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

True Competition in Power…. Our Simple But Very Elusive Dream

David Celestra Tan, MSK
29 December 2019

The supposed aim of the EPIRA Law was simple enough. To assure sufficient supply of power at fair and reasonable costs. To achieve that, it is supposed to create true competition to give consumers the benefits of least cost.

Agreeing on that general objective turned out to be the easy part even at the legislative bill’s birth as the Omnibus Power Bill.

To create true competition, it is supposed to privatize the power sector that had been a government monopoly, unbundle the industry into five sectors, deregulate it where there will be competition in each one. To insure that it will work, the Energy Regulatory Commission was created and supposedly strengthened with motu proprio mandate to protect the public interest, i.e. insuring that there is true competition and the consumers receive least cost power. The Department of Energy was tasked with providing the policy direction towards those aims.

It is the how that became a battle of vested interests. And the reason the bill took more than six (6) years to complete and pass in June 2001. By that time though, the law that was finally named The Electric Power Industry Reform Act of 2001 (EPIRA for short) or Republic Act 9136 was so full of loopholes to accommodate the all out lobbying of the vested interests, mainly Meralco.

Cross Ownership

The first battleground provision was on cross ownership where clear minded legislators wanted to prohibit any cross ownership among the three main sectors, generation, transmission, and distribution. This was thought to be critical to creating true competition.
A powerful Mindanao Senator quietly negotiated cross ownership to prohibit only between the Transmission Company and the power generation and distribution. There can be cross ownership between a distribution utility and generation companies which found its way in the law as Section 45, the most hypocritical, inconsistent, and deceptive provision of the law.

The senior Senator Juan Ponce Enrile was totally against cross ownership because he knew its implications to true competition but he compromised once he realized the law will not pass unless the vested interests and their allies get their way. In fact, Senator Enrile proposed only 30% of its power requirements that a DU can buy from an associated generating company. Meralco itself had been lobbying for 35%. In the last two days of finalizing the Epira Law, it magically became 50%! Worse, it is 50% of the DU’s demand, not also energy requirement. A subtle but big difference. Even the Senator was surprised.

I am not sure whether even Senator Enrile and the Osmena cousins imagined that this opening can spawn the creation of not only an 800-lb gorilla in power distribution but also an 800lb gorilla in power generation.

Essentially, the government owned power generation monopoly will be taken over by a private power generation cartel who has the added advantage of having also the distribution monopoly, something even the government monopoly did not have.

Cross ownership prohibition would have insured that even if there is an 800lb gorilla in distribution, there would be enough 200 to 400 lb gorillas in generation competing healthily against each other to reduce the pass on generation charge to the consumers. The distribution charges even by an 800-lb gorilla are thought can be regulated by an ERC. (Or so we thought)

In June 2015 the Department of Energy passed a rule mandating the subjecting to Competitive Selection Process (or bidding) the procurement of power supply for the captive markets. It is amazing to see most distribution companies, Meralco and even electric coops in the off-grid areas, continue trying to play games to control who wins at what price. Everyone is trying to outsmart true competition.

The Simple Dream of True Competition will remain to be very elusive until the ERC Shares the Dream.

The several versions of the ERC’s new CSP guidelines prominently included loopholes for swiss challenge, unsolicited proposals, and exemptions for negotiated contracts. So far it had held in abeyance its supposed new methodology in computing the concentration of generating capacity to determine compliance with market domination limits. We have yet to see a new commitment to true competition.

 

It is a new year. Another year to hope.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

An Uncontrollable 800-Lb Gorilla in Distribution like Meralco is Disruptive of Social Order.

And What They are Trying to be is Even More Menacing.

 

David Celestra Tan, MSK
23 December 2019

An American riddle goes:  “Where does an 800-Lb Gorilla Sit?  Answer:  Anywhere it wants to!”

“800-pound gorilla” is an American English expression for a person or organization so powerful that it can act without regard to the rights of others or the law. It is so powerful (either by size or by influence) that it does not need to heed the rules or Threats of others.

In American economy a dominant organization that can overpower competition and government is called an 800-Lb Gorilla. It dictates on the market and stumps on competition and many times even captures government regulation. American free enterprise on which the Philippine economy is patterned is founded on a truly functioning market competition to protect the consumers. And it frowns upon 800-lb gorillas.  It is vigilant on anti-competitive behavior and has a strong anti-trust legislation. When AT&T became so big as to dominate 70% of the telecom sector, they broke it up into baby-bells. In recent years they investigated Microsoft, Apple, Amazon, and Facebook for anti-competitive behavior.

In our country, Meralco as a distribution utility is no less dominating as the proverbial 800-Lb Gorilla. They serve 74% of the energy needs of Luzon and about 65% of the whole country. Its mega-franchise covers Metro-Manila and the National Capital Region, 36 Cities, 75 municipalities, the nerve center of the country’s economic, industrial government, and education activity.

