, Philippine Star, headlined “Seven decades: A Celebration The MVP leadership legacy”.

How many Filipinos get to celebrate his birthday with a 12 full page newspaper tribute? I doubt even Donald Trump got that. Clearly MVP is a businessman of mythical accomplishments, loved by his colleagues and employees, a paragon of business success, and an inspiration for rising through the ranks in the corporate world.

Indeed Mr. MVP has quite a leadership legacy.  Legions of basketball fans know him as the generous supporter of successful teams Gilas Pilipinas and Ateneo Blue Eagles.  “One thing notable about the character of MVP is his sense of mission for the country, and his unwavering faith in the Filipino… MVP lives by the Filipinos values of hard work, financial and mental integrity, resiliency, compassion, and deep and abiding faith in God.” “MVP singled out three core values that are essential to great leadership: hard work, financial and mental integrity, and passion.”

Our legacy resides in the hearts of those who were affected and touched by our presence as we pass through this life.

MVP’s friends and colleagues hold him in high esteem in their hearts. “I admire his decisiveness, drive, and demanding work ethic. These are inspiring and essential qualities of a great and wise leader” shared lawyer Ray Espinosa. Former Foreign Affairs Secretary Albert Del Rosario said “I feel incredibly blessed to have MVP as a close and true friend. His kindness, generosity, and inspiration continue to permeate our friendship at all times”. The equally illustrious Oscar J. Hilado, Chairman of Phinma for his part revealed that “for MVP, no job was too big nor too small. No task was too daunting, no risk too great, no aspiration beyond reach. He was always driven to outdo.”

MVP has his generous share of “feel good” and “giving back to the community” projects common among the rich and large corporations with CSR or corporate social responsibility. There are hundreds of thousands of poor Filipinos who also benefit from MVP’s various charity advocacies in education with equipment donations, scholarships, and even solar power. His companies donate water systems for neighborhood food programs.

The published tribute heralded that “MVP is one gifted with the ability to “see” the future, anticipate what the future will bring, and prepare well for its coming. MVP had a compelling vision when he took over the reins of PLDT, Maynilad, Meralco, Makati Medical Center”. “The companies he has acquired or built are living testaments of his dealmaking skills” again said Ray Espinosa.  “MVP has become successful in making his vision a reality, rallying his executives and workforce to join him in the pursuit of his dreams for his corporate organizations”.

When they talk about MVP’s unwavering faith in the Filipino and looking after their welfare, and when they define MVP’s sense of mission “to improve lives of Filipinos” it appears they refer to the hardworking Filipinos who have had wonderful and rewarding careers as part of the MVP Group. It is an accomplishment to behold and we are happy for our countrymen and their families who are richly rewarded for their roles in the conglomerates profit making success.

MVP’s Sense of Mission

MVP is quoted as declaring that “business especially in a developing country like the Philippines should play a unique part in enhancing overall welfare”. Miguel Belmonte enthused that MVP “sees to it that our companies manage to strike a balance between profitability and social responsibility”. Noel Lorenzana, President and CEO of MediaQuest Holdings Inc cited MVP’s “genuine concern for the welfare of the Filipino most especially those in need is something that all people in business should emulate”.

One lady officer of the MVP group who elected to be anonymous summed it this way. “He cares about our country and the plight of our countrymen, as shown in the tangible steps he takes toward progress and alleviation of poverty.”

It is in these statements of MVP’s broader sense of mission “for the welfare of the Filipino” that we as consumers of electricity, telephone services, and water have yet to relate to. We say it is too soon to agree.

In his day job as CEO of Meralco and PLDT we hope that MVP will eventually take to heart the claimed ideals for  genuine concern for the welfare of the Filipino, to improve their lives,  the trait for financial and mental integrity, and compassion for the consumers. Meralco and Maynilad have more than 5 million metered customers serving 40 million people. PLDT has 30 million customers nationwide. It is not an exaggeration to say that the life of every single one of the 100 million Filipinos is touched by one of MVPs enterprises in electricity, water, telephone and hospitals. (If you escape those how about TV basketball and Channel 5?)

It is common knowledge though that PLDT and Smart is providing the slowest internet service in Asia and yet charging a lot. They refuse to charge calls on per 6 second increments as internationally practiced, charging the poor Filipinos instead for minimum one minute, reportedly resulting to undeserved charges of P8 billion a year. In other words they are not giving fair value but profiting a lot. Consumers are just inundated by advertisements.

In power distribution and generation, the consumers aspiration for “least cost” and true competition is getting further and further away from being a reality as Meralco and the MVP power group leverage to the hilt their monopsony in distribution into monopolized and oligopolistic generation sector and the perpetuation of the era of self-negotiated sweetheart deals on charges to the consumers. These coldly denies Filipino consumers the right to competitively determined power rates, the opening of the generation sector to truly independent power generators, and the removal of unfair charges to consumers.

In a laissez faire economic society, we can accept the business tactics of market domination and maximization of profits. We can understand even Machiavellian and Sun Tzu methods in competition. But when these domination schemes are applied in public services like electricity, water, and telephone, it is anti-people, unpatriotic, and exploitive. Because those are essential human life needs that our people have no choice but to buy. Overcharging is certainly contrary to a supposed mission “for the welfare of the Filipino, the improvement of their lives, financial and mental integrity, true compassion for the consumers, and alleviation of poverty”.

