CounterPoint: Our Rates are high because of Sweetheart Deals with Sister Generators and of Anomalous PBR rate methodology by ERC.

David Celestra Tan, MSK
9 February 2018

(This is MSK’s response to the viewpoint of Mr. Kris Balibukel  on our article Coal or LNG is not an either or question posted on December 5, 2017)  

We agree with the point of Mr. Balibukel that the Philippines has one of the highest electricity rates in Asia. We however disagree that the reason is that the Filipino consumers paid dearly for the energy security and environment sustainability programs of the government.  He pointed at the government’s support for the development of indigenous Malampaya LNG, geothermal power,  large hydro power, and the subsidies for Renewable Energy under the FIT program as the main reasons.

MSK reiterates its position that the real reason for the high rates is that major distribution utilities like Meralco have been allowed to negotiate long term power supply contracts, most of them with sister generators, without benefit of market bidding and resulting to sweetheart rates that they then pass on to the consumers. MSK’s analysis of the pass on charges of Meralco power suppliers showed that the prices between sister generators and independent suppliers have been as much as P0.75 to P1.00 per kwh. And that the difference between negotiated rates and truly competitively bid power supply contracts is at least P0.50 per kwh.  And those are only for the officially published rates per kwh.  There are also sweetheart maintenance downtime payments, fuel allowances, and escalation.

Power generated from Malampaya gas was high not because of the gas and the royalty charge of the government but the take-or-pay provision and the higher capacity fees of the First Gas Power and Meralco contracts   We invite Mr. Balibukel to compare the First Gas Power prices from 2006 to 2010 with the prices charged to it by the government owned Ilijan Power that also use Malampaya gas.  The numbers will speak for themselves.

The other reason for the high rates to consumers is the anomalous PBR rate setting methodology for distribution charges which effectively allowed Meralcoto make 25% return on equity per year AFTER TAX. MSK filed a petition for changes in the PBR rules but the ERC was clearly not sympathetic to the flight of the Meralco consumers.

We also agree with Mr. Balibukel that the EPIRA Law of 2001 was designed to create competition in the power sector and in his words to convert it from a sellers’ market to a buyers’ market.  We are amused though by the assertion that what MSK “espousesis to diminish that power to buy from where it is cheap”.

Because Distribution Utilities like Meralco, Davao Light, Visayan Light, have been allowed to negotiate power supply prices with their sister companies, there is no real buyer and seller of power to speak of. What we got is a buyer-sellers (as one) market and no real sellers because buyers (Meralco) and their sister generators (First Gas, MeralcoPowerGen) are one and the same.

Coal and Natural Gas have each their supply chain vagaries as energy sources.  We would like to listen to the argument that Coal is less market volatile than LNG and ergo it is better for consumers for the country to use more coal.  It rings hollow however if it is argued by Meralco who has self-interest in the bias for coal because of the 4,005 MW of coal power plants they signed with various project companies controlled by its own MeralcoPowerGen.

The argument also does not count the consequential costs of coal, the global need to subsidize clean energy, just to atone for the sins of coal.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Saying for the week:

“Somedays you are the dog, Other days you are the hydrant”,
American Poster

Filipino Version: “weather weather lang yan”!

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