The Ugly Picture of Meralco’s Violations of Consumer Rights

David Celestra Tan, MSK
31 October 2016

Your organization Matuwid na Singil sa Kuryente Consumer Alliance Inc had been formed to fight for consumer rights in the Meralco area, more particularly abusive power rates.

Our first action was in 2011 when MSK opposed the construction of an P11.9 billion submarine cable system to connect the island of Mindoro to Luzon whose cost will be passed on to the Luzon consumers. It was close to quiet approval by the ERC until MSK asked simple questions and the applicants cannot justify it including the claim that Luzon will benefit from a 300mw coal plant in Mindoro where there are no coal mines. The expensive overhead transmission line will go all the way to San Jose Mindoro Occidental. It turned out the project was actually to enable a coal company to build a power plant on his island and only needed a shorter submarine cable line to nearby San Jose Mindoro go tap the main power market of Luzon. Very imaginative at the expense of the consumers. That project was shelved I think saving the the national electric consumers P0.04 per kwh in unnecessary transmission charges. That supposed 300mw from Mindoro is now being sourced from Luzon based generators without the need for building an P11.9 billion transmission line.

It has been a lonely fight for consumers. As a consumer advocacy group, one thing that has been surprising to MSK is the seeming apathetic attitude of government officials, the media, and the consumers themselves to consumer rights and its abuse and violations.

In our previous posting of the guest article of former Secretary Cielito F. Habito on consumer rights he asked questions that are very relevant to the Meralco consumers.

How can companies providing various goods and services that are part of our daily lives keep getting away with practices amounting to abuse and exploitation of their consumers—the very people that keep their firms alive? Why is it so hard for exploited consumers to band together, organize and collectively assert their rights to get what is due them, or at least what is promised them by the companies they patronize?” 

Meralco consumers are probably taking a double take when consumer abuses by the distribution utility monopoly is raised. For Meralco consumers are inundated by ads and testimonials from businesses that have benefited from Meralco’s various energy saving programs. Let grant that those good deeds are true. That is not where the consumer rights are being violated. It is the rights of its captive consumers who are 40% of their customer base but provide them with 60% of their profits. They are treating them like captives.

Let us start with defining the rights of Meralco’s consumers or more accurately Meralco’s obligations to its customers.

Violation of Consumer Rights under EPIRA Law or RA 9136.

1. Abuse in Generation Rates

Meralco is required by the Epira Law of 2001 under its Section 23 “to supply electricity in the least cost manner to its captive consumers”. That is not only on generation but also on their distribution charges.

The MVP Groups continued refusal to subject to true competition the power generation supply and charges that are passed on to the consumers is a blatant denial of the fundamental Consumer Right to “least cost” power. Worse to insist on negotiating them with their own sister generators. MSK submits that the only way to assure that it is least cost is to truly market test them in an honest competitive bidding for those contracts. Not “least cost” as self-servingly defined by the MVP Group and not as it incredulously claim to have “aggressively negotiated” with their majority owned generating companies under Meralco PowerGen.

Meralco is ramming through the ERC and Congressional JCPC the seven (7) midnight contracts totaling 3,551mw that would deny consumers competitive power for 20 years. We estimate the sweetheart overprice would amount to at least P0.50 per kwh or P12.5 billion a year.

This is more arbitrary exaction than government taxes which at least have foundations in law, go through rigorous legislative process and scrutiny, and the money, at least for the most part, goes to the people in running government and public services. Columnist and author Rigoberto Tiglao asserts with seeming irrefutable trail, that the Profits that Meralco proudly announces ironically go out of the country to Indonesian owners. For MSK, overcharges and violations are illegal and should not be allowed whether by Filipino or foreign owners.

2. Abuse in Distribution Rates

The Epira Law also requires Meralco as the distribution utility to charge fair and reasonable rates. Its use of PBR is exploitive. Its systems loss charging system is non-transparent and deceptive. They present a systems loss charge of 6% on the bill but if you compute in the back, the system charge is actually 10%, higher than the 8.5% supposed limit.