Is this the reason the provision of electricity, water, and telephone are no longer referred to by the media as public utilities but as infrastructure projects?

Of course it is not totally the fault of MVP and his Group. The government officials whose job it is to stop these monopolization are making it possible by acts of commission, omission, disinterest, or unawares.   The loopholes in the Epira law, its IRR, and regulatory capture, were there when MVP arrived in the power scene in 2010.

Our greatness though (and legacy) will be defined as much by what we did and accomplished as by what we have elected not to do as disciplined by our true moral compass. We don’t rob just because someone left his door open overnight. We don’t rape just because we had the chance. True power comes in the judicious use of dominant force. Otherwise it is just brute force to overwhelm the weak and vulnerable especially those that failed to get the protection of its own government.  Discipline and restraint equally define our legacy especially where millions of consumers are affected.

Personally, I believe the greatest form of achievement is the one that benefits the most people. And that our legacy will reside in the hearts of those who are grateful for being given a fair deal and fair service. It cannot be done if Meralco continues to charge consumers whatever self-negotiated power generation rates they signed with their affiliated companies and for essentially eliminating competition.

If the professed mission “to promote the general welfare of the people” refer to the people who work for the MVP group, then Mr. MVP’s record and achievement is already legendary.What we hope is that eventually MVP will “see” it in his future to make it part of his legacy to treat the electric, telephone, and water consumers well, to show that what is being charged to them is truly products of genuine competition in the market place, and for Meralco as their electricity services provider to be loyal to the pursuit of least cost power by allowing arms length dealings untainted by conflict of interest.

The way things are going MVP’s legacy to the electricity consumers would be one of a menacing Meralco who, as the 800 lb gorilla with corresponding fierceness, can make the regulators, the department of energy, the legislature, and the Presidency tremble when he roars his disagreement.

He tried to tell the new President to leave business alone, when the monopolistic and consumer exploitive tendencies of the MVP group are precisely the reasons that government should protect its citizens and not leave private business alone (including in mining).

President Duterte’s government may have not yet realized that the MVP group has similarly grown another 800lb gorilla in the generation sector with the lesser players commiserating recently evidently in exchange for access to the Meralco generation market at negotiated sweetheart prices.

Consumers face captivity and burden for the next 25 years. Ironically the 25 years is coinciding with the start of the new government.  It is a national tragedy that will be a sad backdrop to a new era in governance when the Filipino nation harbors so much hope for reform against crime, corruption, and injustice.  Who will step up for us consumers?

Let us hope eventually MVP can find it in his Filipino heart to seek a legacy that will include the fair treatment of Filipino consumers.  At 70 years old now, let’s pray that MVP’s epiphany comes to him soon.

(My epiphany against consumer exploitation came to me 5 years ago hence the birth of MSK)
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org  

David Celestra Tan is a co-convenor of MSK. He is a pioneer in the IPP industry and one of the founders and a former President of the Philippine Independent Power Producers Assn. (PIPPA). A CPA by education, he is a utility economist and was an active private sector volunteer to key Senators and Congressmen in finalizing the Epira Law of 2001. He saw up close the horse-trading that went on that caused serious flaws in the law. His recent consumer advocacies in retirement are part of his desire to correct the imperfections of the law to finally achieve the law’s goal of reducing power costs, creating true competition, and preventing harmful monopoly. He hopes his “legacy” will include “he shared and tried”
david.mskorg@yahoo.com

New ERC Chairman is an Upgrade. He Deserves a Chance

by David Celestra Tan, MSK

Weeks before he was officially appointed by President Pnoy as ERC Chairman to replace ex-Pampanga Congresswoman Zenaida C. Ducut, lawyer Jose Vicente Salazar was already being questioned for his lack of energy industry knowledge and therefore will be needing a “long learning curve”. He allegedly worked as a consultant for the Aboitiz group. It was implied also that he was involved in some kind of irregularity at the Department of Justice.

Well, allow us to express our take on how this appointment could affect the power industry and the consumers, especially those in the Meralco area.

From news accounts, the new ERC Chairman has an electrical engineering degree from UP and a lawyer. He also has a Masters Degree in Public Administration from Harvard University. More important to MSK, It appears he is not a politician for a change.

Wow. What an upgrade from the previous appointees. For that matter the current composition of the ERC Commission as a whole is an upgrade from the class of 2002 to 2014 of PGMA appointees. Nothing personal, but the consumers did terribly under those commissioners as they gave in to most of what Meralco wanted to change in our rate making methodologies. Somehow the three politician Chairs of ERC under PGMA appeared to have mindsets that did not translate to “consumer first” regulation and the “public interest” mandate of the ERC.

On top of his educational credentials, the new ERC Chair apparently had served on the board of PSALM and represented the DOJ on energy related tasks. We expect he is also a Meralco consumer, probably an important real life experience needed by him to have the right perspective. We mean this guy is not clueless as being implied by early detractors and should not need to struggle through a “long learning curve” in the critical issues facing the ERC, the RCOA and RES rules included.

Part of that is the solid group of Commissioners that is already in place.

It is political season and it is no longer in vogue to heap praises on President PNoy but credit must be given where it is due. In our book one of the best things President Pnoy quietly had done was putting in better people at the ERC. The appointment of Commissioners Non and Taruc, which ironically went unnoticed by the media, was a stroke of genius, a great patriotic step towards infusing a regulatory soul into an agency that had lost its way, and a big testimony of this President’s commitment for going “matuwid” in governance. The subsequent appointment of ex DOE undersecretary Josefina Magpale-Asirit was similarly an upgrade in industry knowledge. She brought in energy policy making perspective into the ERC.

