Can Meralco Sell More Power than It is Buying? Meralco’s Conflicting Declarations (Part 1)

Part 1

David Celestra Tan, MSK
8 July 2020

You know one thing good about being at home on quarantine is you find that you have more hours to live everyday than spending them in traffic. What better use of those found three hours a day than spending them in the service of God, country, and humanity. Half hour a day hearing Mass is just uplifting. The rest you offer of you that is most valuable and beneficial to country. In my case since I cannot contribute to finding a Covid-19 vaccine, I try to apply my knowledge of utility economics as part of our consumer advocacy on power rates.  We just need to try to bring out the truth and contribute to bringing about solutions. After all, as they say, “for evil to triumph, it only takes good men to do nothing”.

On to the Meralco subject.

In our search for answers (and possibly solutions) to Meralco’s shocking electric bills for April and May under Covid-19 ECQ, we started looking at other official documents of Meralco beyond the disclosures it is making monthly to its consumers that are posted on its website.

We started referring to Meralco’s Annual Report for 2019. On Page 5, we found a summary of their financial results and operating information showing their number of customers in each customer class, their energy purchased, their generation costs and etc.

The comparison of the numbers declared in Meralco’s monthly disclosure to customers to support the monthly pass-on generation rate that they will charge the consumers did not match their disclosures to their stockholders and the public in their Annual Reports. 

The disparities are so startling that we cannot help but wonder, can Meralco sell more power than it is buying?

No, we are not talking about the price at which they are buying and the price at which they are selling.  We are talking about the quantity of energy in KWH they are buying monthly as shown in their monthly generation reports compared to the quantity of energy in KWH they declare they have sold in the Annual Report to their Stockholders.

In physical goods, the quantity of what was purchased and what was sold during the year normally do not match. Mainly because part of those sold were already in inventory at the beginning of the year and part of those purchased are still in inventory at the end of the year.

You cannot keep electricity in inventory

In the electricity world, you cannot store in inventory a lot of the power you are buying. In fact what you buy is exactly what your customers use with provision of course for losses that you incur in your system from the power generator to the delivery to the end users, residents, commercial and industrial customers.  In other words, the kwh energy you purchase should be the same as the kwh energy you sold, again with provision for systems loss that according to Meralco is 5.9% in May.  In any case, there is no “power inventory” in the asset side of Meralco’s Balance Sheet.

What the Meralco disclosures say

A month ago we analyzed the power generation rates of Meralco’s suppliers, mainly because Meralco was praising to high heavens their ability to reduce their generation rate for the last six months. They did reduce by a total of P0.85 per kwh coming from a high month of December. They patted themselves on the back by announcing that they have declared force majeure to their power suppliers and had saved the consumers about P500 million in May alone or P0.35 per kwh for the last three months from March to May. In fact checking their claims we discovered that coal prices had come down 20% during this period and their other power source that use LNG, the prices went down 10%. We felt then that Meralco’s reduction in generation rate should be much more, probably closer to P1 per kwh not only 0.35 per kwh.

Meralco’s monthly generation charge

Every month Meralco discloses to the consumers as required by ERC the computation of their generation charge for the coming month. Generation costs is a pass on charge so for transparency they have to show Meralco consumers and ERC how they computed it including who supplied them what and at what price.

For the month of May 2020, their generation rate averaged P4.3848 per kwh, from a total purchases of 2.541 Billion kwh at a total cost of P11.204 Billion.

Meralco charges all consumer classes from low income to industrial customers the same generation rate, and for May it was P4.3848 per kwh.

We went back to their monthly billings for 2019. For the 12 months, they bought a total of 33.565 Billion kwh at a total generation cost of P174.859 Billion resulting to an average of P5.209 per kwh for 2019.  Fair enough.

Meralco’s energy sales according to their Annual Report 2019

Here is what surprised us with the numbers and let us hope Meralco has a solid explanation for the disparities.

On Page 5 of their Annual Report for 2019, their energy Sales are reported to be 46.871 billion kwh for 2019.  This is compared to the kwh they bought for the 12 month period of 2019 totalling 33.565 Billion kwh. That’s a 13.3 Billion kwh higher energy sales than was purchased or 39.6%.

What the heck?!

Next: More perplexing numbers

Doble Ingat!

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