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

David Celestra Tan, MSK
9 January 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


MatuwidnaSingilsaKuryente Consumer Alliance Inc.

The Vision of ERC’s Composition According to the Epira Law (Part 2)

Part 2

11 June 2018

III. The vision and mission of the ERC are actually simple.

 The vision is for the Assurance of adequate supply of electricity, entry of the private sector, and the assurance of fair and reasonable rates.

The missions are to open the sector to true competition as a way to encourage investments and achieve least cost power for the consumers.

Actually being a Good ERC Commissioner should not be that complicated.   It should not take lawyers and scientists to take these simple vision and mission to heart and make them their guiding stars.

IV. Lost in Translation….and Implementation

When I was a volunteer technical analyst for one of the key framers of the Epira Law from 1998 to 2002, poring over volumes of position papers from regulatory foreign consultants from the USA, England, and Australia,  I picked up one truism from a USA regulator. “we know we wanted to deregulate, we just forgot why”.

I thought at that time it was cute. Just did not realize that it will be so true on many people who will be implementing the Epira Law.

It is in the implementation that we forgot the why of the Epira Law. As an institution with such mandate that will define the power sector that is vital to the country’s industrial competitiveness, to our quality of life, and to our cost of living, the ERC lost its way and soul after the first Chairman, a lawyer but non-politician, was replaced by a succession of politician-lawyers.

To start with, the Epira Law was set up to be circumvented with the influential lobbyists inserting ambiguities and watering down many provisions on cross-ownership, competition, anti-monopoly, rate setting. Even the privatization of NPC assets was set up that early to be corralled by them at bargain prices. One group tried hard to marginalize the electric coops evidently to make them easier to take over as they have been trying to do for years.

          How did the ERC end up with so much responsibilities and power under the Epira Law? The common answer was that the Bicam framers of the law did not trust the DOE. To this observer though, looking at the exchanges of drafts and counter drafts in the Bicam, I believe the key Senators were more inclined to concentrate the power in the ERC as the regulator because It is obvious their patrons want to retain their influence in the implementation of the new law, and the proven way to do that is through the regulator, the ERC as they did in the old ERB.

The succession of lawyers Chairman seemed more interested in “outsmarting” the law, stretching the boundaries of logic and patriotism, and forgetting one thing sacred that is even higher than the Epira Law which is basic protection of the public interest.

To them it seems the implementation of the Epira Law was a game.  Being lawyers, they seem to have felt so powerful in interpreting (and selectively implementing) the law the way they want. And as politicians, it appeared making deals in writing rules that accommodate their friends and still be technically within the language of the law was the big game and feeling of empowerment.  One Chairman gave most of what Meralco wanted and resigned after to run for Congress but lost despite his campaign war chest.  By the way, his implementation of the Epira Law caused a P2 per kwh jump in Meralco’s rate that up to now we have not recovered.

In the last four years one let down for the consumers is the new Commissioners demonstrated no interest in recognizing the anti-consumer nature of the rules and showed much less interest in changing them.  Is it professional courtesy to the previous Commissioners? How about the consumers and country?

A big part of what’s wrong with the ERC is its adoption of strictly judicial processes that prevents legitimate concerns of consumers from being duly heard. The judicial system of ERC seemed designed to stifle consumer views and favor the moneyed applicants specially private distribution utilities whose battery of highly paid lawyers are charged to the consumers as part of their “regulatory compliance” budget approved by the ERC.

The problem with the current strictly judicial processes is that it had not actually resulted to fair and balance decisions at the ERC especially when it comes to rates and rate setting rules. Not many people know that private distribution utilities are effectively no longer regulated so they can make unlimited profits. And not many realize that we have breached the power generation limits aimed by the Epira Law and that there is now a cartelization.

This bias for the judicial system is a serious concern now that it seems most of the incoming new commissioners to replace the retiring ones are reportedly lawyers.  The legalese problem will continue and can worsen.

V. Inter-Disciplinary Challenges at the ERC

It is true that as a quasi-judicial body, the ERC needs one or two lawyers as commissioners. But the ERC also needs knowledgeable members in project finance  and in power generation and distribution. They need veteran electrical engineers.