“Long Learning Curve”

We doubt that “long learning curve” will be a problem. ERC Chair Salazar is not exactly clueless. And the concept of knowing energy and having a “short learning curve” is overrated. We mean, former ERC Chair Ducut had a term of seven (7) years. Granting that she spent two years “learning” the power sector, we can assume that she can already be considered knowledgeable in power deregulation in the last five (5) years until her recent retirement. But how did the consumers do in those last five years? Dismally. There was no initiative to correct the anti-consumer regulatory rules put in by her two predecessors since 2002. It was perpetuation. Remember the Meralco rate infamy of 2013 when the Ducut ERC approved in one sitting the application of Meralco to pass on to the consumers an 80% jump in generation rates? We mean under Ducut, ERC’s conscience was not even bothered enough to take pause and ask “wait a minute, isn’t a P4.15 per kwh increase in one month too big a burden to the consumers?”

On the issue of RCOA and RES, we heard Commissioner Non is currently leading the initiative to rewrite the rules to create more competition and avoid conflict of interests that work against the consumers. It is in good hands and the ERC should be allowed to stay the course.

What new ERC Chair Salazar needs to do a good job at ERC is to have his heart in the right place. To sincerely and faithfully pursue “fair and reasonable” rates, to recognize that the promotion of true competition in the power sector is what will bring down rates, to see that opening the generation market is key to assuring continued investments for long term power supply, to balance the right of power sector investors to a fair return without sacrificing the consumers. Chair Salazar has to discern all decisions at hand from the prism of public interest. “It is only through the heart that one can see rightly” as the Little Prince said. If he is faithful to these ideals he will not be swayed, he will not be enticed, and he will not be lost.

The ERC bureaucracy also has professionals who are competent and committed to promote public interest. They just need to be led along the matuwid path towards the genuine pursuit of ERC’s regulatory mandate for fair and reasonable rates and the needed creation of a truly competitive industry environment.

ERC as “Quasi Judicial” body

One important thing ERC Chair Salazar should bring to the ERC is a fresh look at things. At the way things are done. We need new approaches.

One area that can use some rethinking and better enlightenment is how it handles its “quasi judicial” powers. The GMA ERC’s got caught too much in their “judicial” power. They operated as a court of justice, only hearing arguments and making decisions based on evidence presented. The Energy Regulatory Commission should be a provider (or enabler) of strategic energy policy decisions by sending the right “rate making methodologies” to support those goals. It is too reactive and apparently lacked its own competitive power road map. In the process it made itself susceptible to the enticements of the vested interests and hence easily got distracted. Napariwara ang Bayan. The steadfast initiatives of the team of Commissioners Non, Taruc, and Asirit to promote true competition is a new dawn in the agency long felt to be apathetic to consumer interest (although you hear them use the term in vain).

The ERC can also rethink and streamline its own regulatory coverage. Why is it necessary for it to approve rate reductions as an example? If Chair Salazar can adjust this judiciary attitude, the consumers can see much better regulatory rules that better safeguard them, an ERC that applies its regulatory power and resources on things that need regulating.

As pointed out by former Energy Secretary Carlos Jericho Petilla, Commissioner Asirit suffers from the perception that she is a niece of the powerful Rene Almendras who is a known Aboitiz man. Newly appointed Commissioner Geronimo Sta. Ana of Cebu is also reportedly a former Aboitiz executive just like Sec. Almendras. And new ERC Chair Salazar had reportedly served as a consultant of the Aboitiz group.

Unfortunately the Aboitiz group is currently appealing a finding that it manipulated the spot market and is being penalized by P200 million by the ERC. We understand the matter is already with the higher courts. We agree that this is not an ideal situation. But is the glass half empty or half full? How can anyone have deep knowledge of the energy sector, especially power, without having been involved with any of the players in some capacity? Professionals do have rights to practice their professions. What they cannot have is conflict of interest that cannot be shed, like being a family member.

The MSK as an advocacy group in the Meralco area still see the new PNoy ERC as a significant upgrade for the consumers. We will trade anytime an ERC that is unabashedly captured by Meralco that serves 62% of the country for a new ERC that is captured (granting) by the Aboitiz group that serves only 14%.

Let us give new ERC Chairman Jose Vicente Salaz+ar a chance to show that he can put the interest of the Filipino nation first and work for the ERC’s mandate to protect the public interest. It should not take him long to find his heart for the consumers.

The electricity consumers are counting on you Chairman Salazar. Please don’t let them down.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Locational Strategy Needed for Philippine Power Development

David  Celestra Tan
5 November 2014

If the Philippines were to continually develop its power supply to meet its growing needs it requires predictable and well planned generating capacity additions and a better planned proactive transmission development program.

Currently, private power generators choose their own locations based on their own parameters. Individually, they deal with the environmental and other permitting challenges in the local communities. The receptivity of local officials and militancy of cause oriented groups vary greatly. This makes for very unpredictable power project completions.