Section 43(f) of the Epira Law required distribution utilities like Meralco to adopt rate setting methodologies that are “in the public interest”. Section 25 says its returns must be based on investments “incurred”. Under PBR it is charging for projected investments not yet incurred. PBR as currently used by ERC and Meralco is contrary to law.

The recent discovery by MSK that Meralco is allowed by the ERC to keep excess profits coming from growth in energy sales over the “projected” sales shows the length and depth of rate abuse (and collusion?). Yes, 7% actual growth as announced by Meralco itself vs projections of 3.7%. Isn’t that obviously an 89% excess? In fact Meralco just announced a 9% growth in energy sales.

MSK actually had filed a petition to the ERC to order Meralco to account for the excess for the period 2011 to 2015 and refund the estimated P2.9 to P5 Billion in overrecovery. (This anomalous methodology was inherited by the new ERC Commissioners. The question is will they do something about it now to correct the sham and abuse?)

Consumer Smugness

Ironically, Meralco consumers do not show concern now, and consequently government officials don’t see a need to act, because the generation rates are temporarily low due to the lucky drop in the world old prices. And helped by a carefully crafted Meralco PR campaign to condition peoples’ minds. The increase in the ability to pay of Filipinos from the BPO and Overseas Employment and the prosperity from the rise of the property values of the lucky landed gentry, make them unconcerned about their electric bill. One day though we will all wake up when the devil of all these self-negotiated contracts will come and haunt all of us consumers and all we can do is cry. The MVP Group then will take cover and claim their constitutional right to “sanctity of contracts”.

This is like the drug problem that had been neglected for so long until it became a national epidemic.

MSK is trying to raise the alarm bells now.

Part of the eerie apathy comes from the cynicism of government officials and consumers themselves on the genuinness of the consumer groups’ agenda. For it is true that many consumer advocacy groups have come and gone, some clearly formed to only project a support for Meralco’s on going agenda and to disappear afterwards. These pseudo consumer groups are normally led by lawyers. One went as far as filing a case in the Supreme Court against Renewable Energy.

3. Government missing in action

There are any number of government agencies who can step up to defend the consumers from abuses specially in electricity. Yet most of them are quiet. The Department of Energy and the Energy Regulatory Commission whose jobs it is to provide policy and enforce regulations to protect the public interest. The JCPC of Congress whose job it is to oversee the implementation of the Epira to assure they are complying with the law, one of which is the protection of public interest. There is the Bureau of Consumer Affairs at the Department of Trade whose job it is to protect consumers under the Consumer Act. The Energy Committees of the lower and upper chamber of the legislature, their Chairmen and almost one hundred committee members, who at least should look into these abuses. The Executive Department whose job it is to look after the general welfare of consumers as taxpayers and voters, and to promote national economic competitiveness. One hopeful sign is the Philippine Competition Commission whose job it is to enforce the rules of the Competition Act and prevent abuses by businesses.

Open violation of consumer rights by Meralco has been ugly. Your organization MSK will continue its fight for regulatory reform. Maybe some of you can give a hand and let your own legislators and regulators know your concerns. Write President Digong. It is only through our collective voices that we consumers can be heard!

Evil triumphs only if good men do nothing. Otherwise it becomes ugly for us consumers.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Meralco’s Lower Rate Temporary, Due to Luck Not Rate Reform

David Celestra Tan, MSK
16 October 2016

We Meralco consumers have been enjoying lower electric rates for more than a year now and it has been God-sent albeit temporary. The current reduction of P1.54 per kwh in generation rates have been due to the opportune drop in world oil prices and can change in cycles. We can achieve a more permanent and enduring P1.50 per kwh reduction through systemic reforms by banning self-negotiated contracts. The MVP Group is cartelizing 100% of Meralco’s power requirements and one day Luzon consumers will wake up with a price shock. Remember Dec 2013?