If you are a new ERC Commissioner, you are of course given briefings on how things work within the Commission. So you learn and are made to accept that the methodologies that are in place are the right way of implementing the law, including all the anti-consumer provisions and eschewed processes. The details of 100’s of applications are so much that  it will take you about a year to even start wondering (from your conscience) why things are that way. Why specific provisions of the Epira Law are not being implemented and why public interest is not being protected.  You are thrown to the trees before you can see the forest.

Of course one thing you are pre-conditioned is that the ERC Commission is a collegial body.  To belong, a new Commissioner has to play ball and be one of the boys.  Commissioners are known to have heated disagreements. The way some of them roll their eyes when one of them is clearly favoring some applicants.

Most of the appointees to the Commission are actually highly intelligent. However, the learning curve is long for a lawyer to understand the inner workings of power generation, the intricacies of project finance upon which their rate setting is based, the ground level challenges of power distribution in the islands. CPA’s might be able to pick up the WACC concepts but they too will take time to learn the technical.  It appears it is not emphasized to them ERC’s mandate to protect the public interest.  While they are learning, they are subject to manipulation of the more senior commissioners or senior directors. The dragon establishment is just too big.

VI. Creating a Good Commission

The Epira Law made an effort to attract good talent by providing attractive salaries and retirement packages by providing in Section 39

“The Chairman and members of the Commission shall initially be entitled to the same salaries, allowances and benefits as those of the Presiding Justice and Associate Justices of the Supreme Court, respectively. The Chairman and the members of the Commission shall, upon completion of their term or upon becoming eligible for retirement under existing laws, be entitled to the same retirement benefits and the privileges provided for the Presiding Justice and Associate Justices of the Supreme Court, respectively. “ That means attractive and set for life pensions in the millions a year.

  1. Choice of Commissioners

The credentials established by the Epira Law are only the start. To create a good commission that can balance the interest of stakeholders and the consumers and the country’s hope for industrial competitiveness, the process of choosing Commissioners and the expertise mix need to be made more objective and multi-sectoral. Even more important is the judiciousness of the appointing authority, the President of the country.

Is it possible to be conflict of interest sensitive? To aim for independent thinking professionals who are not sponsored by and beholden to the big players? Many of us are Christians, proud Filipinos and highly patriotic. But if we owe our appointment to a vested interest, we are already compromised and surely will not be independent.

  1. Presidential Mandate

As important as His choice, is the mandate that he gives to his appointees. The power sector is so important to the country and people that the President of the country needs to provide a clear direction that hopefully will be in synch with his general objectives for the Filipinos. We cannot aim growth, employment, and economic development if our power supply and services are manipulated and overpriced.

The needed systemic and structural reforms at ERC can only happen if the President champions it. Unless we get lucky and the appointed Chairman recognize these problems and takes it upon himself to lead the reforms. It should not really take long to figure out what needs to be reformed. The Epira law provides the main mandates. Just add a true care for public interest, a good heart and spirit,  and we are in business.

  1. Structural Reforms at ERC

Perhaps the Commission can be restructured for disciplinary specialization. Regulated (transmission and distribution) from Deregulated Sectors (generation and csp), Missionary areas and subsidies. Power Generation. Competitive markets. Disputes. Consumer Concerns.   This will allow for efficiency and a shorter learning curve for Commissioners because they can focus initially in certain areas.

The ERC needs a stronger and professional bureaucracy. Career people who will be loyal to the Commissions mandate under the law. People who will dedicate themselves to the pursuit of the ERC’s vision and mission and to the protection of public interest.  The Epira law provided for their trainings and for their competitive and proper compensation.  They are the ones who can help Commissioners shorten their learning curves. The ones who can make the Commission function continuously in the service of our people.

The equally important structural reform is streamlining the ERC. For the Law to lighten its load. For it to not to regulate what should not be regulated and vice versa. For it to be less judicial resulting to time wasting postponements and the denial of consumers viewpoints from being heard.

People expect that there will be major changes in the make up of the Commission. Some are retiring and some are resigning it is reported. We feel bad for these good professional people. The fire breathing dragon turned out too big for them. Or were they just swallowed by the system?Coming from its recent turmoil, it will be an opportunity for the country to rethink and review the methodologies and processes.

This time let us hope we will be more loyal to the vision of the ERC Commission as defined by the Epira Law. Let us undo the mistakes of the early years and be better guided for the future.

Let us now choose new Commissioners carefully. We cannot afford another 10 years of overpriced and exploitive electricity.

Electric consumers are Filipinos too.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

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.

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.

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”

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