Transmission Development

On top of this, our transmission development plan is necessarily reactive in nature in compliance with the “non-discriminatory” access for transmission services mandated by the Epira Law. NGCP as the transmission service concessionaire has an obligation to build transmission lines to connect these new power projects to the grid. So in general the NGCP projects are three in nature. One, projects to upgrade old and inefficient installed facilities. Two, transmission lines to reduce congestion and or improve power reliability and redundancy. Three, transmission lines to connect new power projects to the grid. (of course there is a 4th which is to expand their coverage boundaries to increase their revenues)

The costs and guaranteed returns of NGCP on these projects are recovered from the consumers as part of the transmission tariff. If this trend continues, the transmission wheeling charges will continue to rise without really insuring that transmission lines are judiciously built and efficiently used.

As examples, due to a lack of locational strategy, new private power projects in the Visayan region are sprouting in “environmentally tolerant” islands like Panay, Cebu, and Leyte. Little is happening on Negros island. Hence, NGCP will need to build submarine cables which are very expensive. It is currently on a quandary to build an 80mw expansion of the Negros Panay submarine cable system whose costs do not actually justify the economic use.  Happily for Negros Island there are private sector investors who are undertaking power projects using biomass technology that will utilize sugar cane industry thrash that abound on Negros island. Summit group, Metro Pacific we heard and even the Lucio Tan group. It would be cheaper to upgrade the overhead transmission lines on the island itself than to build inter-island submarine power cable systems.

NGCP is rushing a 138kv transmission line to connect a new mine mouth coal plant of San Miguel in Mindanao and they have been interconnecting the other big coal projects.  On the island of Mindoro, NGCP is trying to connect it to Luzon at a cost of P11.9 billion to be paid by Luzon consumers. And the benefit? a theoretical 300mw coal plant project on the island that can supply Luzon.  Our advocacy group, MSK, argued that it will be cheaper for Luzon consumers to buy that 300mw from Luzon power projects without need for a 11.9 billion investment in transmission facilities. We hope the ERC will listen to reason.

Not many consumers are aware of the significant impact to them of PEMC’s “line rental” charges which come from congestion in the grids which in turn can be better avoided with better planned locations for power generating plants.

Talking about Luzon, the transmission line corridor from Batangas, where a lot of power projects are proposed, to the load center of Metro-Manila is already congested. We cannot continually build lines. Concentrating such transmission capacity will also make the country’s power system vulnerable to natural calamities and disasters in one area.

It is time to balance the system by similarly building power sources from other directions like Quezon and the Bataan peninsula and Zambales.  Instead of forcing the issue on locating the 600mw Redondo coal project in Subic, why not develop the old nuclear plant area in Morong as an energy zone and finally use that white elephant. There used to be a 230kv line from Morong to Hermosa but that has since been pilfered.

How about Quezon on the Pacific coast of the country? (Whatever is happening to the Laiban dam hydro project?)

Power Generating Zones

The government needs to show the way. A comprehensive study on where in the country should new power projects be developed must be conducted. Multilateral agencies would gladly help with this study like the ADB, JICA, and even World Bank. This will include the strategic thinking on the kind of fuel and technologies that can be used.  Now, if we leave it up to the private sector, it will all be coal.

On the Island of Palawan, Palawenos have been aspiring to preserve their pristine environment partly because their tourism goals require it. Their people have been so against coal and even mining. Yet, a large Filipino conglomerate who owns millions of tons of low grade coal, had been insisting of building coal power plants in the islands in a display of insensitivity to local sentiments against coal. Its all about profit and there was apparently no concern that it can undermine the tourism aspirations of the whole island province. They won the bid because they offered cheaper coal knowing that the communities are against it. Inexplicably, the DOE and the local electric coop blessed the deal. The communities won’t budge despite the provincial government support and the 15mw coal project had been rejected by communities in two towns. Now the power development on the island had been set-back 4 years and the increased cost to the government in missionary subsidies is a staggering P500 million a year if we count the other island where a similar “win the bid with coal and install diesel” strategy was done and tolerated.  The cost is passed on to the electric consumers. This unpredictability and high cost could have been avoided had there been a government strategy declaring Palawan as a clean energy zone to respect its desire for tourism development.

The challenge and costs of transmitting the power from the Solar and Wind projects under the governments Feed-In tariff program are perhaps being underestimated.  Solar developers just choose their own sites and once again it will be up to NGCP to build the connecting lines. Should these RE power just be delivered to the adjacent electric distribution utilities via cheaper 13.2kv or 69kv line?  Why is the DOE jumping from 50mw solar target under the FIT program to 10 times which is 500mw? Why not 250mw and then the 250mw is in rooftop solar which is not under FIT?  Of course with this subsidized rate investors in solar will come in droves. It is the consumers paying for them. On top of the subsidy for RE, there is this added cost of connecting them to the grid which are all passed on to the consumers as part of the transmission tariff. In Luzon it is currently P1.00 per kwh. With all these additions, how much will that be in five (5) years?

Establishing energy zones will enable the country to develop power generating supply in more predictable timetables.  Environmental requirements for those areas can be crafted to balance community concerns. These special zones can have facilitative rules and incentives similar to those provided to economic free zones.  Winners of competitive biddings for long term power supply can reduce their risks and bid more competitively.

The Department of Energy under Secretary Petilla apparently has a program to work with LGU’s to develop their own power development aspirations. We are not sure about the effectiveness and sustainability of this approach. First of all, the power development is localized and not part of a comprehensive and rational whole. Second, LGU governments are elected every three (3) years so in many cases, power projects that require long gestation can face a changed attitude from the LGU and derail the project.   

