DISTURBING QUESTIONS ON MERALCO’S INCREASE IN POWER GENERATION CHARGES THAT WE HOPE THE ERC WILL ASK THEM TO EXPLAIN

David Celestra Tan, MSK
15 February 2019

Meralco’s average rate is increasing this month by P0.5682 from P9.8385 Per kwh to P10.4067 per kwh. Meralco says Nothing to worry, it will cost the average consumer of 200kwh “only” an additional P114 this February. Gotta tell you this public hoodwinking is a work of art!

As they say in the power industry, the devil is in the details. Let us look closer.

Meralco’s Pass On Generation Charges

Meralco’s power generation charges actually increased P0.9820 per kwh from P4.9119 to P5.8939. The last time there was this one- month level of increase happened was during the last major Malampaya shutdown.

Your organization’s volunteer analysts have been tracking the Meralco power generation rates and you can see them above in our website.  Meralco’s power suppliers using coal have mind boggling rates from September to December 2018. AES in Masinloc charged P16.4591 per kwh in September,P13.7889 in October, P10.3589 in November, P8.7697 in December, and 6.9598 in January.  Is it because Masinloc is now owned a significant minority by EGAT, Meralco PowerGen’s partner?

The Aboitiz owned Pagbilao charged P7.0179 per kwh in September, P7.04 in October, P6.7847 in November, and P7.5231 in December.

San Miguel Sual charged P7.8325 per kwh in September, P9.7960 in October, P8.0332 in December, and 7.4205 in January. Meralco PowerGen controlled Panay Energy Development charged P7.0214 per kwh in September, P7.1141 in October, P6.9722 in November, P6.5463 in December, P5.7027 in January. Similarly, Meralco PowerGen affiliate Quezon Power in Mauban charged P6.4574 per kwh in September, P6.7133 in October, P5.8392 in November, and P6.1767 in December, and P7.2023 in January.

Since Meralco claims these were rates approved by the Energy Regulatory Commission, perhaps the ERC can look into why these rates have been higher than the approximate P5.00 per kwh they approved. What’s in their contracts that is allowing them to charge this much for many months? And why is the ERC allowing such escalation and pass on mechanisms?

The exception among the coal plants is the DMCI owned Semirara Calaca with rates of only P4.1399 in September, P4.1979 in October, P4.2030 in November, and P4.1664 in December, and P4.1232 in January. They use mainly local coal from Semirara Island and is exempted from the 12% VAT.

If we need more arguments to balance our energy mix with more LNG plants, let us look at their comparative generation charges. First Gas Sta Rita charged P5.2997 in September, P5.2631 in October, P5.2029 in November, P5.0935 in December, and P5.2430 in January. San Miguel Ilijan rates that also get its LNG supply from Malampaya were P5.6717 in September, P5.5097 in October, 5.2901 in November, P5.5552 in December, and  P3.3733 in January.

WESM Rates Increased? 

One of the perplexing claims in Meralco’s press statement is that “WESM rates rose P1.4141 per kwh due to tighter supply in Luzon”. According to Meralco’s own website data WESM prices were P3.4132 per kwh in October, 4.7677 in November, P3.7409 in December, and P3.7244 in January.

It appears the only reason Meralco’s generation rates have not skyrocketed to scandalous levels is the WESM rates have been low where it bought 17% of its energy needs, more than any other source. Is it a force of habit for Meralco to blame WESM even when it is actually the lowest and its’ saving grace?

Let us note that A big part of this lower WESM rates have been the entry of renewable energy projects whose rates are subsidized by the consumers under the Feed-In Tariff program of the government. We consumers are actually paying for saving the day for Meralco from its very high COAL rates.

This is something we hope the DOE and ERC will keep in mind in resolving the 3,551mw of Meralco PowerGen supply that will corner 80% of the energy purchases of Meralco starting in 2023 if Meralco gets their way.  They are all coal.

NGCP Rates

The other thing that is saving the day for Meralco is the drop in NGCP’s transmission charges by P0.4138 per kwh, a significant one.  Can we make these lower charges sustainable?

Truth in Advertising

Should there be ERC rules on truth in advertising?  ERC is already allowing Meralco to charge us consumers the high costs of these advertising and the salaries and benefits of their topnotch “public information” experts, the least they should be required is to be accurate and truthful in these numbers.  Their budget was not for public disinformation.

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

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POLICY ISSUES THAT THE GOVERNMENT NEEDS TO RESOLVE BEFORE THE PRIVATIZATION OF ELECTRIC COOPS

David Celestra Tan, MSK
February 6, 2019

We are getting ahead of ourselves on the issue of privatizing electric coops. None the least is whether this will be even good for the consumers. Second is whether the takeover by the private sector is actually the solution to what ails them.

1. Do we want to change policy and the law?

In cases where the Electric Coop is ailing and failing to provide the satisfactory service, the official policy of the state is outlined in RA 10531. First to rehabilitate them by NEA and where they can no longer operate to allow the entry of the private sector. So if we want to deviate from this policy, we first must change the law. Pulling their public utility franchise from under their feet without due process as defined in RA 10531 would be a subversion of our own laws and the policy of the state that is enshrined in that law. It would be an abuse of franchising authority by Congress anyway.

Either we amend the RA 10531 or establish a more transparent reevaluation process of cancelling franchises anchored on due process and mindful of disruption of public services whenever we shake the franchise tree.

2. Does the Government have a right to impose privatization to well performing EC’s specially on the grid? What is the Power of the Legislative Franchising Committee?