To feel the imposing dominance of Meralco as a distribution utility, all of the country’s 138 electric distributors combined is not even half the size of Meralco’s 7,399mw, fully 68% of the 10,876mw demand of the main island of Luzon. And it is also the fastest growing at an average of 6.8% in the last 9 years. This is probably faster in 2019 when the POGO’s and business process sectors boomed in Metro-Manila.

Meralco’s mega-franchise area is bigger than the service areas of Manila Water and Maynilad Water combined!  And it is not just the  imposing size but the demonstrated voraciousness in the pursuit of self-dealing opportunities that makes it menacing.

Meralco’s financial might is just as overpowering. Its market cap is P428.3 billion, Annual revenues of P304.5 Billion, EBITDA of P37.2 billion, net income of P23.0 Billion, and cash resources of P36.42 billion. One call from Meralco and the banks shiver if its deposits are pulled out. One complaint from Meralco threatening to pull out their groups multi-million advertising can turn newspapers into pussycats. And don’t forget that we have elections every three (3) years.

Their annual advertising budget and regulatory compliance resources exceeds P500 million a year, ironically approved by the Energy Regulatory Commission and charged to the consumers as part of the PBR rate.

So, “How much does Meralco charge its customers?…. Whatever it wants to!

The Performance Based Rate making method allowed by ERC enables it to make  25% return on investment a year. It makes money on projected investments that it did not have to make.  Most of its power supply are negotiated. It tried to get away with 3,551mw of self-negotiated power supply with its own Meralco PowerGen with the gratuitous facilitation of the regulators who are supposed to protect the consumers. They almost got their way.

How much money can it make? ….. How much ever it wants to! 

As said so far they are making 25% per year. Their systems loss charges are essentially non-transparent charging Metro-Manila residents almost 10% above their 7.5% average and same as the outlying towns.  Their distribution charge is supposed to be P1.38 per kwh. But look at your bill if you consume 400kwh and more just like half of the consumers, and it is P2.98 per kwh. Meralco and ERC claims it is due to reallocation of the rate among different consumer classes. But it defies mathematical logic how an average of P1.38 per kwh will result from a high of P2.98 charged to a big portion of the residents and business establishments in Metro-Manila and the lowest is P1.01 per kwh.

What competitive rules does Meralco want to follow?…. Whichever it wants to!

Now rebuffed by the Supreme Court, it wants to do the CSP in its own way anyway. It managed to get a friendly version of the CSP guidelines passed in February 2018. Now it is resisting any form of safeguards that the DOE Secretary Cusi wanted on the CSP for the 1,200mw Atimonan coal project. The ERC for its part tried to get the DOE to adopt another Meralco friendly version of the CSP guideline. (Curious). 

Who does Meralco need to capture to assure he gets his way?… Whoever he needs to!

After being turned down in January 2016 by the then new ERC Chair Salazar to allow them to do CSP on swiss challenge basis, the ERC Commission apparently eventually gave in to Meralco in March 2016 for a friendly CSP and extended the CSP implementation to April 30, 2016. The consumer group Alyansa Para sa Bagong Pilipinas cried foul and complained to the Supreme Court, who found ERC guilty of extending the CSP without authority and ordered Meralco to undertake a CSP under a DOE CSP rules DC2018-02-0003. It appeared Meralco was ahead of the game. The DOE DC2018-02-0003 it turned out was very friendly to it with Meralco having full control of the CSP process.  And the DOE? It was relegated to being an “Observer”under Section 7 who cannot participate in the deliberations and needed to be invited by the DU to even become an observer. Do you think the DOE Guideline DC2018-02-0003 just happened to be everything Meralco wanted if it has to do a CSP as subsequently ruled by the SC? 

What does Meralco need to do to capture the regulators?… Whatever it needs to?

I guess there is no need to discuss the obvious. With so much multi billions a year at stake, resources, overpowering organization, culture, tenacity, and public information control, it can do whatever it needs to do maintain its firm grip on the evident regulatory capture, administration by administration.

How much of its 7,399mw power supply does it need to buy from itself? However much it wants to!

That’s what they are trying to do.

An 800lb gorilla would disrupt the country’s social, political, governance, moral, and economic order.

It is however not totally the evil deeds of Meralco. As a profit oriented private company, it is in its DNA to try to exploit opportunities to make money…as much as the rules (or implementors) are allowing. It is even possible that all these profit exploitations they are doing were presented to them to be legitimate earning practices by the people who sold the DU to them as part of the “sales pitch”.

It is really up to the regulators and policy makers to keep things under control and protect the consumers from being abused. Since 2001 when the Epira Law was passed however we have had eight (8) Energy Secretaries and six (6) ERC Chairmen, with no sign that this regulatory agency is starting to extricate itself from the firm clutches of regulatory bondage by Meralco. There is no argument that so far these government agencies have failed the public. That said, even when the opportunities are there, it doesn’t mean a franchised public service provider should exploit and abuse the vulnerable public if the policemen are not there to protect them. You don’t exploit the opportunity just because it is there. But then we cannot rely on the moral compass of the people running it.

