Viewpoint: Meralco asks DOE to delay bidding for 1,800-MW supply

By Lenie Lectura -April 28, 2020
from Business Mirror

THE Manila Electric Company (Meralco) is asking the Department of Energy (DOE) to delay the conduct of a competitive auction for 1,800 megawatts (MW) of power capacity requirement.

Meralco President Ray Espinosa said the DOE has approved the terms of reference (TOR) for the 1,800MW power supply agreement (PSA).  The company wants to schedule the bidding at a still undetermined date amid the Enhanced Community Quarantine (ECQ).

He explained that Meralco’s  biggest concern is the volatility of fuel prices and uncertainty of prices going forward.

“While the DOE has cleared our terms of reference for the 1,800 MW CSP, we are in dialogue with DOE to discuss with them a possible push to a later date of this CSP given the volatile fuel prices in the market today.

The volatility is so high that it would be difficult for us to have a proper valuation, which is a distinguishing criteria to determine who will win in the CSP,” said Espinosa.

He meant that if the bids are evaluated now using artificially low fuel prices, this could be disadvantageous for consumers because when the PSA is implemented in 2025, fuel prices go back up to normal levels. Also, bidders may raise concerns about submitting binding bids given prevailing uncertainty.

“The other problem with CSP today is the ECQ, which actually prevents us from holding face to face meetings with the bidders for conducting and receiving voluminous documents that will accompany each bid,” added Espinosa.

The DOE has yet to act on Meralco’s request. “We are addressing the details with the DOE and we will just inform everyone on the decision of the DOE once we get it,” he said.

The 1,800MW PSA consists of the 1,200MW PSA that was supposed to undergo a second round of CSP  combined with “portions from 1,000MW and 500MW baseload CSPs that were supposed to be conducted this year.”

According to Meralco utility economics head Lawrence Fernandez, the company  was supposed to conduct three CSPs this year. These are 1,000MW baseload for 2025, 500MW baseload for 2027 and 600MW mid-merit for 2023.

Last year, Meralco conducted three CSPs. These are the 1,200-MW baseload capacity starting 2020, 500MW mid-merit starting 2020 and the 1,200-MW baseload starting 2024.

The first two CSPs were successful but the last one resulted in a failed bid. Meralco had pushed for the conduct of a second round of CSP for the 1,200-MW baseload starting 2024 but later on decided to discontinue this.

“On top of the 1,200MW last year, we were supposed to have two more baseload CSPs this year. We just combined the 1,200MW and portions (600MW) from the two other baseload CSPs this year to make it to one new CSP of 1,800MW,” he explained.

He added Meralco will review the line up after the 1,800MW is bidded out to consider the effect on present and future power demand of the current situation.

 

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

David Celestra Tan, MSK
9 January 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Please.

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

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