The irony of the private sector entrepreneurs who are coveting EC franchise areas is that they only want plum areas like Negros, Cebu, Iloilo, Batangas, Bataan, Pampanga, and some in Mindanao. And there is just no reason even for the government and the Legislative Franchising Committee to consider revoking the franchise of these performing Coops.

The main difference between the ability of a private sector operator and an EC in dealing with the brownout problem is not really money but in managing the interference of local government officials who protect their proteges and the contracts of their sponsored power generators and hence hinder the obvious solutions.

The Congressional and Senate Franchising Committees should not even entertain applications for franchises on existing areas because that is borderline immoral. It is like entertaining someone’s marriage proposal to someone who is happily married. Worse, it is like lobbying with the Priest who married the couple?

On that note, Is the Legislative Franchising Committee only blessing the own-will decision of a couple to marry (the owners and the community in compliance with the laws of the state) or do they have the power to unmarry a couple and choose a replacement spouse?

If the Legislative Franchising Committee would like the power to revoke, they at least must put in the proper due process that is consistent with RA 10531. Or at least supersede that law. At least we need clear rules with due process as a civilized and democratic country.

The role of NEA in these on-grid EC’s is to assure proper management, administration, and governance. It is not missionary unless there are unviable areas that as a government program it wants to electrify.

3. Missionary Nature of Electrification in Off-Grid areas.

Maybe we should revisit why the government is providing electric services on missionary basis in these far-flung areas in the first place. Rightly so it is the policy of the state to provide electricity to all its citizens wherever in these 7,107 islands of ours and since most of them are not “commercially viable” for the profit oriented private sector, the government will have to step up to do it. Meralco that makes 25% per year profit on their investment has not even electrified satisfactorily all the remote areas in its territory. Example Verde Island and Talim island in the middle of Laguna Lake and parts of Laguna and Quezon. Can you expect the Aboitiz group to go into Basilan, Sulu, Lanao, Tawi Tawi, and all the small islands?

The Philippine government decided to accelerate the electrification of these islands by launching the U.S. style electric cooperative system, developed and promoted through the NEA (National Electrification Administration) in early 1970’s.

Now we are in 2019 and most Electric Coops are successful (albeit not perfect, just like Meralco). Maybe 10 to 15% have failed or failing. And some 14 off-grid islands have grown in population and economy that they theoretically have sufficient scale to become Commercially viable, meaning they will no longer need missionary subsidy. These larger islands have actually been identified by the DOE as early as 2005 to be commercially viable for the private sector to take over the generation sector where the Government owned Napocor had proven to be ineffective, too slow, and too expensive. (No offense).Their average generation cost was P18 per kwh. The Transmission services remained with Napocor and the distribution operations stayed with the Electric Coop. This was supposed to be the first step towards the graduation of these islands from missionary subsidies (initially in the generation sector).

4. Privatizing Distribution when Privatizing Generation is only halfway done after 14 years

It has been 14 years since 2005, and the privatization of power generation has stalled at 7 islands since 2010 and the rest remained with Napocor. New Power Providers have taken over Palawan, Oriental Mindoro, Masbate, Catanduanes, Siquijor, Bantayan Island, and Tablas Island. And power generation subsidy has come down to an average of less than P5.00 per kwh, mainly for fuel costs.

According to data culled by Bayan Muna from the DOE MEDP 2016 to 2020, the missionary subsidies for these 7 islands amounted to P3.6 billion in 2015 and for those served by Napocor at P3.5 billion. However, from 2016 to 2020 the missionary subsidy for Napocor served islands soars to P14.133 Billion in year 2020. The subsidy for NPP served areas increased only to P4.7 billion by 2020.

On a per kwh basis, the NPP served areas has an average subsidy of P5.00 per kwh. Unfortunately Napocor served areas still has an average of P14 per kwh in missionary subsidies about the same level before the NPP’s took over those other islands with big improvements in power reliability.

One major reason the privatization on many of these islands has stopped is because the Department of Energy under current Secretary Cusi is disallowing the “swiss challenge” or unsolicited proposal types of Competitive Selection Process (bless his heart) that the EC Board of Directors have been requesting to favor their preferred power generation suppliers, no different than the way Meralco had been fighting so they can pick and choose their power generators. Now the EC’s are tailor-making the terms of the bidding to their preferred suppliers. It happens even for new PSA’s in places currently served by NPP’s.

Is power cost and subsidy reduction, which is passed on to the national consumers as a UC-ME charge, a recognized objective in missionary areas?

5. Who do you buy the assets of the Coop from? And how do you value them?

This is a matter that needs to be cleared before we embark on taking away franchises and taking the path towards privatization if we are to do it with minimum disruption of electric services.
Note that technically the value of the ownership of the member consumers have increased exponentially after the government decided to condone their debts in 2001 as part of the enticement for the Epira Law of 2001. Its probably at least 1,000 times their original membership contributions. Do they get paid via a 50% reduction in their monthly bill for 2,000 months?

Note also that in the end the consumers will also pay for the value of the assets because the new private owner will seek recovery of his buying price from the consumers?

6. In cases where the Coop franchise had to be tendered, should not the government share in the proceeds?
We had mentioned that technically the coop members own the distribution utility and should keep the benefits of selling the utility. But there is an argument to be made for the government to auction franchises and in the case of the EC’s the government continued in investing in nurturing the off-grid communities through subsidies, loans, and management development through the years, and can justifiably ask for a share in the proceeds of privatization.