We should really be able to rely on our regulators and policy makers. After all the Epira Law of 2001 that created them was very clear on their motu proprio responsibility to protect the public. We are just not implementing them with public interest in mind.

This is where the socio-economic disruption of an 800-lb Gorilla becomes menacing to consumers and governance. It is too uncontrollable…and irresistible.

What is even worse than having an 800-Lb Gorilla in Distribution?  Allowing another 800-lb Gorilla in power generation as is the evident corporate aim of Meralco PowerGen.

Ever wonder why industrial giants and fierce competitors like Ramon Ang of San Miguel, Aboitiz Family, Metro-Bank, DM Consunji, Ayala Group, Lopez Group, EGAT of Thailand, knelt down and commiserated to MV Pangilinan of Meralco to become his minority partners in the infamous 4,005mw midnight power supply contracts?

Because Meralco controls the market for power, the 800-lb gorilla of power distribution, they are essentially the gate-keeper to the power generation industry.  They are not only the 800-Lb Gorilla, there is no one even close to being a 150-Lb Gorilla. The two 2nd and 3rd biggest are The Aboitiz group’s Visayan Electric in Cebu only has 500mw and Davao Light has only 400mw.

Anyone who wants to build a power plant in the 300mw and above range will need to

Gain access to the huge Meralco market.  San Miguel saw it, Aboitiz knew it. Metrobank did too and sold its Global Business Power 1,000mw portfolio to the MVP group.

You cannot blame EGAT because they enjoy the most expensive coal power price that are passed on to the Filipino consumers. And their 460mw expansion that became San Buenaventura was reportedly originally offered at P4.80 per kwh and became P5.30 per kwh (10% higher) and became owned 50% by Meralco PowerGen.

The Ayala Group? They also saw it but was left out of the Meralco cartel. They sold their stake in GN Power to Aboitiz and decided to go “clean” energy. So does the Lopez Group which is now concentrating on natural gas.

Even the supposed solar energy initiative of Meralco in Bulacan turned out to be controlled by the MVP Group.   How much of the Solar Philippines agreement with Meralco will end up being owned by the MVP Group? Only time will tell.

Not many people realize that had the 3,551mw midnight 7 PSA’s gone through, it would have created a 14,000mw coal power cartel because the five (5) Meralco Powergen partners already owned more than 10,000mw of coal power plants in the country. This is Meralco imposing its will on the DOE and the President on the country’s energy mix and climate change goals.

We are sure at some point, Meralco media operators will claim that Meralco’s 4,005mw (including San Buenaventura) would be less than 50% of Meralco’s demand by the time they come on line in 2025. Unbeknownst to most people is that the 4,005mw actually represent 65% of the energy (kwh) needs of Meralco, way over the 50% allowed by Section 45 of the Epira Law.

How can it get away with it? Of course you can if you have been allowed to be the 800-Lb Gorilla in distribution and if also allowed to become the 800-lb gorilla in generation.

How will the electric consumers be treated by an 800-lb Gorilla? Anyway it wants to!

What’s unfortunate is the Epira Law for all its imperfections has enough provisions that can protect the public if used by an enlightened government. Yes, even by ERC. In fact it can easily shrink that 800-Lb gorilla to 600-Lb and be not as menacing. And the cards are there to further shrink it to a healthier 400-Lb Gorilla that will be more respectful of us the consumers.  

It will be sad if it is not done under the current government. We hope that at some point we realize that electric power service is about public service.

As we say in MSK, if not now when? If not you, who? 

Happy New Year!

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

HEROES OF OUR TIMES – IN THE POWER SECTOR (Part 1)

David Celestra Tan, MSK
29 November 2019

Part 1

The way we the electric consumers are being treated and overcharged, the way our distribution utilities and sister generators and partners try all sorts of schemes  to outsmart government attempts to create true competition and get away with them, the way our own government officials always succumb to the enticing power of the vested interests and fail to step up for the public interest, the way our approving agencies somehow funnel lucrative RE and ME government subsidies to evidently favored applicants, the way all these end up overcharging us the poor consumers, and the way the prospects for reforms in this country of ours seem bleaker by the day, it is easy to give up and think that our government officials are hopelessly apathetic to really looking after our interest, and that they are all part of this national conspiracy against us the people as electric consumers. Are they soul less or just clueless?

The more things and people change in the government agencies that oversee the power sector, the more things seem to remain the same or worse for the people.

Before we all give up on our race and country,  letus recognize a few knights in shining armors who over the years have done somethings to right the course for the electric consumers. Let us give them due credit and be inspired by their refreshing and hopeful statesmanship.

