Is it Too Much to Expect Consumer Fairness from Meralco? Praying for Divine Intervention.

David Celestra Tan, MSK

18 March 2016

Are Meralco consumers expecting too much fairness from the distribution utility? Are they not entitled to make money for their investments? Does our organization MSK have reason to continue to be vigilant and complaining?

Many businessmen who are heavy users of power actually think Meralco is a good and customer caring distribution utility. It helps them reduce their energy consumption through various highly publicized programs such as the POP (peak off-peak), demand side management, and etc. You see these large ads regularly specially in MVP-identified newspapers chronicling those grateful businessmen singing the praises of Meralco. ( aren’t those expensive ads part of Meralco’s expenses charged to the consumers?)

Indeed Meralco works hard to give large industrial consumers a better deal and they have wonderful programs. Are they doing it because they are such good guys with a customer-centric corporate soul?

Actually the reason is it is a necessity for them to protect their markets because those large energy consumers are “contestable customers” who have the option of choosing their own power generation suppliers. If they don’t make them loyal by giving them better deals, they could lose those customers. It is also the reason they want to be a RES (retail electricity supplier). Let us give them though the benefit of the doubt that they are doing those wonderful programs because they truly care for their customers and they want them to reduce their energy consumption. Fair enough.

The question though is what are they doing for their “captive customers”, those who are consuming 200 to 10,000 kwh a month (residential and commercial customers), who have no choice but to get power from Meralco? Do they have similar energy cost reduction programs for them? Meralco earns 55 to 60% of their revenue from these customers who have no choice.

The captive consumers concern is not what Meralco is doing for> them but what it is doing to them?

If Meralco is as customer caring as they are to their large energy customers, why are they doing the opposite to their captive customers? Is the reason because those customers are actually captive and have no choice but to stay with Meralco and hence there is no reason for them to be really good to residential and commercial users other than in press releases?

Fighting and Circumventing CSP

This is evident in the case of the implementation of the government’s policy of subjecting the long term bilateral contracts of distribution utilities to competitive bidding or CSP (competitive selection process). Meralco, as the largest distribution utility in the country with control over 70% of the power needs of the country, is clearly intent on also monopolizing the power generation supply through theit own Meralco PowerGen and announced their target of 3,000mw of new power supply projects. We calculate that if they get their way Meralco PowerGen within 5 years will bring to 85% the sweetheart deals of Meralco. We calculate that the sweetheart prices on those negotiated contracts cost the Meralco consumers 12 to 18%. And that’s tens of billions a year in excess charges to consumers.

This is a major reason Meralco has the highest retail rates in the Asian region and former Energy Secretary Carlos Jericho Petilla, luckily for the consumers, took the bold step of passing a game changing policy of requiring the power supply contracts that are passed on to the consumers should be subject to competitive selection process. (it is unlikely that Senatorial Candidate Petilla is getting any support from the MVP and Aboitiz groups for standing up for the people, who should now at least vote him in).

Meralco argued against the CSP policy and lobbied for its delay or making it voluntary, complete with media disinformation. Later they hinted about going to the Courts to have the policy declared illegal. Eventually they relented and on the surface announced they will comply with the CSP policy. But it turned out it will be their own CSP policy. They lobbied against the appointment of an independent bid administrator and have been pushing for the adoption of Swiss challenge as an acceptable (and legal) way of competitive bidding. They are referring to the BOT law that recognizes Swiss Challenge. (See our previous article on Swiss Challenge, Games People Play).For good measure they even conducted CSP’s for short term power reserve contracts from diesel plants to seemingly demonstrate the concept of self-administered “price challenge”. (Look Ma, No Hands!)

The bottom line is Meralco is unwilling to provide the captive consumers that provide 60% of their revenue the chance to reduce their power rates and be treated better through the benefit of a truly competitive bidding. Because these consumers are captive and cannot go anywhere. Meralco already got away with 1060mw of new power generating projects for Mauban and Subic which by themselves will cost the consumers P10 billion a year in higher rates. And now clearly they want to assure another 2,000mw for Meralco PowerGen through self-administered and swiss challenge biddings.

Is it too much to Expect Consumer Fairness from Meralco?

Meralco is a public service utility granted a public utility franchise by the people through the government. Note that franchises for public utilities are providing the essential services to the people on behalf of the government. Just like Water, roads, telecoms.

The Arroyo ERC even did not quiver when Meralco granted bonuses to its top executives of P100’s of millions. All those are passed on to the consumers.

After years of rate setting tricks including the phase out of the old RORB, return on rate base, the return of investment by a distribution utility is no longer capped at 12%. Even corporate income taxes are effectively passed on to the consumers. That 12% is now 14% WACC and the base amount is no longer what Meralco actually invested and is spending to provide the services but also their projected investments. In other words the returns are higher and the basis for the computations is larger.

Those Meralco rates approved by the ERC are based on an estimate energy sales per year. When the economy grows and the energy consumption exceeds the estimate, then they make a windfall. So believe it when Meralco announces that they are making P19 billion this year “because of higher energy sales”. The irony is if the energy sales is lower, they will come back to the ERC to recover the “under recovery”. I tell you, consumers are screwed coming and going. In the last available data, for 2014 Meralco’s gross sales is 261.74 Billion and cost of power is 207.24 billion. That leaves technically P54.50 billion in gross revenue as the distribution utility. A net profit of P19 billion is equivalent to more than 35%! And that does not count the income that they are making on the generation side. That is unconscionable for a government granted monopoly distribution franchise that is supposed to be public services.

Nonetheless, consumers should not be complaining about the amount of money they are making. Just the unfair and exploitive way they are making them.

Rules are now blurred including how the systems loss is computed. We suspect that the Metro Pacific group coming in had been convinced that these public utilities actually allow maximization of profits…..and monopolization of the generation side because of Rule 11 of the EPIRA IRR. Electric distribution is now regulated only in name and process.

Many professional groups have been convinced that Meralco is now being subjected to competition through open access. That is only for the generation part. Meralco is still the exclusive provider of the distribution wires and the one who will charge you for their share of the generation rates at sweetheart prices including their obligations to the IPP’s for undispatched or stranded supply contracts. They still will charge for systems loss recovery, for the bloated “performance based rate” that include profits on investments not incurred, and etc.

It is inherent in a public service utility that is protected by a people granted franchise to treat the public properly and with respect. We believe denying the consumers the benefit of truly competitive bidding and clearly insisting on gaming the process is very disrespectful to the electric consumers. In addition to the provisions of their public service franchise, the Epira law also require them to provide the electric service in the least cost manner. And least cost is not for Meralco to define. There cannot be least cost unless there is true competition in both power supply and supply of materials, equipment, and services. Those are all passed on to the consumers.

It is not too much for electric consumers to ask for fairness from Meralco. And as long as there are over charges we will not stop being vigilant and complaining. After all every month those overcharged electric bills come and we pay them out of hard earned money, sometimes starving our own children with their own “baon” just so Meralco will not cut off the power.

Maybe the powers that be at Meralco might find fairness in their hearts during this coming holy week.

By the Way, electric consumers should Vote for Carlos Jericho Petilla for Senator, No. 41!!

And Candidate Neri Colmenares who also sometimes speak for electric consumers.

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