7. The Disruption by Carpetbaggers and flippers

Let us face it. Theoretically, it is supposed to be to the public interest that the distribution systems and franchise is turned over to the private sector, in case that is necessary, at lower costs so that it will result to lower rates to consumers. However, there will be those opportunists who will promise to take over the public service franchise and provide least cost power then turn around and flip the asset and its valuable franchise. Will there be a deterrent against carpetbaggers and flippers? Well connected enterprising individuals who will just sell controlling interests and management of the distribution system for a fat profit. Of course, who ever bought it at a premium will try to recover that from the consumers, clearly something against the public interest that the government therefore has a duty to safeguard against. Do we put in rules against this or be fatalists and accept this as part of our capitalist system?

8. Do you continue providing missionary subsidy to the privatized island?

Of course we can make it palatable by saying it is the consumers that the government is subsidizing not the private distribution utility. But that is for the birds. We know that part of the missionary subsidy will go to the private owners. So is it legal to subsidize? Note that one of the favorite come-ons by private Franchise applicants is the government will no longer subsidize power costs. Just like Solar Para sa Bayans franchise. (and that remains to be seen.)

9. How about the existing power supply providers with long term contracts beyond the current franchise term of the EC?

Related to missionary subsidy, Will the new private franchise holder not recognize the contracts or shorten them and say they should go after the old EC? He can claim that he cannot afford those contracts since the government is no longer providing the subsidy. These New Power Providers have invested billions in 20 year contracts on the presumption that the Legislative Franchising Committee will not unduly cancel the franchises unless the EC has irreversibly failed financially. Masbate, Lanao, Albay?

These missionary subsidies for the NPP’s are covered by a missionary subsidy agreement with Napocor. Will the government do the right thing and honor the subsidy agreement but with an intensified effort for missionary cost reduction over a transition period?

10. Should the government allow the complete consolidation of the power distribution sector by allowing the two dominant players and their allies to take over and add more electric coops to their already 80% hold on the nationwide distribution market?

If we genuinely care about promoting true competition, anti-monopoly, anti-market domination, and cartelization we will not. Let us all understand that the ongoing consolidation and cartelization of the power generation sector is happening because Meralco has the market power and is exploiting it to the hilt. Will the likes of San Miguel, DMCI, Metrobank, Aboitiz commiserate to become Meralco PowerGen’s minority partner if it were not for the market power of Meralco to dispense with the utilities 5,500mw power requirement? And when the DOE and the ERC finally put in rules on CSP, somehow the regulatory “sea parted” and suddenly Meralco has a 3,551mw contract with their minority partners in tow in seeming conquests.

Do we allow the obliteration of one national pride in public service, no matter how imperfect, that the Philippine government at least has sustained over the years? And after we developed the remote areas we will turnover it to the private sector? Many Coops no longer need government money even if they are not run well. So why allow the private sector to takeover? Will this be good for the consumers?

We believe that the Department of Energy and the Legislature should focus on the 14 large islands and the technically failed EC’s as defined under Section 20 of the IRR for RA 10531.

Let us test the current laws, rules, and organizations in fixing the serious problems of Davao Del Norte, Lanao, Aleco. Let us test whether the current energy family can pay attention and do something about the burgeoning missionary subsidies in many islands.

Let us try to put things in order by creating clearer rules when privatization of an off-grid area becomes necessary. This includes establishing clearer rules at the Legislative Franchising Committee especially in the renewal or cancellation of distribution utility franchises.

We hope also that the standards of performance for retention of DU franchises will be the same for EC’s and the private Utilities like Meralco and VECO.

For now until these are clear, we are getting ahead of ourselves talking about privatizing electric coops. There is just too much at stake. Let us do it right.

Next: The Government and Government Officials role in Weakening EC’s

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

Should your Electric Distribution Utility or Electric Coop be Replaced? And What’s The Right and Democratic Way to do it? (Part 1)

David Celestra Tan, MSK
18 January 2019

The failure of the Panay Electric Company (PECO) of Iloilo City to secure a renewal of their franchise that is expiring January 19, 2019 is now in the public’s mind. And raising people’s eyebrows is the ability of a new provider, MORE Electric Power Company of tycoon Enrique Razon to quickly secure a franchise and takeover as the new Distribution Utility for Iloilo City.

The bad and overpriced services of PECO had been in the mind of Iloilo City residents for at least 15 years. It did not help that It bit the bullet when in desperation to quickly get power supply during the crisis years of the 1990’s, it entered into a JV with the Lopez group for a 67mw diesel power plant. That project added about P1.50 per kwh to the PECO rate that gave Iloilo City the highest retail rate in Western Visayas. Subsequently, the Cacho family reportedly declined the Lopez Group proposals to upgrade PECO’s distribution facilities for fear that their ownership will be diluted and Meralco would encroach on its management.

The campaign not to renew PECO’s license started three (3) years ago. Most people only heard about MORE Electric recently. The Franchise of MORE Electric is reportedly just waiting for the signature of President Duterte which presumably is a foregone conclusion. The DOE is just now insuring a smooth transition so that the consuming public is not adversely affected. We presume that the owners of PECO will eventually get a fair compensation for their investments in the distribution systems, though the negotiations on the distribution assets will predictably be tedious and can be acrimonious.

There has not been a changeover of a distribution utility in recent memory other than the consolidation of small utilities in Laguna, Batangas, Rizal, Bulacan, and Quezon into Meralco during the martial law era in mid-70’s.  And themanagement takeover in recent years of really distressed electric coops of Albay, Lanao, and Zamboanga.

Due Process

In the aftermath, one is left to wonder about due process. Did PECO and the Cacho family have a fair chance to prove it is worthy of a renewal of its 95 year old hold on the franchise? Were they evaluated based on clear and transparent performance criteria for renewal? Or is the discretion of the legislative franchise committee of Congress and the Senate to grant franchises absolute and arbitrary?