  1. First on our List is former Energy Secretary Carlos Jericho Ikot Petilla.

If CSP or competitive selection process have been in the news, a cornerstone of our power procurement policy,  and a raging battleground between Meralco and the rest of us, it is because Ikot Petilla saw the abuse of the consumers from negotiated power supply contracts and took the bold move to do something about it ….despite risking the ire of the major conglomerates. He passed a government policy to require competitive bidding for power supply contracts that will be passed on to the consumers and thus ushered in the CSP era in the main gridon June 2015 just before he resigned to run for the Senate, leaving us a lasting legacy. (CSP had been required in the missionary areas since 2004)

Up to that point, distribution utilities in the main grid like Meralco have been happily negotiating the power supply contracts that are all passed on to the consumers with whoever they choose and at whatever price and terms they can get away with.

Unfortunately IkotPetilla did not make it to the Senate in the 2016 election, denying us of one of the best Senators for energy that we never had.  Petilla ironically had the dubious distinction of putting in the CSP rules and at the same time had the bad luck of choosing an ERC Chairman who will not exactly be faithful to Petilla’s vision of a truly competitive generation market.  CSP may not still be perfect but at least it is a work in progress.  Without Petillas landmark move we still would not have a chance.  Thank you Sir, we are forever grateful. Hopefully at some point in the future, we will get the CSP done right.

  1. Current Energy Secretary Alfonso G. Cusi (and President Duterte)

a). One person who is fighting hard to insure that the CSP practice is adopted and done right is current DOE Secretary Alfonso G. Cusi. Before President Duterte got elected in 2016 and before Secretary Cusi got appointed, Meralco’s and ERC’s maneuverings to circumvent the CSP policy have already been in motion in April 2016.

After the Supreme Court declared ERC’s postponement of the CSP policy to be illegal and hence the resulting power supply contracts that exploited the extended time need to go back to the drawing board and undertake CSP’s, the challenge of insuring, under immense lobby pressure from friends and politicians, that the CSP process is done right and not manipulated fell on the shoulders of Secretary Cusi. And he has a tough job since he is also battling the CSP maneuverings of his own bureaucracy.

We understand he is working on new CSP guidelines to tighten the rules.

b.) He had done more though. One thing Secretary Cusi saw early in his tenure as Energy Secretary is the need to accelerate power supply capacity building. Key to that is reducing the red tape of permits needed by power plant developers. With his sponsorship, President Duterte signed into law Executive Order 30 that mandated that government agencies must act on applications of approvals of projects of national significance within 30 days. Even the controversial 1,200mw Atimonan One project got a certification. EO30 and the CEPNS mechanisms would help mitigate the biggest stumbling blocks in getting critical power projects finished which are local and government approvals and endorsements.

Already many critical power projects all over the country are moving forward faster to alleviate power supply in their areas. Unless they have problems with complying with the CSP rules.

Secretary Cusi’s EO30 and EPNS vision will benefit power projects in the future as we try to catch up in our capacity building.  Thank you Sir. And thank you President Duterte.

c.) Curbing abuse in missionary subsidies

Another thing that Secretary Al Cusi had noticed that past Secretary’s did not pay attention to is the multi-billion rise in missionary subsidies in the off-grid areas.  These are passed on to the consumers.  When the government owned Napocor applied to increase the generation charge to the poor islands in the off-grid islands by P3 per kwh (Can you imagine socking missionary areas with a P8.50 per kwh generation charge compared to P5.50 in Manila?) Secretary Cusi ordered NPC to stop it and instead to look for ways to save the P1 billion by improving efficiency and eliminating waste in generation costs where NPC’s cost had risen by P3.5 billion only in two years from 2016 to 2018.

On behalf of the electric consumers in the off-grid areas, we thank you sir.

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

Viewpoint: Competitive Selection Process for Power Supply Agreements: The Supreme Court Decision and the Responses of the Energy Regulatory Commission and the Distribution Utility Companies

By David A. Tauli
President, Mindanao Coalition of Power Consumers

1. The Supreme Court issued its final decision on July 2019 which required all power supply agreements submitted to the Energy Regulatory Commission after June 30, 2015 to comply with the Competitive Selection Process as defined in the 2015 DOE Circular (DC2015-06-0008), “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).”

2. In response to the SC decision, the Energy Regulatory Commission has directed all distribution utility companies with power supply agreements that are affected by the decision to submit to the ERC by December 2019 their explanations for each PSA showing that they carried out a legitimate competitive selection process prior to entering into the PSA with the generating company that was awarded the power supply contract by the distribution utility company.

3. The majority of the current set of commissioners the Energy Regulatory Commission are untainted by the apparent corruption in the previous ERC regimes prior to the chairmanship of Agnes Vicenta S. Torres Devanadera. Only one commissioner still remains from the corrupt regimes of the ERC. So consumers can expect the current ERC to be fair in their determination of the power supply agreements that complied with the Competitive Selection Process as defined in the 2015 DOE Circular.

