Will Meralco’s Rate Reductions be Permanent? Not a Chance.

David Celestra Tan, MSK

Meralco Residential and Commercial Consumers should rejoice everytime Meralco’s highest electric rate is reduced specially in this one that so far amounted to an unprecedented P1.96 per kwh from a year ago or 19%. Meralco likes to trumpet that this is the 5th month of reductions, subliminally implying an organizational public service achievement.

Does this mean there is no more need to reform Meralco’s modus operandi specially in self-negotiated power generation contracts that it passes on to consumers? Meralco’s current reduction is not a result of permanent systemic improvements and hence can shoot back up as soon as the opportune favorable world fuel oil prices start going up and Meralco feels consumers are no longer looking.

A deeper look at Meralco’s rate reduction.

1. Of the P1.96 per kwh reduction, P1.36 or 69% came reductions in its generation charge which is now P3.99 compared to P5.36 per kwh a year ago. According to their press announcements, this is a result of lower world fuel prices and higher availability of the plants of their contracted IPP’s. This means less power plants mysteriously shutting down for maintenance. These also consequently increased the available supply to the WESM and lower prices due also to the world fuel prices which together result to lower spot market prices.

In contrast, when Meralco generation rate shut up by an atrocious P4.15 per kwh in December 2013 or 85% in one month, MSK’s analysis showed Meralco’s contracted generators went off-line mysteriously resulting to stratospheric WESM prices. MSK said at that time that Meralco should do a better job of administering the outage performance of their contracted generators. The IPP’s better plant availabilities now only showed that, if Meralco wants to, it can make their contractor generators behave properly to protect its consumers from undeserved capacity and fixed cost payments.

2. Affiliated vs Non-affiliated behaviors

The rate difference between Meralco’s affiliated coal generator compared to the average of its non-affiliated generators came down to P0.54 per kwh in October 2015 compared to P1.01 per kwh a year earlier in October 2014. Whats interesting is QPPL came down by 13% compared to an average of only 3% by the non-affiliated generators. This means affiliated QPPL’s rate had larger fat than the non-affiliated, most likely on fuel charges that are passed on to the consumers and sweetheart capacity payments.

For natural gas plants, independent San Miguel Ilijan plant rate came down 14% but the Two First Gas Plants of the Lopez Group came down an amazing 32% from October 2014 to October 2015. That’s a drop of P1.89 per kwh! Since these plants are using Malampaya gas and it is safe to assume that their buying prices from Shell are the same, it also means the First Gas Plants charges to Meralco have been higher than they should by 18% (32% – 14%). That’s the sweetheart factor. And they have been passing on these padded charges to the Meralco consumers since 2006 when First Gas started operations. Thats billions of questionable charges every year for the last 10 years.

None of these rate reductions came from subjecting power supply contracts to competitive bidding as envisioned by the mandatory CSP policy that the DOE is trying to Implement. Correspondingly the current reductions are only temporary and can disappear anytime as soon as the favorable world fuel prices change and Meralco already got its way on the CSP campaign.

Meralco appear to be taking the opportunity to reduce public resistance to it by this do-good campaign during this period that it is waging an all out campaign to stop, delay, or make voluntary the implementation of the DOE’s new circulator mandating the subjecting to competitive selection process or bidding of the future power supplies of distribution utilities like Meralco and the Aboitiz Group. Another masterpiece from the Master Hoodwinker Meralco.

It seems the current gambit is to delay the mandatory bidding of base-load power supply so they can sign mid-night power supply contracts with sister company Meralco PowerGen to the tune of 3,000mw which will make the DOE Circular useless for Meralco consumers for the next 25 years.

Meralco’s obviously well-funded all out campaign had managed to form a chorus of singers, like a pseudo Consumer organization with UP lawyers, a noted UP Professor, sadly a supposed energy writer of a major broadsheet, and a long time Meralco oppositor who surprised us by singing a different tune and speaking in all three venues of the DOE/ERC hearing in Cebu, Manila, and Davao. (We wish MSK’s volunteers can afford this junket.)

There are independent IPP’s who nonetheless have strategic alliances with Meralco who are vulnerable to Meralco’s pressure. One of them a major conglomerate who is partners with them in the Redondo Power Project in Subic, has already been reported to have backtracked on its support of CSP and is now singing a “let us study carefully and delay this” strategy.

Until the rules are changed to make power supply contracts competitive instead of negotiated, until we review and permanently reform our rate setting methodologies, until we outlaw Rule 11 of the EPIRA IRR that is providing the loophole for monopoly, Meralco consumers cannot expect permanent reductions in its electric rates.

If power generation procurement is competitive and the world fuel prices are at this current level, Meralco’s generation rate could be at most P3.49 per kwh instead of P3.99. That’s about P12 billion a year less pass on chargers to Meralco consumers.

Sadly, a lot of our own countrymen are lining up against the Filipino consumers. Who are left really looking after the electric consumers? DOE had spoken. Now it is up to the ERC.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Note: In comparing Meralco’s charges between October 2014 and October 2015, MSK only used the generation rates, transmission, systems loss, distribution charges, metering, supply, and universal charges in the computations. Taxes and other charges were not included since they will not impact the rate comparisons.