Credentials in Public Service

Are the rules also clear on the credentials of applicant Franchisees like MORE Electric? Similarly, the current dominant DU players in the country, the Meralco group now owned by the MVP Group and reportedly in turn controlled by the Indonesian group that with the Aboitiz group together already dominate 80% of the distribution utility business in the country.

Still both the MVP Group and the Aboitiz Group have been working for years to takeover more distribution utilities especially electric cooperatives. Meralco has taken over a Pampanga electric coop and reported to have secured the sympathy of the political kingpins of Mindoro and Palawan to get a foot in the door of the Coop. They have for years been trying to take over the electric coops in Batangas, Laguna, and Quezon. Aboitiz for its part have been working on expanding their empire in Davao del Norte, Cebu, and Negros island.

How about the track record and credentials of applicant companies? In addition to financial and technical resources, should they not be judged for their satisfactory record in public services?

A case in point, we are aware that the Razon group that reportedly own majority of MORE Electric has enormous financial and political resources. Port services and Solaire Casino. We are aware of their very close connection with the Macapagal Arroyo group. The last time on record that the group took over a public service franchise is the privatization of the Napocor transmission assets and operations that turned into National Grid Corporation of the Philippines in partnership with China Grid with the blessings of the then President.  Within three (3) years their shares were however sold to the SM Group.

We consumers are left with the legacy of the NGCP national grid transmission franchise that has fabulously overpriced rates and obscenely profitable because

1) the NGCP franchise law allowed NGCP to become the “Systems Operator” that also sets the rules of connections and asset ownership in the system. It is a conflict of interest and is contrary to the specific provision of the Epira Law that reserved that function to the government owned Transco. The law makers probably got confused with the right of NGCP to operate their system, which is quite different from being a “Systems Operator” which is a rule making function.

2) the anti-public interest PBR rate setting methodology passed by the ERC allowed them to charge even for investments not “incurred” in violation of Section 25 of the Epira Law and also effectively deregulated the profits of the franchisor instead of imposing the 12% limit set by the Supreme Court.

Iloilo consumers are hoping that the incoming MORE Electric and the Razon Group will be committed to their public service for the long term.

How about the Meralco and Aboitiz groups? Should they even be allowed to acquire more distribution utilities given that they already own 80%. Distribution utilities are the main market for the power generators. The alarming consolidation of the generation sector into a Meralco cartel is a result of the market control of Meralco as is.  Should the government be allowing further consolidation of the distribution sector that eventually leads to the cartelization of the generation sector?

How about Meralco’s record as a good franchised distribution utility? MSK had written enough about the rate abuses of Meralco, their anti-competitive practices on power generation supply negotiation and contracting, and now cartelization. Does Meralco deserve to expand given their record of complying with their own franchise? Let us read their franchise.

“the grantee shall supply electricity to its captive market in the least cost manner… the grantee shall charge reasonable, just, and competitive rates for its services to all types of consumers located in its franchise area.”

“The grantee shall not engage in any activity that will constitute an abuse of market power such as but not limited to, unfair trade practices, monopolistic schemes and any other activities that will hinder competitiveness of businesses and industries.”

Is Meralco not violating their franchise? You be the judge!

As for the Aboitiz group, their main distribution utility operations are Davao Light (350mw) and Visayan Electric in Cebu (400mw). Aboitiz seems to be doing a great job in Davao but in Cebu, many local businessmen are complaining about the high generation rates and systems loss charges that they say go to 14% instead of the 8.5% allowed.  Some have specifically complained about the P80 million a month capacity fee for diesel plant CPPC, a BOT plant that was supposed to be turned over to VECO in 2013 yet because it was fully paid by that time.

News flash!

As we are about to post this article Part 1, Word quickly spread that Two Congressmen of Palawan just filed House Bill 8829 seeking to grant MORE Electric the franchise for the distribution of electric services for the mainland Palawan that is currently served by electric coop Paleco.

In Part 2 of this article we will tackle the challenges and ramifications of taking over Electric Coop distribution franchises .

 

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

Concerns of Cebu Electric Consumers

David Celestra Tan,MSK
20 December 2018

We have a large consumer in Cebu who had been sending us his comments and questions on rates in his area. He also has apparently business operations in Manila and had been able to compare the rates between Meralco and VECO.

1. In reaction to our posting on high Meralco rates, he argues that Meralco’s rate under RCOA RES as offered by Meralco subsidiary MPower, has come down significantly. We agree and no question about Meralco’s reduction of rates to large industrial customers.

a. Our problem with Meralco’s rates is on excessive charges to Captive customers who are both larger residential customers and commercial customers. Meralco earns 60% of its revenue from these customer group, and we suspect about 80% of their annual profits. This comes from the PBR anomalous methodology, the high generation rates, and above the average legal limit systems loss charge.

b. The large industrial customers set at 750kw demand, also called contestable customers, are those who have the choice of moving to another generation supply provider. From the signing of the Epira Law in 2001, Meralco had already been realigning its rates so that they give very competitive rates to these large customers. They also offer them many sorts of “energy efficiency” and power cost reduction programs that they use in their media advertising. They even charge these large customers an unheard of 3.75% systems loss. But they charge captive customers 9 to 10% systems loss which is higher than the 8.5% limit. In a scheme concocted between the old ERC and Meralco, this is legalized by adopting a philosophy of system averaging.  MSK had petitioned ERC to declare 8.5% systems as the absolute limit and not averaging. We have yet to hear from them.