4. The result of the evaluations of power supply agreements by competent and honest ERC commissioners should be that the ERC will require all PSAs for which legitimate competitive selection processes were not done to be subjected to the least-cost supply provision of the EPIRA, of which the DOE-mandated CSPs are forms of compliance. (The LCS provision of the Electric Power Industry Reform Act of 2001, EPIRA, states in Rule 7, Section 4h, of the Implementing Rules and Regulations: “A Distribution Utility shall supply electricity in the least cost manner to the Captive Market within its Franchise Area, subject to the collection of Retail Rates duly approved by ERC.”)

5. But even if we assume competent and honest ERC commissioners, the consumer groups should prepare to study all the decisions that the Energy Regulatory Commission will be making in their review of the PSAs in order to ensure that all the PSAs that were not subjected to legitimate competitive selection processes will be required by the ERC to undergo honest-to-goodness CSPs. The ERC under CEO Devanadera has been making decisions that result in fair and reasonable rates, but most of the generating companies will likely try to suborn the ERC into approving PSAs that were not subjected to proper CSPs. If generating companies with illegitimate PSAs are required to go through CSPs, the result will be a great reduction in the prices of the power supplies from these generating companies. It is even possible that the contracted generating companies will not win in the CSPs carried out by the distribution utility companies. Corporate disaster, which could be avoided by bribing the ERC commissioners. The vigilance of consumer groups will discourage the ERC from yielding to the temptations of the generating companies.

6. EXAMPLES

Following below are statements from sample applications for approval of PSAs by the ERC that were submitted by distribution utility companies. It requires only an evaluation of such statements in the PSAs to determine whether a legitimate CSP or LCS was conducted by the distribution utility company that submitted the PSA application. In Example A, the DU obviously carried out an appropriate competitive selection process, and thereby complied with the least-cost supply requirement of the EPIRA. In Example B, the DU clearly did not carry out a generally-acceptable competitive selection process. Example C is a PSA application from a DU that purports to have conducted CSP, but probably carried out a moro-moro that the DU and their accomplice generating company used to fool or suborn the ERC into approving the PSA.

6.1 EXAMPLE A: Verbatim statements in the PSA application of CEPALCO concerning the CSP or LCS process that the DU supposedly carried out:
“CEPALCO solicited offers from potential power suppliers, including its affiliate MINERGY COAL. Evaluations conducted by CEPALCO on the offers received disclosed the following results (excluding Fuel Cost):

Offers Supplier A Supplier B Minergy Coal
PhP/kWh 3.63 3.77 3.56

Comments:

6.1.1 Specific offers are mentioned by CEPALCO, along with the respective prices, the truth of which can be verified from other documents submitted to the ERC by CEPALCO, or by asking CEPALCO to submit confirmatory documents if these were not attached to the PSA application.

6.2 EXAMPLE B: Verbatim statements in the PSA application of MORESCO II concerning the CSP or LCS process that the EC supposedly carried out. “Given its demand growth and in order to obtain a secure and adequate supply of electricity for its member-consumers during this time, MORESCO II sought out other generation companies and sources of electricity in the Mindanao Grid and solicited offers and/or expressions of interest from these power suppliers to supply its growing power requirements;
“Among the offers that MORESCO II considered was one from FDC MISAMIS which made an offer to MORESCO II to supply its power requirements….”

Comments:

6.2.1 No mention is made of other generating companies that submitted proposals to MORESCO II, so it is certain (unless the lawyer was lazy in writing the PSA application) that MORESCO II did not send solicitations to other generating companies, nor did it post any public advertisement for its power supply requirement, thereby violating a basic requirement for acceptable CSPs and LCS processes. It can be verified, by examining the documents that were attached to the application submitted to the ERC by MORESCO II, that MORESCO II did not send solicitations to other coal generating companies (such as GNPower and the San Miguel power corporation that were marketing power supply at that time), and did not make any public advertisements. And upon such verification this PSA would be declared “null and void ab initio” for having violated the EPIRA.

6.2.2 This PSA application was submitted to the ERC before July 30, 2015, so it is not among those that will be reviewed by the ERC as a consequence of the Supreme Court decision. But it is expected that petitions will be submitted by consumers to the ERC to also review PSAs submitted before July 30, 2015 in order to verify compliance with the LCS requirement of the EPIRA.

6.3 EXAMPLE C: Verbatim statement in the PSA application of BUSECO concerning the CSP or LCS process that BUSECO supposedly carried out.

“Competitive Selection Process. BUSECO invited interested bidders to supply its 5 MW peaking power requirements for the 2nd quarter of the year 2018 pursuant to Energy Regulatory Commission Resolution No. 13, Series of 2015 directing all Distribution Utilities (DUs) to conduct a Competitive Selection Process (CSP) in the procurement of their supply to the captive market and in accordance to BUSECO’s duly approved Competitive Selection Process Guidelines through Board Resolution No. 2016-013. The public bidding was participated by two (2) interested bidders, namely, Bukidnon Power Corporation (BPC) (now assigned to NBPC with consent of BUSECO) and Solar Eagle Renewable Energy Corporation.”

