An Uncontrollable 800-Lb Gorilla in Distribution like Meralco is Disruptive of Social Order
And What They are Trying to be is Even More Menacing.
David Celestra Tan, MSK
23 December 2019
An American riddle goes: “Where does an 800-Lb Gorilla Sit? Answer: Anywhere it wants to!”
“800-pound gorilla” is an American English expression for a person or organization so powerful that it can act without regard to the rights of others or the law. It is so powerful (either by size or by influence) that it does not need to heed the rules or Threats of others.
In American economy a dominant organization that can overpower competition and government is called an 800-Lb Gorilla. It dictates on the market and stumps on competition and many times even captures government regulation. American free enterprise on which the Philippine economy is patterned is founded on a truly functioning market competition to protect the consumers. And it frowns upon 800-lb gorillas. It is vigilant on anti-competitive behavior and has a strong anti-trust legislation. When AT&T became so big as to dominate 70% of the telecom sector, they broke it up into baby-bells. In recent years they investigated Microsoft, Apple, Amazon, and Facebook for anti-competitive behavior.
In our country, Meralco as a distribution utility is no less dominating as the proverbial 800-Lb Gorilla. They serve 74% of the energy needs of Luzon and about 65% of the whole country. Its mega-franchise covers Metro-Manila and the National Capital Region, 36 Cities, 75 municipalities, the nerve center of the country’s economic, industrial government, and education activity.
To feel the imposing dominance of Meralco as a distribution utility, all of the country’s 138 electric distributors combined is not even half the size of Meralco’s 7,399mw, fully 68% of the 10,876mw demand of the main island of Luzon. And it is also the fastest growing at an average of 6.8% in the last 9 years. This is probably faster in 2019 when the POGO’s and business process sectors boomed in Metro-Manila.
Meralco’s mega-franchise area is bigger than the service areas of Manila Water and Maynilad Water combined! And it is not just the imposing size but the demonstrated voraciousness in the pursuit of self-dealing opportunities that makes it menacing.
Meralco’s financial might is just as overpowering. Its market cap is P428.3 billion, Annual revenues of P304.5 Billion, EBITDA of P37.2 billion, net income of P23.0 Billion, and cash resources of P36.42 billion. One call from Meralco and the banks shiver if its deposits are pulled out. One complaint from Meralco threatening to pull out their groups multi-million advertising can turn newspapers into pussycats. And don’t forget that we have elections every three (3) years.
Their annual advertising budget and regulatory compliance resources exceeds P500 million a year, ironically approved by the Energy Regulatory Commission and charged to the consumers as part of the PBR rate.
So, “How much does Meralco charge its customers?…. Whatever it wants to!
The Performance Based Rate making method allowed by ERC enables it to make 25% return on investment a year. It makes money on projected investments that it did not have to make. Most of its power supply are negotiated. It tried to get away with 3,551mw of self-negotiated power supply with its own Meralco PowerGen with the gratuitous facilitation of the regulators who are supposed to protect the consumers. They almost got their way.
How much money can it make? ….. How much ever it wants to!
As said so far they are making 25% per year. Their systems loss charges are essentially non-transparent charging Metro-Manila residents almost 10% above their 7.5% average and same as the outlying towns. Their distribution charge is supposed to be P1.38 per kwh. But look at your bill if you consume 400kwh and more just like half of the consumers, and it is P2.98 per kwh. Meralco and ERC claims it is due to reallocation of the rate among different consumer classes. But it defies mathematical logic how an average of P1.38 per kwh will result from a high of P2.98 charged to a big portion of the residents and business establishments in Metro-Manila and the lowest is P1.01 per kwh.
What competitive rules does Meralco want to follow?…. Whichever it wants to!
Now rebuffed by the Supreme Court, it wants to do the CSP in its own way anyway. It managed to get a friendly version of the CSP guidelines passed in February 2018. Now it is resisting any form of safeguards that the DOE Secretary Cusi wanted on the CSP for the 1,200mw Atimonan coal project. The ERC for its part tried to get the DOE to adopt another Meralco friendly version of the CSP guideline. (Curious).
Who does Meralco need to capture to assure he gets his way?… Whoever he needs to!
After being turned down in January 2016 by the then new ERC Chair Salazar to allow them to do CSP on swiss challenge basis, the ERC Commission apparently eventually gave in to Meralco in March 2016 for a friendly CSP and extended the CSP implementation to April 30, 2016. The consumer group Alyansa Para sa Bagong Pilipinas cried foul and complained to the Supreme Court, who found ERC guilty of extending the CSP without authority and ordered Meralco to undertake a CSP under a DOE CSP rules DC2018-02-0003. It appeared Meralco was ahead of the game. The DOE DC2018-02-0003 it turned out was very friendly to it with Meralco having full control of the CSP process. And the DOE? It was relegated to being an “Observer”under Section 7 who cannot participate in the deliberations and needed to be invited by the DU to even become an observer. Do you think the DOE Guideline DC2018-02-0003 just happened to be everything Meralco wanted if it has to do a CSP as subsequently ruled by the SC?