2. Meralco’s rate during the Lopez times were higher than VECO’S. But now VECO’s rate are much higher.

a. Meralco’s rates are about the same except for fluctuations in fuel and forex. In the case of VECO, we suggest you check the correlation of when VECO was taken over by the Aboitiz group from the GarciaVivant group. The VECO website shows its highest generation suppliers are consistently from three power generators, CPPC (diesel), Aboitiz, and VECO. The diesel 70mw CPPC is the most expensive reaching P18 per kwh in certain months although it is supposed to have been turned over to VECO in 2013 under the original BOT contract. VECO buys power from the Green Core geothermal but doesn’t appear to buy from KEPCO coal plant that is based in Cebu.

From what we can tell in VECO generation mix, the main reason they are able to keep their average generation rate lower than P6.00 per kwh is by maximizing their purchase of lower cost WESM prices reaching to more than 15% of their energy requirement.

b. On systems loss, how much VECO actually is charging is not clear although their website acknowledges that the ERC limit is 8.5%. VECO does not show systems loss charge separately in their website info. A year ago we got some VECO bills that showed systems losses of 12 to 14%.  You need to double check this. The way you compute is you divide the amount of the systems loss charge by the generation rate. That would be your actual systems loss charge. Meralco’s systems loss charge to captive customers now is about 9.5%.  While you are at it, maybe your association can ask VECO to unbundle their rate disclosures in their website for transparency.

We need to mention in fairness that in the same time frame we also got some electric bills of Davao Light and the systems loss was under 7%. Very good.  We don’t know why it is that high in Cebu.

3. Capacity Charge or Demand Charges

This is quite complicated and one reason even distribution utilities are complaining. It is also how many generators and NGCP are making more money on their capacity. In effect it is multiple selling of their capacities, knowing that not all the users will use their peak demand at the same time.

Both the generators and the NGCP transmission company tries to charge users a per kw per month charge based on the highest demand reached by the user for the month. Even if you reached say 1,000kw at anytime even for one hour, you are charged as if you used that for the whole month.

Both DU’s who also own generating companies and the NGCP tries to bill users for that maximum demand used on the theory that they have purchased that demand for the whole month.  Actually that is not true because not all users are reaching their maximum demand coincidentally or at the same time and for extended periods.

To explain, what NGCP does is they bill DU’s for the peak demand reached in each substation and just totals them even if the DU’s coincident demand never reached that total. Even if NGCP knows that the peak demand in the system is 2,500mw, by billing each customer for their individual peaks, their revenue could be based on 3,000mw. What is that way? Because for some reason NGCP as transmission operator is also now the rule maker and systems operator. This is also what happens when the DU and its sister company generator are billing the customers for the minimum guaranteed capacity charges. These are passed on charges to the customers.

If the DU and the Generator are not sister companies maybe they will make an effort to avoid the charges and make their customers happy. But since it is their sister company, they just say “sorry, that’s just the way it is in the industry”. It doesn’t have to be.

This is akin to the airlines overbooking their flights knowing that there is high probability that some people will cancel or will not make the flight.  The irony is when they cancel or rebook, the airline not only assures that it maximizes its occupancy but it generates additional revenue from rebooking charges and fare adjustments and “no show” fees.  Kawawa naman tayong mga consumers. And no one is protecting the public from these abuses.

4. Some solutions

For the steel mills and cement plants you are referring to that need a surge of power demand to start up ball mills and other machineries, they might consider “peak shaving” strategies either by buying the peak hours from wesm or other suppliers or acquiring your own “peaking” generator.

You are getting a good deal now that the Meralco Mpower group agreed to bill you only for metered quantity or energy. No more worries about capacity fees.  Please count your blessings because you are a contestable customer and theoretically can go to a competitor.  It is unlikely you will get the same deal in your residence or separate office.

See the magic of competition, even if it is only a possibility?

 

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

Outdated Anti-Consumer Terms in BOT-Type PSA Contracts Need to be Prohibited (Part 1)

David Celestra Tan, MSK
30 November 2018

Part 1/2

Part of the complex formula for the generation rates that are charged to us consumers by Meralco is something called Capital Recovery Fee or CRF. That is to allow these power plant investors to recover their capital in the power plant and gain some profits.  This CRF plus the Fixed O&M, their fixed organization salaries and expenses whether they run or not together constitute what is called “capacity fees”. Including these in their power rate charges to us consumers is fair when they are providing power and service.

But Should we consumers pay for these fixed “capacity fees” (2.50 to 3.00 per kwh) even if the power plant is down for preventive maintenance or simple breakdowns? Should we pay them even if they mismanage their operations or scrimp on their maintenance and their plant broke down? Should we pay even if they bought the wrong or cheap parts and it blew up? Or should we pay them for their allowed 60 days per year even if they could have been back in service in 30 to 45 days? In other words, should we consumers pay for these “capacity fees” if they are down and not providing any power or service for any reason at all?

These “capacity fees” are not small.

For a 300mw coal plant, this could amount to P500 million a month or P1 billion for the 60 days normal allowance for downtime.  For a 1,200mw the size of Atimonan One, this would be about P1.8 billion a month or P3.6 billion for its 60 days downtime allowance. For Meralco’s 3,551mw of midnight contracts, it would be P5.4 billion a month or P10.8 billion for its 60 days downtime allowance per year. If there are 5 million of us metered customers of Meralco, that averages to P2,160 per year. There are similar capacity payments for downtimes in Cebu, Panay, Davao.