There is a concerted media campaign touting that Meralco’s rate is now low, that the Philippines is now the 3rd highest rate in Asia and no longer 2nd to Japan. Australian International Energy Consultants once again said it is because the other Asian countries are subsidizing their power. And while IEC is quoted to be saying it is due to the drop in fuel and coal prices, it also gives credit to a claim that Meralco has been aggressively negotiating competitively priced power supply agreements (PSAs) with new suppliers.

The IEC press release is evidently designed to convince President Digong, the DOE and ERC, and consumers that Meralco’s rate is fair and reasonable and that part of it is Meralco’s “aggressive negotiation of competitively priced power supply agreements”.

Let us get past the chaff and go to the grain of Meralco’s rates.

A. Generation Rate

1. It is true, as IEC studied, that between January 2012 and January 2016, Meralco’s generation rate had come down by 28%. MSK’s research showed P5.4643 per kwh in 2012 and down to only P3.9238 per kwh, a reduction of P1.5405 per kwh.

2. It is also true that the major reason is the drop in world oil prices and coal. MSK’s research showed that from 2012 to 2016 world oil prices dropped from $90.72 per barrel to only $34.13, a reduction of 62%. Indonesian Coal prices went from $105.61 per ton to $52.32 in the same period or a drop of 50%.

We dare to say that the ONLY reason for the lower Meralco rates is due to the lucky and opportune drop in world oil prices that also cause reductions in coal prices. A major columnist of Phil Star asked MSK why Meralco’s generation rate is not dropping as much as the big drop in the world oil prices. Good question but the answers were not printed.

B. Systems Loss

1. Since Meralco’s systems loss is a percentage of generation charge, it went down from P0.6594 per kwh to P0.4173. In percentage, 12% in 2012 (0.6593/5.4643) and 10.63% (0.4173/3.9238). Let us grant that the difference of 1.37% can be attributed to Meralco’s operating efficiency.

2. Is the glass half full? Meralco is supposed to have a limit of 8.5% in systems loss. The excess systems loss charge in 2012 was P0.1949 per kwh and in 2016 it is P0.0837 per kwh. Since we already have lowered expectations, yes it is an improvement. As in the generation charge, if the fuel prices go back up, systems loss will also go up. ERC needs to correct the systems loss rules by limiting it to maximum 8.5% to all consumers and by making the computation transparent.

C. Transmission Charge

This is something we are curious about in IEC’s choice of periods to compare. In January 2012, NGCP’s transmission charge was P0.9840 per kwh. In April 2016 it was P0.9549 per kwh. However, for some reason NGCP’s rate dropped unusually to P0.8361 per kwh in that month of January, a difference of 0.1188 per kwh. IEC’s study of the improvement in Meralco’s rate looked much better with its choice of January as the comparison months and this additional reduction of 0.1188 per kwh. We guess IEC serves its master. If they want to do a study in the future, it will be more helpful to see comparative April rates when supply and demand of power will show the true rates.

D. Distribution Charges Plus Supply and Metering Charges

Meralco’s distribution, supply, and metering charges came down by 7% or 0.17 per kwh as a result of the expiration in June 30, 2015 of an P0.1888 per kwh recovery of an under-recovery in 2011. Let us not forget that Meralcos distribution charges are results of the PBR rate setting methodology that we believe is irregular and must be modified. Meralco customers should not be charged profits or advance recovery until the utility actually incur the investments, not projections, not promises.

E. Universal Charges

Various universal charges for missionary subsidy, environmental, RE FIT, and PSALM Stranded Costs totaled 0.4764 in 2016, an increase of P0.36 per kwh from the P0.1188 per kwh in 2012. Watch for Renewable Energy subsidies and PSALM’s stranded costs to rise further. RE is now proposed to be 0.24 per kwh from 0.12 and PSALM has a lot of losses to recover from the people.