Comments:

6.3.1 Based on the statement, it appears that BUSECO conducted a CSP in accordance with the ERC resolution. But, from an examination of the documents submitted to the ERC in the PSA application, it could be found that BUSECO conducted a fraudulent CSP, as evidenced by the following facts:

6.3.1.1 Other generating companies, generally known to electric cooperatives in Mindanao that could supply the particular power supply required by BUSECO, were not invited to submit proposals.

6.3.1.2 The only other generating company that submitted a proposal was a solar renewable company, which could not possibly supply the PEAKING power requirements being solicited by BUSECO. Of course, BUSECO ruled out the proposal of Solar Eagle, leaving it with the generating company that it pre-selected prior to initiating its moro-moro of a competitive selection process. (Truth be told, bidder no. 2, the solar energy company, also was pre-selected by BUSECO so that two proposals could be submitted, thereby complying with the CSP requirement for at least two bidders, without jeopardizing the proposal of the favored generating company.)

6.3.2 Verification by the ERC of either of the foregoing two facts through an examation of the documents submitted by BUSECO should result in the ERC deciding that this particular PSA did not carry out an acceptable CSP. Of course, this assumes (which is reasonable to do so at this point) that there is at least one
honest and competent commissioner in the ERC who participates in the evaluation of the PSAs. Here, I reiterate this requirement for competent and honest commissioners who will carry out evaluation because the fraudulent PSA submitted by BUSECO was approved by the ERC.

6.3.3 The main intention of the Supreme Court decision, which is also the main intention of the EPIRA in requiring “least cost supply”, and also the main intention of the ERC and DOE directives on “competitive selective process”, is that competition among suppliers should prevail in the acquisition of power supply by the distribution utility companies.

6.3.4 If a distribution utility company enters into a power supply agreement but acts in an anti-competitive manner in the process (e.g., not sending requests for proposals to known power suppliers, specifications in the terms of reference that restrict competition, advertisement in newspapers with limited circulation – all of which were committed by BUSECO in this case), the ERC should not approve the PSA. If the ERC approves such PSAs, which happened in this case, the ERC commissioners are culpable and could be sued for corruption.

7. CONCLUSIONS

7.1 By objectively evaluating the power supply agreements, the Energy Regulatory Commission should be able to determine which of the PSAs did not carry out a generally-acceptable competitive selection process or least-cost supply process.

The distribution utility companies that entered into PSAs without legitimate CSPs should be required to carry out CSPs or LCS processes for the power supplies that were already contracted.

7.2 If a competitive selection process or least-cost supply process is carried out for an illegitimate power supply contract and the same generating company wins, then the price offered by the generating company, which probably will be much lower than the price in the original power supply agreement, will be made effective from the date when consumers started paying for the power supply from the generating company. Power consumers win.

7.3 In order to ensure that the commissioners of the Energy Regulatory Commission are not suborned into approving power supply agreements that have not gone through a legitimate competitive selection process (it can be shown that such anomalous approvals have been done many times in the last two ERC regimes), consumer groups should participate in the evaluation process if this is made public by the ERC, or study the decisions of the commissioners on the PSAs if the ERC carries out the evaluations behind closed doors. As the foregoing examples show, straightforward evaluation of the documents submitted by the distribution utility companies and simple verification of the facts need to be done in order to recognize when generally-acceptable CSP or least-cost supply process has been carried out by distribution utility companies. Legal expertise is not required to determine illegitimate power supply agreements; only due diligence.

8. IMPLICATIONS of the SC Decision for Power Supply Contracting in the Electric Cooperatives (which, with MERALCO, have been blatantly anticompetitive in their purchase of power supplies for consumers)

8.1 The SC decision on competitive supply procurement will be the start towards ensuring affordable rates for power supply for consumers of electric cooperatives, not only in Mindanao but throughout the Philippines. It means that the electric cooperatives will have to conduct honest-to-goodness competitive selection processes or least-cost supply processes for all their purchases of power supplies. And the electric cooperatives will no longer be able to pre-select the “winning” bidder for their power supply contracts.

8.2 The pre-selection of generating companies for PSAs by the electric cooperatives has been the main driver for the corruption of the officers of the electric cooperatives (the general managers and the members of the Boards of Directors, but these officers have also corrupted their upper level management employees). From the year 2012, the officers of most of the electric cooperatives in Mindanao established an S.O.P. in their power supply contracting in which the preselected generating company pays to the EC officers a minimum of one million pesos per megawatt of power supply contracted by the EC. This money goes to the officers of the electric cooperative; it has never been reflected in the books of accounts of the electric cooperatives. The SC decision has effectively eliminated this source of funds for EC officers, so there is now little inducement to spend money in order to be elected as a member of the board of directors. There is still money to be stolen from purchases of materials and equipment by the EC’s, but the amount from this is small in comparison to what was made available by the dirty generating companies. Power consumers win.