Most people do not realize that the Power Supply Contracts being signed between a power generator and a distribution utility contain guaranteed capacity payments during downtimes and the downtimes themselves are arbitrary and not technically determined. These guaranteed capacity payments during downtimes in effect work as incentives for the IPP’s to maximize their downtimes because they are paid anyway without working. Another way of looking at it is they are paid capacity fees for 12 months even if contractually they need to operate and deliver energy only for 10 months. Is that fair to us consumers?

Hidden or Undisclosed Pass on Charges to Consumers

This should matter to the consumers because these guaranteed payments whether the power plants are running or at least ready to run if called for dispatch are passed on to the consumers. This is the reason in certain months the average per kwh rate of the coal and Malampaya plant suppliers of Meralco shoot up to P13 to 18 per kwh or even more. Remember the minimum energy off-take (MEOT) or take or pay provisions of NPC contracts that sent the reviled PPA power adjustments into the stratosphere in early 2000’s after the Epira law was passed? Guaranteed capacity payments including during downtimes were a big part of the reason.

These guaranteed payments during downtimes are common in the Meralco contracts and need to be urgently reevaluated because they are contained in the seven (7) midnight PSA’s totaling 3,551mw that   Meralco negotiated with companies that are majority controlled by sister company Meralco PowerGen. These guaranteed payments during negotiated downtime periods are onerous to the consumers and must be prohibited and disallowed by the ERC, in case they are really determined to approve some of the seven midnight contracts.

Meralco of course would like to get away with these in their negotiated contracts because it is their own power plant as a sister company and they want to assure those power plants are able to pay for their project financing and profits to stockholders. After all they can pass on the extra charges to their sacrificial lambs, us the hapless captive customers.

The exploitation is worse when the generator supplier is a sister company of the off-taker because they could be looking away even if the generator had already exceeded their downtime allowance.

Hidden True cost to consumers

Meralco and its sister generators will probably argue that they have to be paid these downtime capacity fees or they will not be able to offer the “low” per kwh rate. Actually that means their declared low per kwh rate that Meralco publishes and applies with ERC is not the true total cost to the consumers. We believe that this is deceptive pricing. We propose that for transparency, the generators should not be paid for their downtime capacity fees and only be paid for delivered energy as contracted. This is a fairer payment for performed service. Not for vested downtime allowance days that Meralco and its sister generators just negotiated among themselves, in effect paying the sister company billions for two months a year without needing to operate.

Inflation Indexing of Capital Investments

Another hidden costs that creep up on the consumers is the inflation indexing of capital recovery fees. Once they have invested there should be no inflation index on his capex. It is up to the IPP to figure out his forex risks on his project financing. Why should the consumers be the patchy all the time? Increasing the price on capital investments already purchased and installed is like increasing their profits on the investment. In this case ERC WACC formula is undervalued.

Benefit of True Competitive Bidding

It is true that the rate will be higher if the capacity fees for downtimes are added to the kwh rate. But that is what the customers are being charged anyway. And that is where subjecting these power supply contracts to true competitive bidding would come in to keep everyone honest and somehow get the captive consumers lower and more transparent generation rate.

Added Negative Impact on the electric consumers

The damage to the electric consumers does not stop there. When a  coal plant declares downtime due to whatever reason, like their favorite “boiler leaks”, their capacity reduces the supply of power in the power grid and the WESM market.  This increases the spot market prices in the WESM which are again passed on to the consumers when bought by Meralco, who had to buy from the spot market to replace the supply from the downed power plant. Consumers get screwed both ways.

To be continued…How do we protect the consumers?

MatuwidnaSingilsaKuryente Consumer Alliance
Matuwid.org
David.mskorg@yahoo.com.ph

The Consumers Dilemma that is Atimonan….The Riddle that is Energy Mix. (Part 1)

David Celestra Tan, MSK
3 October 2018

Part 1

What do Meralco consumers do now that the Atimonan One will most likely be approved in the next days, probably by the 9th?  After all the Atimonan One power supply contract is a fruit of a poisoned tree.

Meralco’s 1,200Mw coal power project is one and the largest of the seven (7) midnight power supply contracts totaling 3,551mw that Meralco signed with companies controlled by its sister company Meralco PowerGen.  Because of the consequent imbroglio from Meralco’s scheme at evading CSP for these 20 year power supply contracts that corner 80% of the energy needs of Meralco, there has not been any new power plants approved for Meralco since 2015 up to 2018. (other than the smallish 70mw of MVP Group controlled Global Business Power in Iloilo). We are now looking at a disastrous power crisis in 2020. This without mentioning that ERC, the country’s highest regulatory body for power has been rocked to its foundation and it will never be the same.

The Dilemma that is Atimonan

Meralco consumers are now in a dilemma with Meralco determined to get their way and practically hostaging the future supply of the country, more specifically the 1,200mw Atimonan One and the 600mw Redondo in Subic.  Do we continue fighting Meralco, going to courts to get an injunction, or do we let this one go to save the consumers from punishing brownouts in 2020?

I would like to express my personal opinion. We consumers are put by the MVP Group between a rock and a hard place. No question.   Do we swallow the fact that they are getting away with the circumvention of the Competitive Selection Process with the evident facilitation of the ERC, the very government institution that is supposed to protect the consumers, in exchange for assurance of much needed power supply in the future? The violation of this law by everyone involved is the job of the government to punish. We consumer groups can of course complain and file lawsuits but if the courts and the law enforcers are apathetic and looking the other way, what can we do?

Since 2016 we have been beseeching the government, specially the DOE and ERC, to do something about the impasse before it is too late.  Now it is close to too late. It will take 2.5 years to build and commission those plants. And would you believe 3 to 5 months just to get a certificate of compliance (COC) or permit to operate from another department in the ERC?