In our archipelagic country, an island by island energy development plan would be helpful. However, those have to be balanced by a national strategy that includes a sensible grid connection plan. For example, even if Panay island is very open to more power projects, connecting those generating capacity to Negros, Cebu, and the main grid will cost prohibitively in upgraded submarine cables. It would be more economical to encourage more generating capacity on the island of Negros itself. There are areas in the south of the island that can be receptive.

At some point the island of Mindanao will have to be connected to the Visayan and Luzon grids. There are so many coal projects under development in Mindanao island that it will soon become a power exporting island. We need to connect it to the Visayan Grid.

Systems Planning by Systems Operator must be separated from NGCP

A more independent System Operator is essential to rationalize a national power development plan. The conflict of interest between NGCP being both systems operator and transmission line concessionaire has to be eliminated urgently if this implementable master plan will truly happen.

It is time for a locational strategy in power generating and transmission development.

Matuwid na Singil sa Kuryente Consumer Alliance, Inc.

Email: david.mskorg@yahoo.com.ph

An Open Letter to Meralco and Metro Pacific

23 August 2014

Dear Sirs:

The Issue for Electric Consumers is whether monopolization of power supply and negotiated self-dealing projects will result to lower power rates. Why don’t you answer this issue and not whether David Celestra Tan is a saint and had a perfect career.

Don’t waste your time because I am not. I am just a duck-raisers son from Binangonan, Rizal. I pay my Meralco bill monthly. Now it is P12.44 per kwh which at $0.29 per kwh is among the highest in the world.  Last December you tried to increase it to P16.59! This is a serious problem and you should recognize it.  I am retired from power and just want to share the expertise that God happen to bless me with in the national search for solutions to high power cost.

Kindly understand that MSK and David Tan’s Advocacy is Pro-Consumers and, believe it or not, is not Anti-Meralco Per Se.

Meralco as the public utility institution is imbued with public interest and must view itself, not as the target, but as the natural arena for this public interest debate, the crucible for balancing private and public interest.

Our consumer advocacy group, Matuwid na Singil sa Kuryente Consumer Alliance Inc, is working for the lowering of electricity rates which is one of the highest in Asia.  This it hopes to achieve by promoting true competition in the power generation sector and rectifying distribution and transmission rate making methodologies that are not fair and reasonable to consumers.  We will also push for more overall  safeguards for consumers including at the WESM.

We are asking Meralco to be faithful to its mandate as a public service utility to truly deliver least cost power to its customers. This it can deliver only if it conducts business on “arms-length” basis and devoid of conflict of interest.

We assure Meralco and their media operators that we have no other agenda than these.  We will not financially or politically benefit from these advocacies other than as electric consumers.  Neither are we working with parties who are players in the industry. Our advocacy rides in the spirit and genuine concern of Filipinos who want to work for lowering of power costs that have been undermining the competitiveness of our country and overburdening our people. MSK’s strength is not in the money this non-profit organization has but in the burning advocacy in our hearts.

It is sad that our country has grown cynical of the motives of people who speak for the public and the consumers.  But yes Virginia there are still truly caring Filipinos.

In this debate we ask Meralco to address the issue of whether monopolization and self-negotiated power supply contracts that will be passed on to the consumers would be fair to the public and would result to lower rates than openly bidded bilateral power supply contracts. Later we will be tackling the unfairness and legality of the Performance Based Rate Making Methodology (PBR) and other regulated charges.

We realize that when the Metro Pacific group took over Meralco, they may have a misconception on the nature of the business and its public service obligation and the limits of the return on investment.  Meralco is a monopoly in the national capital region and serves 74% of the energy needs of the country.

No one should begrudge Metro Pacific for making gargantuan profits in the telephone business in the same manner no one begrudges the SM Group for being the largest mall operator.  That goes for the moneys being made in the real estate sector.  All because there are competition in these sectors. The consumers have choices on whether to use Smart Celfons (we miss you Sun!) or to go to the SM Malls or which condo unit to buy.

That is not the case in power sector where most of us are called Captive customers even by the Epira Law. Meralco as the public service utility has a simple mandate. Provide reliable power at least cost to the consumers.  It can deliver that only if it procures power supply and its equipment and services in a competitive, transparent, and arms length manner.

The Epira law and the ERC allow Meralco stockholders to have a regulated fair and reasonable returns on the investments you incur.  But this is not the place to squeeze every ounce of profit because all of those come from captive consumers who are hapless and have no chance to choose.  Meralco is a public utility monopoly already in distribution. There is no competition. It will work against the interest of consumers if Metro Pacific also monopolizes the generation supply on top of what already have been negotiated with  the Lopez group, its previous controlling owners.

If you wish to argue that Meralco is actually using its hulk and buying power to the advantage of its consumers and that by negotiating with itself and monopolizing power procurement the consumers will be charged less, then present your case to the public. If you disagree with our recommendations to the DOE Task Force for lowering electricity rates present your own and let’s debate. Instead you are mobilizing your massive media machinery to malign those who are raising the issues and trying to protect the consumers.  If you are trying to crush us and not bothering to address the issues , it only means you want monopoly and want the privilege of self negotiating the rates and terms that you want to pass on to the consumers.

These are the messages of consumers crying for reprieve and fairness. Internalize them a little. Most of you are also Filipinos and electricity consumers. Don’t shoot the messengers.

MSK and the David Tan’s among us should not even be raising these issues and risk getting your immense wrath.  You should be doing these in the first place if you are true to your public service mandate. It would also not be necessary if those who are mandated by law to protect the consumers, the Energy Regulatory Commission, the PEMC, and the JCPC are doing enough to protect the electricity consumers.

