Meralco Customers Getting Hammered by Sweetheart Charging of Power from Partners EGAT of Thailand and San Miguel.
Part 2
David Celestra Tan, MSK
29 October 2020
Meralco’s franchise as our electric service provider requires that they supply us power in the least cost manner. This means the power generation charge that they will pass on to us must be the least cost that they can buy. If not least cost, at least reasonable.
That is hard to do when Meralco as the distribution utility is being allowed to buy from sister companies and partners. This was the reason the Epira Law of 2001 tried to limit if not ban cross ownership between a distribution utility and a generation company.
To Meralco however, it seems least cost power is not a competitive procurement endeavor but only a public relations challenge of making customers feel they are being charged least cost.
As they say, let us look at what Meralco is doing and not what they are saying.
The Mystery of 2020 (other than the pandemic distribution charges)
This year 2020, they like to trumpet that their generation rate had come down from P4.9039 per kwh in January to only P4.12 per kwh in August, a 16% drop. We would like to say thank you. But if you know that coal fuel, which is supposed to be passed on to the consumers at cost, dropped 28% in the same period you will be suspicious. Even more suspicious is the WESM price from which Meralco bought 15.5% of their supply dropped 193% from P8.49 per kwh in January to P2.421 per kwh in August. It seems Meralco is just calibrating the decreases and not passing on all the cost reductions to consumers as they should.
Your organization is curious because the numbers do not make sense. So we looked at some details in Meralco power procurement practices and charging to consumers especially for power they buy from partners.
1. Quezon Power Ltd (QPL) in Mauban has a 460mw coal plant. It is now owned by EGAT of Thailand, Meralco’s 49% partner in the new 480mw San Buenaventura Power also in Mauban.
a. QPL has been the most expensive Meralco coal power supplier since its start in 2000. It was bought by EGAT of Thailand in 2013. Up until 2019, the price premium of QPL over the other Meralco coal power suppliers like DMCI, SMC Sual, Therma Luzon Pagbilao, was 9 to 12%. This year 2020, the premium skyrocketed to an astounding 52.4% on the average!
b. Based on Meralco’s official data, they paid QPL an average price of P6.73 per kwh for first 9 months of 2020 for 1.601 Billion kwh of power. By Contrast, Meralco paid its other coal power suppliers only an average of P4.20 per kwh. Or a differential of P2.53 per kwh premium for a total sweetheart price of P4.05 billion until September alone. This has been passed on to the consumers.
c. Clearly, the generation rate reduction that Meralco should pass on to consumers from January to August 2020 should be way more than 16%.
d. QPL’s January 2020 rate was P6.5919 per kwh. Inexplicably it went up higher in August, instead of lower, to P6.723 per kwh despite coal prices coming down by 28% during that period. It just do not make sense.
How is QPL getting away with charging consumers at 4 times more premium than before? Either they have the blessings of their partner Meralco or Meralco is looking the other way or just do not care about the impact on the consumers. This is just dereliction of public service duty and a violation of their public service franchise. If it is intentional, it is even worse.
2. The 640mw Masinloc Power Plant in Zambales
In our previous article we wondered about what happened to this long time supplier of Meralco whose price while not the lowest is at least average.
It turned out in 2014 Meralco’s partner in the San Buenventura project in Mauban, EGAT of Thailand, bought into the Masinloc Power Plant with 49% from the original developer AES Corp. a USA independent power producer. In March 2018, San Miguel Power bought supposedly the whole of Masinloc from AES and EGAT. At this time Masinloc is being expanded with a 3rd unit of 335mw supposedly to be finished by the end of 2018. San Miguel had emerged as the major partner of Meralco in many of its power projects. San Miguel is the most active player in Meralco’s CSP, cornering most of the new power supply. San Miguels partner in the ventures is Meralco PowerGen.
Masinloc as an independent supplier contractor to Meralco last delivered its power to Meralco in January 2020 at the rate of P5.4658. It seems from then on, its power output is sold already under San Miguel’s umbrella.
A disturbing power billing in 2018
Reports say San Miguel bought it in March 2018. The Masinloc power plant delivered their normal quantity and price level to Meralco from January to July 2018. An average of 138.92 million kwh a month equivalent to an average 5.15% of Meralco’s power requirements. The average rate was P5.7441 per kwh.
Starting in August and up to December 2018 however, Masinloc’s supply to Meralco dropped to about a 1/3 of its normal output to 51.778 million kwh a month or an average of 1.86% of the Meralco requirements.
Masinloc’s average rate however for this 5 month period was an astounding P12.02 per kwh, a 109% increase over the average of P5.7441 per kwh the previous 7 months of 2018 from January to July.
How can this happen? And how can this be allowed?
In the power generation industry, significant jumps in average rate can only be caused by two things. There was an upheaval in the cost of fuel or there was an allowed downtime where the power generator is still paid his fixed capacity charge during the allowed maintenance downtime period.
In 2018, coal prices were at $106.45 per ton in January and was $119.57 per ton in July, and averaged $105.99 per ton for the 7 month period. For the period of August to December when Masinloc reduced its output by 2/3, the coal price averaged only $108.46 per ton or only an increase of 2.33%.
Masinloc’s billing rate allowed by Meralco was 109% higher. So fuel was not the reason.
Then it must be the downtime allowance. Most coal power plants are contracted to allow about 45 days a year of maintenance downtime. Let us assume that the Masinloc PSA with Meralco still had the old BOT era provision requiring payment of fixed capacity fees during the downtime period.
The 670mw Masinloc plant however reduced its output by 63% average over a five month period or 150 days from August to December 2018. Evidently, the Masinloc plant was put in some extensive maintenance by new owner San Miguel. During this period Meralco still paid San Miguel an average price of P12.02 per kwh.
Here is where a disturbing sweetheart deal is evident.
Masinloc is entitled to at best a 45 day downtime period during which Meralco will still pay the fixed capacity fees. For purposes of discussion let us assume that the 45 day period went from August to the middle of September 2018.
The question is why did Meralco evidently continue paying San Miguel for Masinloc for guaranteed capacity fees from the middle of September to the end of December, thus resulting to the average rate of P12.02 per kwh?
Masinloc was supposed to have 3 boilers now with 335mw capacity each. Assuming that the new one is the one kept running and the older two were put in major rehab, still Meralco should not be paying them for the more than 45 days for the capacities that are down.
If Meralco is being faithful to its franchise obligation to provide power in the least cost manner and to protect the public from being overcharged, why would it allow San Miguel to enjoy guaranteed payments in the hundreds of millions for its downtime period beyond 45 days. In this case 105 days excess. We calculate that the undeserved payment to Masinloc was P1.6 billion for the period September to December 2018, all passed on to the Meralco consumers.
San Miguel is a known partner of Meralco PowerGen in announced power projects. Are they partners in the 1,005mw Masinloc Coal Power Plant? When the Philippine Competition Commission approved the purchase of Masinloc by San Miguel, did they know fully who would be the new owners and was there a restriction on the entry of undisclosed additional owners that can change the impact on competition in the power generation sector?
EGAT of Thailand, Meralco’s partner in San Buenaventura Coal plant in Mauban, also worked hard to buy into 49% of Masinloc from AES. And they tried to have the plant expanded by 2 x 335mw. Why did EGAT suddenly sell to San Miguel its Masinloc interest?
Who has been rearranging the planets?
The sweetheart rates paid by Meralco while Masinloc was in excessive evident downtime from August to December 2018 were charged to unwitting consumers. It is just not fair.
Will the ERC investigate and order a refund?
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