Faced with this dilemma, I believe in the end we have to consider the greater good. We may pursue the punishment for the people who violated the law.  We can try to stop the contracts. But our people may suffer more at some point. In this case, assuring sufficient power supply which can be represented by the two controversial projects totaling 1,800mw can protect the people from further aggravation.

Moderating the Greed in the Numbers

As to the negotiated sweetheart rates agreed between Meralco and its sister company Meralco PowerGen. (yes the one that they claim with straight faces that they negotiated “arduously”. Give us a break.) I believe it is not too late.  The ERC, let’s hope,can redeem themselves and also look after the greater good which is to fine comb the negotiated rate, eliminate the inequities and sweetheart provisions, and moderate the greed of the numbers.

One area is the elimination of guaranteed capacity payments even if they are down. Allowable downtime days per year is at the most part a negotiated time off with payment. This used to be justifiable during the BOT era of the 1990’s. But this Meralco projects are not BOT. They are Build Operate and Own or BOO. There is no reason for the buyer of service (us consumers) to assure the debt service and operating cost payments of the plant when they are down. This gives the generators the incentive to maximize their downtime because they will be paid anyway.

Power Generators in this new era should be paid only when they deliver a service or energy. Not when they are down. This is true performance based payments.

Areas of Concern in Atimonan One Power Rate

The biggest risks for the Meralco consumers of an Atimonan One approval is the rate is practically non-transparent.  Your organizations efforts to secure copies of underlying documents to validate the claims of Meralco on rate benefits have been forestalled both by Meralco and ERC.

But let us try to deduce what we can from the publicly available data.

Meralco’s  officially declared rate for Atimonans 1,200mw supply amounting to 8.409 Billion a year kilowatthours is P3.7587 per kwh. That is based on the US$ exchange rate of P46.07 in April 2016. Coal base rate is US$50.38 per metric ton and coal shipping cost basis is $5.90 per ton.  They claimed a Line Rental cost of P0.091 giving a Delivered Rate of P3.8498 per kwh.

Meralco further claimed a reduction in rate of P2.9174 per kwh and a resulting average savings to the consumers of P0.7799 per kwh!  These numbers are just impressive!

And you are going to love these.  Meralco’s claimed reduction in rate was based on a WESM rate of P7.064, a number that they apparently picked from the highly fluctuating spot market to suit their savings claims.

There are just two problems to this Meralco trick. 1)  You cannot compare the generation rate of a 20 year guaranteed bilateral contract with a spot market price. It is like comparing the cost of the whole cow with the price per kilo of beef in the market. 2) Besides,  Meralco’s average WESM purchase during that period was only P4.9533 per kwh and their average generation rate was P3.8813 per kwh. This latter number is the valid comparison for Meralco’s rate savings. This means the rate established by sister companies Meralco and Meralco PowerGen for the Atimonan One of P3.8498 is only P0.0315 per kwh lower and not P2.9174.  It means also that the average savings to Meralco consumers attributable to Atimonan is not P0.7799 but an increase in rate impact.

There is more. Those rates are subject to adjustments for changes in US$ exchange rate, inflation, and coal fuel price in the world market. To answer the question what is Atimonans rate now? We chose to do a simulation for July 2018 and adjusted the rates to a US$ rate of P53.17 and Coal price of US$119.90 per metric ton. The resulting rate is P5.2811 per kwh and if we apply the exchange rate adjustment to Capital Recovery rates, it would be P5.604 per kwh. 

Are those now cheaper?  Let’s compare with Meralco’s current suppliers. Meralco’s average generation rate for July 2018 was P5.2651 per kwh. Its current suppliers updated rates were P3.855 per kwh for SEM Calaca, P5.2797 for Masinloc, and Sual SMC had P5.2417 per kwh. Only the onerous QPPL Mauban rate of P6.5388 per kwh was higher than the updated Atimonan rate of P5.604 per kwh.  

It is clear that Meralco’s claim that Atimonans rate is lower is hogwash. Ipinantay lang nila. So where are the claimed savings from the big 1,200mw project with supposed operating and fuel efficiency?  

Is this only in Atimonan One?

Let us remember that the seven (7) PSA’s of Meralco PowerGen were signed over two days on April 26 and 27, 2016. Only the small 70mw was signed on April 20. The pricing formula and contract wordings obviously came from a template.  The Meralco guys and their Cartel partners apparently had fun with the numbers. Tila Pinaglaruan lang. And to think we are talking about the serious monies that will be paid by millions of Meralco consumers from their hard earned income.  Let me show you what I mean.The numbers are from Meralco’s official ERC applications as published.

(to be continued)

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

Stars Aligning for the ERC Approval Soon of Meralco’s1,200MW Atimonan One Coal Project!

David Celestra Tan, MSK
26 September 2018

We earthlings can now just watch the heavens align the stars for the ERC approval of Meralco’s 1,200mw Atimonan One coal project. We had known from the body language and signals of the ERC that this project, the biggest among the seven (7) controversial midnight contracts that consumer groups and the Office of the Ombudsman are complaining to be highly irregular and a circumvention of the CSP rule, is on way to approval. We had been sensing that the approval is not a question of IF  but WHEN AND HOW?

Despite the controversy surrounding Meralco’s seven power supply contracts totaling 3,551mw that it negotiated with sister company Meralco PowerGen, despite the Office of the Ombudsman suspending the offending Commissioners as a result, and despite a case still pending in the Supreme Court, the ERC continued plodding along the hearings on the Atimonan One project. Attempts of consumer groups to either intervene or oppose the application were essentially set aside. The Department of Energy itself suggested that the seven (7) Meralco PSA should be subjected to a competitive selection process.