MSK can only be perceived to be Anti-Meralco if Pro-Consumerism is. Are these two mutually exclusive? Meralco as a franchised public service distribution utility must look after the consumers. If this idea is inconsistent with its investors profit goals, then it may have to choose between being a distributor or generator, but not really both because there is inherent conflict of interest that is inimical to the interest of electric consumers and the national competitiveness.

These notwithstanding, in a national win-win compromise, if you are able to continue with your 400mw Mauban expansion, your 600mw Redondo coal project in Subic, and your 500mw Pagbilao expansion as negotiated contracts, would you insure that the pass on rates to the consumers are in the P3.80 to P4.30 per kwh range? And would you demonstrate a true commitment to least cost power by opening Meralco’s future requirements to competitive bidding and cooperate to put the country on the road towards a more competitive generation sector?

The issues of monopolization, self-negotiated power supply contracts, conflict of interest from cross ownership, and lack of open bidding for generation cost that will be passed on to the captive consumers are serious matters for the consumers. Meralco’s posture to dismiss this as a mere media propaganda by a consumer group that can be extinguished with a vicious smear counter-campaign is an indication that you don’t really get it,  regard your captive consumers are people you can charge however and how much you want, and do not really take seriously your obligation to supply power in the least cost manner.

I am doing my duty as a Filipino and concerned electricity consumer. I hope Meralco will do its own duty as a public service utility that is faithful to its obligation to provide least cost power to its customers.

We hope Meralco can experience a public service epiphany.

God Bless.
David Celestra Tan
Matuwid na Singil sa Kuryente Consumer Alliance, Inc.

Email: david.mskorg@yahoo.com.ph

Its Time to Make Power Grid Systems and Market Operations Independent, (Part I)

by David Celestra Tan

an original blog post

I don’t know if I learned much from my economics professor but one of the few things I remember is him asking “what is the most important part of the pushcart?”. The wheels, the frame, or the push bar? This is much like the ongoing debate on what has gone wrong with our power system? The generators, the distributors, the regulators, the WESM market, the negotiated prices?

As in the pushcart, the most important part is the PLAN that dictates how all the pieces will work together.

In the power sector, behind the visible players are four (4) rule makers of which only two are being commonly discussed. The DOE, for its supposed power development, planning, and strategy function and the ERC for its regulatory function that gives price signals to all sectors.

Two other rule makers that underpin many of the workings of the power sector are subterranean but very profound in their impact not only on the efficiency of the system but also the consequent costs to the consumers.  Those are the Systems Operator (SO) and the Market Operator (MO).

The Market Operator (MO)

It makes the rules on how the Wholesale Electricity Spot Market will work and the trading and consumer safeguard rules. This is currently being performed by the Philippine Electricity Market Corp. which although headed by a DOE appointee as President is actually dominated by the “stakeholders” who are composed of the power generators as inserted in the Epira Law of 2001 specially during the critical times in its inception when the trading rules were being established.  Nonetheless, the Epira law provided that this is temporary and an Independent Market Operator must have been appointed long time ago.

For all the things being said about new Energy Secretary Carlos Jericho Petilla as a politician and as a newbie in the power sector,  compared to his last three predecessors, he  is at least thinking outside the box looking for solutions and making do with what he has at the DOE and PEMC Bureaucracy. It is refreshing that he is at least pushing for the appointment of an Independent Market Operator (IMO) so that the trading rules of WESM can be balanced for the consumers and not be dictated totally by the “stakeholders” who benefit from the rules.  (where did that P62 per kwh market cap come from?) It is only through the appointment of an IMO that the WESM rules can be made reasonable. It is currently so stacked against the electricity consumers.

The Systems Operator (SO)

According to the WESM website,” In simple terms, the MO is responsible for coordinating all the commercial aspects of WESM transactions while the SO takes care of the physical implementation of these market transactions”. The roles of the MO and SO in scheduling and dispatching power are defined in Chapter 8 of the Philippine Grid Code.

If the IMO is being at least discussed, the appointment of an Independent Systems Operator (ISO) is not  commonly brought up.  The Systems Operator dictates how the grid will function including the rules of grid connection.  That is currently performed by the concessionaire National Grid Corp. of the Philippines, which is dominated and managed by State Grid Corp, of China.

The economic and efficient dispatching of power supply to the national grid needs to be operated by a truly independent system operator to assure the fair and competitive access and the transmission of power in the most cost effective manner. Allowing the transmission services provider to also act as the system operator, who makes the access and competition rules and establishes metering points as revenue-gates, creates a conflict of interest that lead to profit-motivated systems decisions that cause higher charges to consumers.

NGCP has been observed by generators and distribution utilities to be making rules that appear to be motivated by a desire to retain and expand service coverage and hence revenue for the transmission company NGCP.

The independent systems operator is supposed to implement rules of connection for generators and distributors in ways that will be economically and technically efficient. The Epira Law also mandates that it must provide access to all users and promote competition in the power marketplace.

NGCP however has been overreaching its transmission service coverage using its authority as systems operator.  It must concentrate on expanding and upgrading the HV transmission system to efficiently and economically transmit major power sources to the load centers.  The congestions in the transmission systems have been causing  a significant increase in charges to the consumers referred to as “line rental charges” which is apparently a term used by PEMC to refer to line congestion and transmission systems losses.