8.3 Even so, the current officers of the electric cooperatives, most (maybe 99%) of whom spent a lot of money to be elected to their positions, should be expected to continue to look for other ways of cheating their consumers in order to enrich themselves. The only way to stop corruption in the electric cooperatives is to organize and educate consumer groups in the franchise areas of the electric cooperatives to work as watchdogs over their ECs.

8.4 All power consumers should give thanks to God for the work that was done by the Alyansa Para Sa Bagong Pilipinas, Inc. (ABP), which moved the Supreme Court, against the objections of the ERC, to bring about a regime of justice in the determination of the rates that should be paid by consumers for their power supplies. In December 2016, the ABP filed the petition at the SC versus the ERC, DOE, MERALCO and a number of generating companies that were contracted by MERALCO. The petition asked that the SC should order the Energy Regulatory Commission to require the distribution utility companies to carry out competitive selection process in entering into power supply contracts with generating companies. (Why the ERC has to be ordered by the SC to do something which the EPIRA mandates as the prime responsibility of the ERC is another, long and sordid, story.) It is a result of this petition filed by the ABP that all power supply agreements submitted to the ERC after July 30, 2015 will be required to undergo CSP if the ERC determines that legitimate CSP was not done by the distribution utility companies in contracting for their power supplies.

8.5 As mention by the recently-retired Associate Justice Antonio T. Carpio, the Supreme Court is upholding the Philippine Constitution in the decision that resulted from the petition filed by the Alyansa Para Sa Bagong Pilipinas. Section 19, Article XII, The Philippine Constitution of 1987: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

David A. Tauli
November 2, 2019

Viewpoint: The 52-Billion Pesos Mindanao-Visayas Interconnection Project

Demonstrating how the NGCP makes money for its owners and for the banks at
the expense of electric power consumers
By David A. Tauli, President, Mindanao Coalition of Power Consumers

Last month, the National Grid Corporation of the Philippines scheduled a public forum in Cagayan de Oro where they said they will discuss ongoing projects of the NGCP in Mindanao, particularly the Mindanao-Visayas Interconnection Project (MVIP). I told Mike Baños who received the invitation that we now have an
opportunity to the NGCP about the economic feasibility study that they presumably carried out for the project, which they estimate to cost 52 billion pesos upon its completion in 2020. However, the NGCP cancelled the public forum, so we could not ask them about their financial expectations for the MVIP.

Since 2011 the NGCP has filed a number of petitions to the ERC seeking approval for various components of the MVIP, and in July 2017, they got provisional approval from the ERC to implement the project. But in all those petitions and hearings, the NGCP never showed what will be the increase in the rates that consumers will paying for electricity when the MVIP becomes operational. There also was no quantification of the expected benefits to consumers from the implementation of the interconnection project.

In the absence of information coming from the NGCP or the ERC, I carried out a
basic financial analysis of the MVIP, and here are the numbers I arrived at:

1. Average rate to be paid by consumers who use the MVIP to convey the power
supply delivered to consumers from generating plants in Luzon or the Visayas (in
the case of consumers in Mindanao) or from generating plants in Mindanao (in the
case of consumers in Luz-Vi): 1.90 pesos per kWh
2 Annual profits of NGCP over a period of 30 years for constructing the MVIP: 2.0
billion pesos
3. Annual interests paid to banks (for 30 years) who provide the loans (70% of
project cost) for the project: 2.6 billion pesos

These are based on the standard return to equity and interest on debt that are allowed by the Energy Regulatory Commission for transmission line projects or distribution line projects, so there would be nothing irregular about the profits of the owners of NGCP (the majority shareholders being Henry Sy, Jr. and Robert Coyiuto, Jr.), and the interest earnings of the banks (probably those owned by Sy and Coyiuto or their relatives). However the electric power consumers who pay for these profits and these bank charges will not get any monetary benefit from the project in the form of reductions in the costs of purchased power or improvements in the reliability of electric service.

When the Leyte-Mindanao Interconnection Project (as the MVIP was then called) was first proposed in the 1990s by the National Power Corporation, the economic justification for the project was for power consumers in Mindanao to be supplied with electric power from the geothermal power plants in Leyte. It was then estimated that power supply from the Leyte geothermal plants conveyed through the LMIP would cost a total of 3.00 pesos per kWh, whereas building a coal power plant in Mindanao would cost at least 4.00 pesos per kWh. So consumers would be saving at least 1.00 per kWh with the construction of the LMIP. And the NPC could legitimately earn profits, while the banks could legitimately earn interests with the construction of the interconnection between Visayas and Mindanao.

