Meralco cross-subsidization under scrutiny

By Myrna M. Velasco – February 26, 2017, 10:00 PM

from Manila Bulletin

The government policymakers’ lens of scrutiny is now shifting into the alleged cross subsidization between customer-segments that Manila Electric Company (Meralco) has been reportedly engaging in, hence, its reluctance to go for a fully-unbundled retail competition and open access.

Meralco initially questioned before a Pasig regional trial court the enforcement of mandatory RCOA and the disbandment of its local retail electricity supplier (L-RES) business unit in the subsequent phase of the industry’s retail competition. The recent restraining order of the Supreme Court, however, was from the petition of other groups.

Energy Secretary Alfonso G. Cusi indicated to media that allegations of cross-subsidization are among those they have been seriously examining as they contemplate on modifying the governing rules for the industry’s retail competition sphere.

“They’re saying that there’s cross-subsidization that’s why there’s a need for separate RES for DUs (distribution utilities), that there should be unbundling of cost for transparency,” he indicated.

Cross subsidization is the practice of charging higher prices to one group of consumers to subsidize lower prices for another group – which many economists view happens in state of monopolies in industries.

It has been emphasized that with the local RES (L-RES) being used as a vehicle for the DUs, there would still not be enough transparency and separation of business segments, thus, concerns of cross-subsidization cannot be categorically stopped and fully ascertained.

“I am not saying that my frame of thinking is right but I am validating… we have those questions that are not being answered,” Cusi stressed.

There have been allegations that the country’s biggest power utility engaged in such during the November-December, 2013 tight supply crisis relative to Malampaya’s shutdown – that it had to offer low rates to its industrial end-users so it can compete in the RCOA space, but dumped the hefty rate hikes to its captive residential consumers, thus, the social upheaval that happened during that time.

Details are not also fleshed out or separated on its power supply contracting – as to which volume/capacity or supply contracts are allocated to its L-RES serving industrial end-users; to the capacity off-take it has been underwriting for residential subscribers.

On the proposed new Department of Energy (DOE) Circular that intends to relax the RCOA Rules, Energy Regulatory Commission (ERC) Chairman Jose Vicente B.  Salazar said “I eagerly look forward to an intensive and thorough discussion with them on this soonest.”

For the meantime, he is assuring customers in the contestable market “that amidst these recent developments and whatever future developments there may be, their interests will always be given prime attention and consideration by the Commission.”

As of press time, the central registration body at the Wholesale Electricity Spot Market (WESM) has indicated that 140 contestable customers already asked formally to have their RCOA switching applications deferred.