A lot of conflict has been on the ownership of sub-transmission lines of 69kv in most areas and 115kv in the Meralco area and the connection lines of the embedded generators.   NGCP has also been at loggerheads with power generators in its attempt to extend the boundaries of its service ownership up to the power substations of the power generators.

Part of the problem is the method of setting and approval of the Transmission Development Plan which , like its cousin Power Development Plan prepared by the DOE,  is a hodge-podge of projects driven purely by the private sector with little locational strategy.

As an example, NGCP has been applying to build a 230kv submarine transmission system to connect Mindoro Island to Luzon at a cost of P12 billion that the Luzon consumers will pay for starting from the planning stage.  It was based on a dubious claim that Luzon consumers will benefit from a 300MW coal power plant that can be built on Mindoro island when the the nearest coal reserve is 18 kilometers away in another island of Semirara. Luzon consumers can source that 300mw from the  generators in Luzon island itself without paying for a P12 billion transmission system.

Actually under the Epira Law that provided under Section 21 the privatization of Transco, it clearly defined the role of the buyer/concessionaire (NGCP) to “be responsible for the improvement, expansion, operation, and/or maintenance of its transmission assets and the operation of any related business.”

The responsibilities of the National Transmission Company (Transco) as defined under Section 9 clearly includes that of being theSystems Operator, a function that is not authorized to be included for transfer to the private concessionaire as specifically defined by Section 21 on Transco Privatization.

How NGCP, as managed by the State Grid of China, was allowed to arrogate unto itself the right to be the Systems Operator is perplexing.   NGCP, who as facilities investor and operator of the transmission grid, has a right to a fair return on its investment. However, for it to be the rule making body for grid connections as System Operator, is to give them the right to print money by making rules not for power transmission efficiency and market competition but to optimize its revenues, a prescription for unnecessary increases in pass-on charges to consumers.  This is probably the business model that the SM Group bought into.

State Grid of China obviously has the technical and operational skills and financial muscle to do a good job as a concessionaire. And it is the Filipinos who put them in the position to be both systems operator and transmission services provider.  Chinas power grid is a monopoly and the State Grid of China’s operating mind set is that of a monopoly and not for opening the transmission system for the promotion of open market competition.  NGCP is not a fit for Systems Operator if the Philippines is to be successful in creating a truly competitive generation market.

So why is that a problem for consumers?

NGCP makes its money as a return on the value of its assets used in the service of transmission of power. The more extensive its assets and system coverage the more assets it will have and hence the more revenues it will be allowed. It is determined by the ERC as the Maximum Allowed Revenue.  It is computed based on the value of its installed assets and because of Performance Based Rate making (PBR), also on their projected or promised investments.  As in Meralco, they do not have to make the investment as long as theoretically they deliver the “performance” that is prescribed for them.  PBR allows for regulated distribution utilities and the transmission company to make a profit even on investment that they only promised and have not yet incurred.

There is a need to insure that NGCP’s proposed projects are really based on what a competitive national grid requires and not just for expansion.  The ERC is supposed to have a Grid Management Committee that will oversee the activities of NGCP.

Anti-distributed generation and embedded generation

The Department of Energy, the Energy Regulatory Commission, and the Joint Congressional Power Committee may not be realizing that NGCP’s interpretation of the Grid Code and its role and discretion acting as the System Operator is resulting to increased centralization of power and anti-distributed generation and embedded generation, denying electric users and small distribution utilities the opportunities to save the P0.90 per kwh transmission charge for the consumers and the attendant 3% energy transmission losses.

Embedded generation is the production of power within the territory of the user or distributor and feeding power directly to their distribution system as opposed to generating power from large power plants from long distances that had to pass through high voltage transmission lines. This is an essential part of creating a reliable power system in an archipelagic country like the Philippines and unequivocally encouraged by the  Epira Law and the Philippine Grid Code.

Obviously if these embedded generators do not pass through the transmission system, NGCP does not generate revenue from that power.  NGCP, as the systems operator, makes the required grid-impact studies for power projects.  They however are observed to be foot-dragging and restrictive when it comes to embedded generators and owners of connection lines apparently to protect their revenue interest.

Embedded generation and distributed generation in increasing capacities and wider adoption is a technological wave of the future especially for the Philippines that has so many islands.

One way to assure that is to make sure the Systems Operator who implements the rules of transmission competition is truly independent with pure focus on technical and economic efficiency for the consumers.

Ancillary Services

NGCP as the system operator has been negotiating ASPA’s or ancillary services purchase agreements and passing on the cost to the consumers. These are supposed to provide reserve and voltage regulating services that may be needed by the national grid to make it reliable and stable.  Supposedly they have signed about 400mw of such ASPA’s but in the system debacle of November and December 2013 in the Meralco area, the reserve power services that the consumers have been paying seems unaccounted for. Were they instead traded in the Wholesale Electricity Spot Market (WESM) at P33 per kwh?

Did NGCP demand the delivery of those reserve power when they were needed? This aspect has not been explained.

Awakening Transco

To assure that the national grid operates better and configured for technical and economic efficiency for the consumers, the appointment of a truly independent system operator is long overdue. As a minimum the governments own Transco can be the Systems Operator, independent from NGCP.  It must do the Transmission Development Plan . To professionalize, it must be provided with the ability to hire, train, and retain good talent. More importantly it must be infused with a deep public service soul.