Atimonan’s star lobbyist is Congressman Danilo Suarez in whose district the plant will be located. He wasn’t bashful about pressuring the ERC to approve the $2 billion project. Consequently, as early as July 4, 2017, the ERC Commissioners had assured that they will accordingly act on the project approval. It was just a matter of time.

Not a feware seeing the acceleration of Stars aligning one by one for an eventual ERC approval in the next 10 days?

On July 27, 2018 Congressman Suarez became even more influential when he was appointed minority floor leader by newly elected Speaker of the House Gloria Macapagal-Arroyo the previous July 23 where Suarez himself was the first on the signature list electing Arroyo to be the new Speaker.

On August 23, 2018 Lawyer Alexis Lumbatan was appointed as ERC Commissioner to replace the retiring Commissioner Gloria Victoria Taruc.

On September 11, 2018 the Office of the President appointed the second new Commissioner, a reported Renewable Energy advocate Catherine Paredes Maceda. She will replace the similarly retiring Commissioner Alfredo Non.

On the same day September 11, 2018 the Department of Energy moved one of the key Stars and approved the declaration of the Atimonan One project as “a project of national significance” opening the door for the fast trackingof its approval under the Executive Order 30.

Here is the big give away. On September 18, 2018 the Office of the President appointed two ERC Officials to act as Interim ERC Commissioners from September 18, 2018 up to October 9, 2018, an interim period of only 21 days.  This raised many eyebrows because the Office of the President had already appointed two new regular commissioners. Lawyer Alexis Lumbatan on August 23 and Ms Catherine Maceda on September 11, only a week before the September 18 appointment of the two interim Commissioners.

Many are asking Why did it become necessary for the Office of the President to appoint two interim Commissioners only for 21 days up to October 9? The reading is that the approval of the Atimonan One project needed to be done very fast but too soon for the two new regular ERC Commissioners Lumbatan and Maceda to learn the regulatory rules and the complexities of the Meralco’s seven (7) midnight contracts before they become comfortable to vote for approval of Atimonan One.

Others bet that the two new commissioners did not want to take the risk of being sued for approving the project considering all the issues and the pending Supreme Court Case.  They found two ERC career lawyers who apparently felt confident of their knowledge of the legal issues and were willing to step-up and take the risks. Since the interim appointment of ERC lawyers Maria Corazon Gines and FloresindaBaldo-Digal were only up to October 9, 2018, it can be expected that Mandate No. 1 on the interim appointment, which is the approval of pending power supply contracts, will be done.

This magical alignment of the stars,in a determined effort to approve Atimonan One, is unusual and have not been done before.  But the Meralco 3,551mw caper was unusual and unusual in deal magnitude, the MVP Group is an unusual player, and we live in unusual times.

Your MSK organizations hope however is that the scenario will not play out as sinister and conspiratorial as feared. It is possible that the two interim Commissioners are only intended to start processing the backlogs in their 21 day appointments? And there is a lot.  On the Meralco PSA’s, specially the Atimonan One, maybe the two interims will only participate in the Commissions enbank deliberations on the various complex issues while the two new regular appointees, Lawyers Lumbatan and Maceda, immerse themselves in briefings and learning the ERC ropes.

We can share with you that lawyer FloresindaBaldo-Digal had actually acknowledged in writing your organizations expression of concern that the ERC must deeply analyze the consumer impact of Atimonan One’s pricing methodology, indices, downtime allowances, non-performance, and guaranteed payments. In our letter, we had pointed out that the published rate of P3.60 per kwh by Atimonan was misleading  because it was based on a low coal price and low dollar rate in about the 2nd quarter of 2016.  If adjusted, the rate of the 1,200mw Atimonan contract will be the same as Meralco’s current PSA’s of about 5.35 per kwh. That means for all the publicized economies of scale in this very large project, its supposed fuel and operating efficiency, will not result to an improvement in the charge to consumers.  That is a direct result of the rate just being allowed to be negotiated as opposed to subjecting them to open competitive bidding as required by law.

Atty. Digal, an ERC career professional and signing as OIC, Office of the Chairperson and CEO in her 28th August letter, assured us that they will look into these concerns. We are hopeful that the ERC will. Afterall under the Interim Appointment issued by the Office of the President, the interim commissioners are tasked to No. III “Act on all consumer complaints including the issuance of provisional remedies thereon”, No. IV “conduct hearings and consultations with stakeholders and consumers”.

In the ending, Atty. Digal said “rest assured that we are one with you in ensuring that consumer interest is protected”.

MSK is hoping to be called to hearings where we, and other knowledgeable consumer reps,  can assist in looking at some key aspects of the negotiated contracts between sister companies Meralco and Meralco PowerGen who is the proponent and minimum 51% owner of Atimonan One. (many expect that it is actually the Aboitiz group that is the significant minority partner).

Weshould not be surprised though if  the Atimonan One is approved in the next 10 days as a lot of people fear.  After all, the stars have aligned towards that possibility. It could be that the WHEN is now and this is the HOW.  Some stars are bigger and brighter than others and they can make things happen.

Life is not perfect and we Meralco consumers can only look at the  bright side in that at least we will have an additional supply of 1,200mw from Atimonan  by 2021 and perhaps another 600mw from Redondo In Subic by the end of 2020.

Let us just hope that if they do, the ERC will moderate the greed of the numbers negotiated and somehow the consumers are given a modicum of protection and fairness.

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