Meralco Customers Paying P13.68 B a Year More To Sister Company Generators

David Celestra Tan
16 February 2015

If there is any doubt at all on whether monopolization and self-negotiated power supply agreements are bad for electric consumers and the economic competitiveness of the country, we only have to look at Meralco’s buying generation rates from its various suppliers.

An analysis of Meralco’s generation cost data for the months of October 2014 to January 2015 by consumer group Matuwid na Singil sa Kuryente Consumer Alliance.(MSK) showed that Meralco has been buying and passing on to consumers P13.68 billion more per year for the higher rates of its sister company generators compared to those of non-affiliated power generation companies.

MSK is advocating for a power rate reduction in the Meralco area by P3 per kwh from the P12.50 in July 2014. Half of the reduction or P1.50 per kwh will come from the generation rate. It has been lower because of the fortuitous drop in world oil prices but that soon will be back to reality. MSK had filed a petition with the ERC to pass a regulation requiring open competitive bidding of power supply contracts and to outlaw negotiated sweetheart deals with affiliated companies that has been resulting to high pass on generation rates to consumers.

1. Coal power generators

From October 2014 to January 2015, Meralco’s non-affiliated power generation suppliers averaged in price only at P3.4885 per kwh whereas Quezon Power in Mauban averaged P4.65 per kwh or P1.16 per kwh or 33% more.

Meralco doesn’t attempt to defend the rate disparity and argues only that QPL is not affiliated with Meralco which is technically true. But the 440mw power contract was negotiated with people close to the then controlling owners of Meralco under same sweetheart deal as the 1,500mw First Gas Power. QPL is now owned by EGAT of Thailand who is now the 49% partner of Meralco PowerGen in the 400mw expansion of the Mauban coal facility.

It is true also that the four (4) other coal suppliers, SEM-Calaca, Masinloc, SMEC Sual, and Therma Luzon Pagbilao, are negotiated contracts but they are nonetheless non-affiliated and the deals were arms-length.

In terms of financial magnitude, Meralco bought 1.01 billion kilowatthours from QPL for the four months October to January. At the higher rate of P1.16 per kwh, the higher cost to the Meralco consumers for QPL power was P1.172 billion for the period.

Meralco buys 27.8% of its energy needs from the four (4) cheaper coal suppliers, an average of 6.95%. It buys 9.4% from QPL. If it were dedicated to least cost power and dealing on arms-length basis, one would think Meralco would be buying more from these cheaper sources which now averages P3.4885 per kwh. Would they not be asking them to expand cheaper capacity.? Instead it chooses to negotiate a power supply contract with its own self for a 400mw Mauban expansion at the rate of P4.30-P5.00 per kwh.

2. Malampaya Natural Gas

Of the three (3) generators selling natural gas power to Meralco, San Miguel’s 1,200mw SPPC Ilijan is non-affiliated and supplies power at P4.4542 per kwh. The Lopez owned First Gas Power are charging P5.4151 per kwh for 1,000mw Sta.Rita and P5.5182 per kwh for the 500mw San Lorenzo, for an average of P5.466 per kwh or a full P1.01 per kwh or 23% higher. They are all using the Malampaya Natural Gas at presumably the same fuel prices and terms.

The two First Gas plants supply 35.6% of the energy purchases of Meralco, an average of 17.8%. That translates to 3.394 billion kwh in the four months. At the higher rate of P1.0124 per kwh, the higher cost to the Meralco consumers is a whopping P3.346 Billion for October to January.

All these three contracts were negotiated but again the difference is San Miguel is non-affiliated and the two First Gas contracts were sister company sweetheart deals that will continue to be an albatross on the necks of Meralco consumers for 12 more years.

In total, the Meralco consumers have paid P4.56 billion more for the higher contracted rates for Meralco’s sister company generators just for the four months from October 2014 to January 2015, or a total of P13.68 billion for 12 months.

The big price disparity and onerousness to consumers between sweetheart deals and arms-length power rates is quite clear.

Meralco PowerGen had announced that it will put up 3,000 mw of new power plants all with negotiated and sweetheart prices and terms with Meralco. All these will be majority owned by Meralco. The 600mw Redondo Power in Subic had just been liberated by the Supreme Court and the 400mw Mauban expansion is moving forward and so does the 400mw Pagbilao expansion. All are coal power plants.

If nothing is done by the government, Meralco’s 5500mw power supply will be monopolized by PowerGen at 3,000mw, First Gas at 1,500mw with another 1,000mw expansion, and Summit Group (a significant shareholder of Meralco) at 600mw. The five truly independent power generators (including SPPC-Ilijan) that currently saves consumers approximately P13.68 billion a year in lower generation rates will practically disappear.

Yet, Meralco is trying to say there is no basis for MSK’s petition that the generation rates will be lower if they are not negotiated and subjected to open bidding and monopolization by sister generators are banned. May be that is to be expected from Meralco but for the ERC, who is mandated by law to protect the public interest, to appear to be apathetic to the petition, is a great disservice to the people and country. Facts and Figures don’t lie.

When will the government pay attention to the electric consumers flight? Who is looking after us and the P13.68 billion per year in avoidable overcharge in generation rates?

David Celestra Tan is a former power generation executive and a founding director and former president of the Independent Power Producers Assn. A CPA and retired utility economist, he is a co-convener of the electricity consumer advocacy group Matuwid na Singil sa Kuryente Consumer Alliance Inc.(MSK). Email david.mskorg@yahoo.com.ph.