Aboitiz Behaves Differently as Cross Owners In the Visayan Electric Corp. of Cebu
Part 4
David Celestra Tan, MSK
7 November 2020
Some consumers and businessmen in Cebu that we met about 4 years ago in an ERC hearing read about the wonderful job that the Aboitiz group was doing as a power generator in the Meralco area, specifically as the IPPA for the 700mw Pagbilao coal plant.
The Aboitiz group is now one of the lowest cost generator suppliers to Meralco, beating even the most modern coal power plant, the 480mw San Buenaventura Power in Mauban, owned 51% by Meralco PowerGen and 49% by EGAT of Thailand. Aboitiz does not appear to have cross ownership constraints in Meralco. We meant it when we suggested that Therma Luzon of the Aboitiz Group be awarded the Power Generator of the Year for Luzon.
The consumers we met in Cebu were similarly complaining about the Rates being charged by VECO, which is owned and managed by the Aboitiz Power Group and significant minority partner Vivant Corp., owned by the Garcia Escanos, relatives of the Aboitiz family. Specifically, consumers complained about the P80 million a month they said they are paying for the bunker c power plant CPPC that translates to P22 per kwh.
They sent us some power cost data on VECO and requested us to similarly analyze the rates and determine why they are paying so high. VECO’s regular residential rate apparently averages at P11.529 per kwh this year 2020.
Meralco’s comparative rate for regular residential customers consuming 500kwh and higher is averaging P9.63., 16.5% lower. Meralco is of course 13 times bigger than VECO who only has 500mw of demand compared to 6500mw. Both private utilities are under the ERC’s performance based rate (PBR) making methodology.
To our friends in Cebu, here are the observations of our volunteer analysts on the cost of power generation in VECO.
1.Visayan Electric’s Power Supply Profile
As of 2020, the main power generation suppliers of VECO for its 408mw requirement are
a. Cebu Energy Development Corp. (CEDC) 105mw coal
44% owned by Abovant which is owned by the Aboitiz and Vivant companies. 56% partner is the Global Formosa, a partnership between Global Business Power of Metro Bank and Formosa Holdings. (Global Business was eventually acquired by the MVP Group of Meralco).
b. Therma Visayas (TVI) 150mw of coal power
80% owned by Aboitiz and 20% owned by Vivant
c. Cebu Private Power Corp. (CPPC) 61.72mw bunker c plant
60% owned by Aboitiz and 40% Vivant
d. Green Core Geothermal Corp. 51mw
Owned by the Lopez Group
e. WESM 10 to 30% of energy needs of Veco.
f. In 2019, Aboitiz Energy Solutions, an RES company of the Aboitiz Group, bought 40mw of geothermal energy strips from Unified Leyte and sold it to VECO at P6.0433 per kwh.
g. Also in 2019, another owner of VECO, Vivant bought 17mw of geothermal strips from Unified Leyte and sold it to VECO at P6.0127 per kwh.
It appears that the Aboitiz and Vivant Group are way ahead of Meralco in monopolizing (88%) the power generation supply of the distribution utility (VECO) that they own. Only Green Core of the Lopez Group and WESM are unrelated suppliers.
2. VECO’s average generation rate for 2020 so far has been P5.3129 per kwh. In 2019 it was P5.8588.
3. Surprisingly, VECO regular residential rates seems stable at 11.31 to 11.93 per kwh whole year from January to October 2020.
4. For your normal power sources, the most expensive is CEDC at P5.7301, followed by Therma Visayas Inc. at P5.70597 per kwh. Your cheapest independent power generator is Green Core Geothermal of the Lopez Group at P4.9115 per kwh.
5. Cebuanos generation rate this year 2020 had averaged lower at P5.3129 per kwh mainly because of the very low WESM rate in the Visayas at P2.87235 per kwh where VECO buys approximately 20% of its energy needs.
6. Last year VECO generation rate average was P5.8588 per kwh. Reasons were WESM was P6.5031 per kwh and the Aboitiz owned AESI sold the 40mw of geothermal strips they bought from Leyte at P6.1083 per kwh. Vivant also bought 17mw of such strips and sold it to VECO at P5.4906 per kwh.
Now on Cebu Private Power Corp, your particular generator of interest.
7. CPPC’s per kwh rate that ranged from P26 to 1,470.92 per kwh can really boggle the mind of consumers. It is onerous and insane and we don’t blame you Cebuanos.
8. It appears however that CPPC is a standby reserve plant being retained by VECO and Aboitiz to provide emergency power to minimize brownouts in Cebu. There is nothing wrong with the concept of reserve power to assure power reliability. Based on available data, it seems the Aboitiz owned VECO is paying the similarly Aboitiz owned CPPC monthly a minimum of P66.68 million a month fixed capacity charge or about P1,080 per kw per month, used or not.
9. We see however two (2) things that are problematic in the CPPC -VECO power supply contract that has been causing the heavy pain that the Cebuanos are complaining about on this facility:
a) Excessive reserve capacity
We calculate that the system cost to Cebu consumers of this plant translates to about P0.23 per kwh as a reserve plant. Monthly fixed charge divided by the total energy kwh requirement of Veco. That is for ready standby capacity, used or not. Distribution Utilities really need this kind of standby reserve power to assure power reliability in its distribution system. Having said that, the 61.72mw of reserve capacity seems too high however at 15% for a place like Cebu where there are plenty of reserve supply on the island including the WESM. The prudent level of reserve for Cebu might be 8% or 25 to 30mw. Not 61.72mw.