Back to the Issue of Meralco’s rate reductions.

1. It is clear that the reduction of P1.54 per kwh in generation rate was due to the lucky drop in world oil prices. OPEC and Iran are inching towards agreements on oil production controls and oil prices are expected to rise sooner than later. Coal and Natural gas will follow suit. Let us enjoy the current lower Meralco rates because it is only temporary.

2. Meralco’s supposed “aggressive negotiation of competitive power supply contracts with new suppliers” sounds good on the surface but since they negotiated exclusively eight (8) coal power supply contracts totaling 4,100mw with their own majority owned new generating companies, it is hardly credible to believe that they would negotiate aggressively with their own selves. (And yes, Meralco continue to claim in its public pronouncements that it does not make money on the generation charge because “it goes to the suppliers”, who will eventually be all “Meralco PowerGen”.)

3. Let us remember that the published rate of these self-negotiated contracts is only what we see now. Tucked in those negotiated contracts are escalators in various provisions that can eventually bloat the actual rate and sock it to the unsuspecting public down the road. Meralco even has the temerity to ask the ERC to make key financial information and formula confidential and not disclosed to the public. This is something that even the Lopez group never tried in their time.

4. MSK Ibaba ng P3 Campaign

On October 8, 2014 the Matuwid na Singil sa Kuryente Consumer Alliance (MSK) shared with the Department of Energy’s Multi-Sectoral Task Force to Find Ways to Reduce Electricity Prices our recommendations on how to reduce Meralco’s power rate by Php 3.00 per kwh. Nothing came out of those months of supposed multi-sectoral meetings in search of reducing rates but the then Energy Secretary Petilla bravely passed a DOE Policy mandating Competitive Selection Process.

Of MSK’s P3.00 per kwh target reduction. 87% or P2.60 will not even come from Meralco’s pockets but from various pass-on charges on which Meralco had been claiming for many years they don’t make money and only act as collectors. Generation charge, transmission charge, systems loss, VAT, universal charges. Only 13% or P0.40 per kwh will come from Meralco’s excess distribution charges due to the questionable “performance based ratemaking” or PBR.

MSK believe that by stopping the anomalous self-negotiation of power supply contracts the generation rate can be reduced at least P1.50 per kwh. Meralco generation had dropped P1.5405 per kwh but that is due to the fortuitous drop in world fuel prices and not due to changes in the regulatory system. For generation, it is the introduction of Competitive Selection Process to replace negotiations. If this were adopted, Meralco’s generation rate would have dropped by about P2.25 to P2.50 per kwh

As part of the Ibaba ng P3 campaign, MSK had filed with the ERC more than a year ago a petition for rules change to modify its Performance Based Rate making system (PBR) for distribution charges. We have yet to hear from the ERC on the public hearings to assess this very important concern of the consumers. We believe the distribution charges of Meralco can be reduced by about P0.40 per kwh by eliminating the improper profits of Meralco on forecasted investments instead of incurred investments as required by Section 25 of the Epira Law.

IEC Studies

As they have done in 2014, the Perth-based International Energy Consultants study as commissioned by their client is to show that Meralco’s generation rate is fair and reasonable.And the Meralco press release is apparently timed to sway public resistance to the seven (7) midnight contracts that the MVP Group hurriedly signed with various new generating companies all majority owned by Meralco PowerGen. So far two columnists have sung the same tune.

We wonder what IEC’s basis was for declaring that Meralco’s lower rate is partly due to Meralco’s “aggressive negotiations for competitive power with new power suppliers”. It must have been a sight to see IEC, being present in the negotiations, watching Meralco negotiateaggressively with its sister company Meralco PowerGen! IEC by the way lists among its major clients EGCO of Thailand and Quezon Power its Philippine subsidiary, EGCO is Meralco PowerGen’s strategic partner for the 460mw Mauban coal expansion called San Buenaventura.