There is a need to review the Philippine Grid Code to clarify many grey areas to make sure none is misinterpreted for their profit-interest.   It should not be forgotten that the Philippine Grid Code and many of the rules approved by the ERC were actually written by the old National Power Corp. whose mindset was similarly monopolistic.  We need to update the rules according to the new paradigm of open market competition.

Quality of transmission facilities

Transco must be asked to assert itself as the asset owner to set standards on the equipment and facilities that are being installed and charged to the consumers.  It is in a better position to assure that the performance standards required by the Philippine Grid Code is complied with by the concessionaire.

Our power pushcart needs to work better so that Electricity consumers can receive the proper services that they pay for. The Plan and Rules from independent systems operator and WESM market operator is an imperative.

Part II – A Need for an Energy and Power Planning Commission with enforcement power.       

 

Politics & Government - Top Blogs Philippines

Power Supply, Monopoly, WESM, and Tide

by David Celestra Tan
an original blog post

Like stand-up comedian Johnny Carson used to ask in his joke routine, name four things that clean you better than Clorox? Answer for Meralco consumers: Tide, Sweetheart Power supply, power monopoly, and WESM

The electricity consumers in the Meralco area will be taken to the cleaners more by the evolving power supply industry with unbridled monopolies and the unchanged electricity spot market or WESM.

The Department of Energy had launched a task force to come up with ways to reduce electricity prices in the country. Members are Meralco, Electric Coops, Generation industry lobby group PIPPA, Chambers of Commerce, government agencies, consumer groups, and other stakeholders. The first serious deliberation is July 17, 2014 yet.

In his introductory speeches DOE Secretary Jericho Petilla mentioned about requiring distribution utilities to contract 100% of their power requirements through bilateral contracts, an evident attempt to discourage overdependence on the volatile Wholesale Electricity Spot Market, which market failure caused the 74% one month increase in generation charges in December and an abhorrent spike of 100% in January.

In the recent two weeks, there has been a distinct campaign in the media raising the alarm bells that requiring distribution utilities to contract 100% of their power requirements through bilateral contracts will increase the rates to consumers. One columnist went as far as singing the praises of the WESM by saying “a wholesale spot market.. is the only way to go if we want a sane power sector. It is the only mechanism for independently benchmarking prices. Consumers will be more vulnerable to profiteering and monopoly pricing without the spot market”. “The spot market is a better guarantee for fair pricing for a product beset by constantly varying costs” the column continued.

Is this the same WESM that had a P62 per kwh allowable bid price with an average of P33 per kwh in November and December? Is this same PEMC whose supposed elaborate market monitoring and audit team failed to raise a hoot even if the prices skyrocketed to P62 per kwh in certain hours because “it did not violate” the rules? Is this the same PEMC whose patriotic conscience was not even bothered that the generation charge in the Meralco area jumped 100% in January?

WESM is low now because it is temporarily under close scrutiny by the ERC, DOE, and the consuming public. It is subject to a market secondary cap by ERC. Players who exploited the market are apparently trying to strategically behave so that the current rules will not be changed. What will they do when no one is looking again?

Obviously the media campaign is on behalf of someone who does not want to be forced to enter into bilateral contracts with independent power generators. Actually this analyst believes that it is not really entering into bilateral contracts that they fear but the move of the DOE and ERC to mandate that all bilateral contracts for the captive markets should be subjected to open competitive bidding. That will preclude them from negotiating sweetheart deals with their own power generation projects, which they announced to be 3,000mw.

In fairness to Secretary Petilla, what he appear to be espousing is really less dependence on the volatile WESM spot market not the literal 100% bilateral contracting. Obviously the concept needs some refinements in mechanics.

More on WESM.

WESM has been not only Meralco’s favorite pass-on charge but pass-on-blame since its launching in June 26, 2006. Over the years Meralco always blames the WESM for increases in generation charges. That and El Nino and NPC. When its rates skyrocketed by P4.15 per kwh in November and P5.00 per kwh in December 2013, Meralco thought nothing of passing it on to the consumers with the approval of the ERC before Christmas of 2013. When the consumers revolted with the timely Supreme Court petition of Bayan Muna, Meralco belatedly asked the ERC and PEMC to re-run the market. Now it appears they are campaigning to have the WESM rules maintained as is with its mandatory pool and market clearing price system that have so battered the consumers. For the general public, the maintenance of the current rules of WESM offers the Metro Pacific Groups 3,000mw power generation projects under Meralco PowerGen a built in incremental market for excess capacity at market settling prices or revenues in the range of P10 to P33 per kwh.

Open Bidding not negotiated Monopolization

What should be of concern to electric consumers is not really that there will be bilateral power supply contracts because there should be power supply. It is the negotiated sweetheart prices and monopolization by Meralco instead of opening it for open competitive bidding that can overcharge the consumers. Open bidding is the only way the electric consumers can have a chance at lower competitive generation rates.

The 3,000mw of negotiated sweetheart contracts are an in-your-face affront to the clear words and spirit of the Epira Law for a competitive market and its anti-monopoly, anti-market domination, and anti-competitive aspirations. It is up to the DOE and ERC to step in to stop the rampaging monopolization.

As to the cleaning agent Tide, it has been consistently judged in consumer surveys to clean better than Clorox. For you kids, Johnny Carson was the long time host of the Tonight Show before Jay Leno and now Jimmy Fallon.

Politics & Government - Top Blogs Philippines