Comparison of the Mindanao-Visayas Interconnection Project of today with the Leyte-Mindanao Interconnection Project of the 1990s:

Item MVIP LMIP
Annual profit of NGCP or NPC 2.0 billion Pesos Adequate Adequate
Annual interest earnings of banks 2.6 billion Pesos Adequate Adequate
Impact on rates paid by consumers Increase of 1.90 P/kWh Reduction of 1.00 P/kWh

A conclusion that could be drawn about the ongoing construction of the Mindanao-
Visayas Interconnection Project is that it will earn money for NGCP and for the banks, but will give no significant monetary benefit to power consumers that would compensate for the increase in the cost of power supply imported through the interconnection.

The ERC Erred in Approving the Implementation of the MVIP

Another conclusion that can be drawn from doing an economic evaluation of the interconnection project is that the ERC erred in granting provisional approval in July 2017 for the implementation of the MVIP in ERC Case No. 2017-034 RC.

The application submitted by the NGCP states that implementation of the MVIP will: (1) allow excess generation in one grid to be exported to another; (2) promote competition in the electricity market nationwide through the electricity market; and (3) aid the Visayas Grid during peak intervals when the solar plants are not delivering power. However, nothing has been published by the ERC or the NGCP
about the monetary benefits to consumers of attaining these objectives of the MVIP. Thus, it can be concluded that the ERC did not require the NGCP to quantify the benefits to consumers from a project worth 52 billion pesos, all of which will be paid for by the consumers. In addition, of course, the consumers will pay the profits of the owners of NGCP and pay also the interest charges of banks that finance the project.

The ERC decision in the case of the MVIP can be compared with the decision of U.S. regulators in approving the implementation of the New England Clean Power Link (NECPL), which is a 1,000 MW, HVDC transmission project that will extend 154 miles from Canada to Vermont and New England in the U.S., and is estimated to cost $1.2 billion upon completion in 2020. Benefits to consumers from the implementation of the NECPL include the following: (1) Total energy savings for Vermont ratepayers: $245 Million (first ten years of operations); (2) Total energy savings for New England ratepayers: $1.9 Billion (first ten years of operations); and (3) Vermont electric ratepayers will receive an additional $136 million reduction in transmission costs.

The point in making this comparison of the process of approval of regulatory agencies in different countries is that it is necessary for private-sector proponents of infrastructure projects to quantify the costs and benefits of the projects in order to show to the regulators that the monetary benefits to the users of the projects will be greater than what the users will be paying for the project. In the case of the MVIP, the power consumers will be made to pay 52 million pesos and also pay the profits of the owners of NGCP and the interest charges of the banks without any assurance that they will receive monetary benefits commensurate to the payments they will be making to NGCP.

Stop the MVIP

Power consumers should work on stopping the ongoing construction of the MVIP,
unless the NGCP can prove that the benefits to consumers from the interconnection
project will exceed the costs that they will be paying for the MVIP. How to stop
the MVIP will have to be discussed elsewhere.

October 9, 2019

Will the ERC and DOE Remake Themselves as a result of the Supreme Court Ruling on Meralco CSP? (Part 3)

David Celestra Tan, MSK
14 June 2019

In the ongoing saga of the MVP Group’s money making schemes to also monopolize power generation and charge Meralco customers self-negotiated sweetheart electric rates for the next 20 years,  the cause oriented group Alyansa Para Sa BagongPilipinas (ABP) had petitioned and the Supreme Court had spoken that ERC’s extension of the date for the effectivity of the CSP policy is beyond its authority and therefore illegal. Consequently all power supply contracts that were applied with the ERC after November 7, 2015 should undergo competitive selection process or bidding.The biggest lot of those is Meralco’s seven (7) PSA totaling 3,551mw with a guaranteed 28 Billion kwh a year sales for 20 years, fully 80% of the energy needs of the National Capital Region.

In its ruling GR 227670 the Supreme Court not only ruled on that issue but also reiterated enlightening provisions of the Constitution on other aspects of jurisdiction, governance, and autonomy related to ERC that the regulatory agency had been ignoring for a long time. If heeded, these constitutional reminders would have long term implications on the ERC and DOE as oversight institutions for the public interest.

Here are some excerpts of the Supreme Court Decision:

  1. On Page 2 on unfair competition and protection of public interest

Section 19, Article XII of the 1987 Constitution provides: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

The State grants electricity distribution utilities, through legislative franchises, a regulated monopoly within their respective franchise areas. Competitors are legally barred within the franchise areas of distribution utilities. Facing no competition, distribution utilities can easily dictate the price of electricity that they charge consumers. To protect the consuming public from exorbitant or unconscionable charges by distribution utilities, the State regulates the acquisition cost of electricity that distribution utilities can pass on to consumers.

As part of its regulation of this monopoly, the State requires distribution utilities to subject to competitive public bidding their purchases of electricity from power generating companies. Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities. Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution utilities.

x-x-x

Section 6, Article XII of the 1987 Constitution provides: “The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”

Indisputably, the use of electricity bears a vital social function. The State, in requiring competitive public bidding in the purchase of power by distribution utilities, has exercised its constitutional “duty x xx to intervene when the common good so demands. “

  1. Page 16 Functions of DOE and ERC

Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that th