Let us enjoy Meralco’s low power rates now while they last. Let us hope the government will do something now while it still can to stop Meralco’s monopolization, cartelization, and self-negotiated contracts. Let us correct ERC’s anti-consumer rate setting methodologies and systems loss rules. Low world oil and coal prices will not last forever.

We are just currently lucky. What we need for sustainable lower rates are systemic and regulatory reforms.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Congratulations to the Philippine Daily Inquirer for its impressive and updated new layout. Tasteful and effective in delivering and emphasizing news. Kudos.

Signs of Life and Hope for Meralco Consumers

Matuwid na Singil sa Kuryente Consumer Alliance, Inc.
21 June 2015

Meralco had been highly publicizing recently rate reductions in its average generation rates and in its distribution rates. My Meralco bill shows a generation rate of P 4.4556 per kwh compared to P5.50 six months ago, a more than P1 per kwh reduction. They have asked the ERC to allow a reduction of P0.18 per kwh in its distribution rates. Meralco consumers are of course thankful for any rate reductions specially during this school opening months.

What these rate reductions mean is if Meralco works hard enough and adopts a mantra to truly treat its captive consumers fairly as they should as a public service utility, they can really bring down power cost and not nonchalantly dismiss increases in generation and transmission rates to be beyond their control. For the most part the reduction in generation rates are results of opportune drops in the world oil and coal prices. Even natural gas is in a state of glut and prices have dropped.

Generation rates are within Meralco’s control. They can honestly and vigilantly watch the downtime allowances and the pass-on fuel consumption of their power generation contractors, only paying for capacity if they are truly within their downtime limits especially those that got sweetheart contracts. Shepherding their maintenance schedules to assure availability during critical demand periods. Managing their availment of the WESM spot market prices and themselves assuring their own contractors do not engage in supply and price manipulation. They can monitor the purchasing of substitute fuel by its natural gas generators.

Most importantly Meralco must open their generation market to open competitive bidding. For now it seems they are determined to negotiate 3,000mw of their new power supply requirements through its affiliate Meralco PowerGen which will be the majority stockholders of the generation companies. Meralco negotiated a 460mw expansion of the coal plant Mauban at a rate of P4.30 per kwh. Comparatively eight electric cooperatives in Northern Luzon consolidated their requirement of 105mw and held an open bidding. They got a rate of P3.78 per kwh, P0.52 per kwh less or approximately P1.5 billion a year.

Meralco must excuse its captive consumers if we are not overjoyed by these temporary reductions that can go back up when no one is looking. What consumers are looking for are long term reductions through systemic reforms and corrections of anti-consumer rate making methodologies.

It will take only plant shutdowns and upheaval in energy prices to make all these price reductions disappear.

Many suspect that all these “do good” programs are intended to disarm the public and not pay attention while they are negotiating their 3,000 mw power supply contracts with its own sister companies. Metro Pacific openly announces in its corporate website that it intends to fully take advantage of the opportunities in the generation sector, an “in your face” defiance of the words and spirit of the Epira Laws call for competition and anti-market domination. No one in government seems to care about the clear monopolization of the generation sector.

My electric bill still show a 10% systems loss when it should not be higher than 8.5%. PBR is unfair because it gives them a return on investments they only forecasted and not actually incurred as required by law. Meralco highly publicizes at consumer expense its various rate reduction and energy efficiency programs for large commercial and industrial users. Let us not make no mistake. Those wonderful programs are not really undertaken because they care about these consumers. They have do it to prevent their large consumers from exercising their “open access” options as “contestable markets”, consumers who can go somewhere else for their power supply.

The true measure of Meralco’s commitment to fair and reasonable rates is to undertake programs that will permanently reduce its rates to captive consumers (residential and commercial customers) from which it gets 60% of its revenue. This it can achieve only by agreeing to opening its generation market and to the correction of the various anti-consumer rate methodologies.

For now we can only be content with signs of life and hope at Meralco for the consumers. However, we have been waiting for a long time and things are getting worse.