What does Meralco need to do to capture the regulators?… Whatever it needs to?
I guess there is no need to discuss the obvious. With so much multi billions a year at stake, resources, overpowering organization, culture, tenacity, and public information control, it can do whatever it needs to do maintain its firm grip on the evident regulatory capture, administration by administration.
How much of its 7,399mw power supply does it need to buy from itself? However much it wants to!
That’s what they are trying to do.
An 800lb gorilla would disrupt the country’s social, political, governance, moral, and economic order.
It is however not totally the evil deeds of Meralco. As a profit oriented private company, it is in its DNA to try to exploit opportunities to make money…as much as the rules (or implementors) are allowing. It is even possible that all these profit exploitations they are doing were presented to them to be legitimate earning practices by the people who sold the DU to them as part of the “sales pitch”.
It is really up to the regulators and policy makers to keep things under control and protect the consumers from being abused. Since 2001 when the Epira Law was passed however we have had eight (8) Energy Secretaries and six (6) ERC Chairmen, with no sign that this regulatory agency is starting to extricate itself from the firm clutches of regulatory bondage by Meralco. There is no argument that so far these government agencies have failed the public. That said, even when the opportunities are there, it doesn’t mean a franchised public service provider should exploit and abuse the vulnerable public if the policemen are not there to protect them. You don’t exploit the opportunity just because it is there. But then we cannot rely on the moral compass of the people running it.
We should really be able to rely on our regulators and policy makers. After all the Epira Law of 2001 that created them was very clear on their motu proprio responsibility to protect the public. We are just not implementing them with public interest in mind.
This is where the socio-economic disruption of an 800-lb Gorilla becomes menacing to consumers and governance. It is too uncontrollable…and irresistible.
What is even worse than having an 800-Lb Gorilla in Distribution? Allowing another 800-lb Gorilla in power generation as is the evident corporate aim of Meralco PowerGen.
Ever wonder why industrial giants and fierce competitors like Ramon Ang of San Miguel, Aboitiz Family, Metro-Bank, DM Consunji, Ayala Group, Lopez Group, EGAT of Thailand, knelt down and commiserated to MV Pangilinan of Meralco to become his minority partners in the infamous 4,005mw midnight power supply contracts?
Because Meralco controls the market for power, the 800-lb gorilla of power distribution, they are essentially the gate-keeper to the power generation industry. They are not only the 800-Lb Gorilla, there is no one even close to being a 150-Lb Gorilla. The two 2nd and 3rd biggest are The Aboitiz group’s Visayan Electric in Cebu only has 500mw and Davao Light has only 400mw.
Anyone who wants to build a power plant in the 300mw and above range will need to
Gain access to the huge Meralco market. San Miguel saw it, Aboitiz knew it. Metrobank did too and sold its Global Business Power 1,000mw portfolio to the MVP group.
You cannot blame EGAT because they enjoy the most expensive coal power price that are passed on to the Filipino consumers. And their 460mw expansion that became San Buenaventura was reportedly originally offered at P4.80 per kwh and became P5.30 per kwh (10% higher) and became owned 50% by Meralco PowerGen.
The Ayala Group? They also saw it but was left out of the Meralco cartel. They sold their stake in GN Power to Aboitiz and decided to go “clean” energy. So does the Lopez Group which is now concentrating on natural gas.
Even the supposed solar energy initiative of Meralco in Bulacan turned out to be controlled by the MVP Group. How much of the Solar Philippines agreement with Meralco will end up being owned by the MVP Group? Only time will tell.
Not many people realize that had the 3,551mw midnight 7 PSA’s gone through, it would have created a 14,000mw coal power cartel because the five (5) Meralco Powergen partners already owned more than 10,000mw of coal power plants in the country. This is Meralco imposing its will on the DOE and the President on the country’s energy mix and climate change goals.
We are sure at some point, Meralco media operators will claim that Meralco’s 4,005mw (including San Buenaventura) would be less than 50% of Meralco’s demand by the time they come on line in 2025. Unbeknownst to most people is that the 4,005mw actually represent 65% of the energy (kwh) needs of Meralco, way over the 50% allowed by Section 45 of the Epira Law.
How can it get away with it? Of course you can if you have been allowed to be the 800-Lb Gorilla in distribution and if also allowed to become the 800-lb gorilla in generation.
How will the electric consumers be treated by an 800-lb Gorilla? Anyway it wants to!
What’s unfortunate is the Epira Law for all its imperfections has enough provisions that can protect the public if used by an enlightened government. Yes, even by ERC. In fact it can easily shrink that 800-Lb gorilla to 600-Lb and be not as menacing. And the cards are there to further shrink it to a healthier 400-Lb Gorilla that will be more respectful of us the consumers.
It will be sad if it is not done under the current government. We hope that at some point we realize that electric power service is about public service.
As we say in MSK, if not now when? If not you, who?
Happy New Year!
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