Other DU’s in the Visayas with similar service contracts for peaking and reserve pay only the equivalent of about P0.12 per kwh based on its total energy purchases.
This however does not seem to be the real problem with this CPPC facility and the monthly charges to Cebuanos of a minimum of P66.68 million or P800 million a year.
b) CPPC’s BOT Plant had been fully paid by the VECO Consumers as of June 2013
The 70mw bunker c power plant was apparently built by East Asia Power in 1998 as a BOT project – “build-operate-and transfer”. In 2007 East Asia was bought out by Aboitiz 60% and Vivant at 40%. . BOT projects mean that at the end of the cooperation period the ownership of the power plant is Transferred to the off-taker for free or P1. In fact, as stated in the VECO and Aboitiz websites, this BOT plant would be transferred to VECO at the end of the BOT period in 2013 since VECO consumers had already paid for it.
c) In 2013 however, it seems Aboitiz and Vivant decided not to turnover the ownership of the plant to VECO. Instead a new contract was signed to continue the supply contract of CPPC with VECO for another 10 years and ERC approved it.
d) Had the ownership been transferred as they were supposed to in 2013, consumers would no longer pay for capacity fees but only for fixed O&M costs cost amounting to about P10 to P12 million a month instead of P66 million, an estimated difference of P54 million a month or P648 million per year or P6.48 billion for the 10 years. No one noticed that the BOT contract had actually matured in June 2013 and the plant should have been turned over to VECO. Even the ERC apparently did not know as they approved the new supply contract. Nifty self deal!
Other Observations
e) The Aboitiz group and the Vivant Group of the Garcia’s who own VECO appear to own 88% of the power generation contracts with only the 51mw of Green Core Geothermal being independent.
f) Notable for its absence in the VECO supply mix is the Korean Power Corp. coal plant in Cebu, an otherwise truly independent generator that could have contributed to reducing the overall cost of power in Cebu. When its plant was being developed, KEPCO’s initial overtures to the Aboitiz group for an off-take agreement fizzled we understand on the terms of Aboitiz equity interest.
g) Aboitiz and Vivant market domination has been exceeding the 50% that is allowed by Section 45 of the Epira Law to be the limit that a distribution utility like VECO can buy of its power supply from its affiliated companies.
Consequences of Cross Ownership
h) The generation price of the Aboitiz group for its power supply to Meralco had so far averaged P3.68 per kwh. The CEDC that it owns supplies VECO at P5.73 per kwh and from the Therma Visayas Coal plant at P5.70 per kwh for 2020.
The Pagbilao plant maybe bigger at 700mw and CEDC only 105mw and TVI 150mw. Still, it seems the price differential of 55% is too sweetheart.
The difference between the two is that Aboitiz has no cross ownership in Meralco but fully owns Vivant VECO , its off taker in the Visayan market.
i) If the Aboitiz group as owners of the DU VECO is looking after the public interest and seeking to truly reduce costs to the consumers, they would not maintain a 61.72mw reserve plant when half or 30mw will do. That is the problem with cross ownership.
j) Similarly, if the owners of VECO is looking after the public interest, they would have insisted that the 61.72mw plant be turned over to VECO at the completion of the 15 year BOT in 2013 and thus save the consumers the continuing fixed capacity charges. The consumers lose when there is a conflict of interest. They already fully paid for the plant and should not be charged for another 10 years. Apparently, the Cebuanos had been feeling the pain but did not understand why.
Due to Cross ownership, the Aboitiz generation company that we in the Meralco area adored as one of our most competitive suppliers behave very differently when they enjoy the opportunities of cross ownership and self-dealing in Cebu where they own the distribution utility VECO.
At this stage, the consumers of Cebu if they are willing to take a stand can work for the moderation of the onerous terms of the contracts. It will be good that while the Aboitizes and Garcia Escanos of Vivant are expanding their generation business that they do so in a way that also strengthens the service of VECO as a distribution utility by reducing its costs.
VECO’s power supply is too dominated by Coal and diesel. Just about the only justification to tolerate coal in our environment is its low cost. However, because of cross ownership pricing, just like in Meralco, coal’s low cost is not trickling down to the consumers. It would be good for Cebu and its neighboring Electric Coops to have LNG power added to its energy mix. Aboitiz can take the lead in that direction.
We don’t know who should step up to protect the Cebu consumers in this case.
MSK cannot help. We have our own problems being ignored by the ERC in the Meralco area.
MSK is a consumer organization of Meralco consumers. We will be happy to assist consumers of other areas with education and understanding of the power industry and in the analyses of your rates so that your advocacies are based on facts and truth. Your initiatives to be realistic. But the locals will have to stand and speak for themselves. That’s the only way you can have a chance of getting fair charges in your electricity bill.
We hope this information helps you understand where the pain is coming from.
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org
David.mskorg@yahoo.com.ph
