Meralco’s Generation Rate Reduction Welcome but Temporary
David Celestra Tan
11 December 2014
We join the millions of Meralco customers in welcoming and rejoicing the recent announcement of reductions in the generation rate, and consequently the total electricity bill, in Metro-Manila and the National Capital Region.
From P5.63 per kwh five (5) months ago, it was down to P5.11 per kwh in November and now they announced it is going to be P4.94 per kwh! That’s P0.67 per kwh or 12% lower. Tremendous! A welcome Christmas gift to Meralco consumers as opposed to the cruel increases of 90% and 100% in November and December last year.
Not to rain on their parade, these Meralco reductions are fortuitous, external to Meralco, and temporary. The reductions did not come from systemic and methodical improvements in the way they procure their power, in their management and administration of their power supply agreements, in the inclusion of cheaper hydro in their generation mix, and in the improvements in the trading and market settlement rules at the WESM. These are reforms being sought by Matuwid na Singil sa Kuryente Consumer Alliance (MSK) that will permanently reduce Meralco’s generation charge from P5.63 to P4.00 per kwh.
Meralco ascribed the expected reduction to P4.94 to lower international prices of fuel, to higher power supply due to “normal operations of major power plants” (meaning less tube leaks and downtimes), lower consumption due to the cold weather, and the consequently lower prices in the WESM markets. When it went down to P5.11 per kwh in November, it was due to less downtimes from their power suppliers.
This means if these external contributory forces to generation rate are favorable, the Meralco generation rate can even be lowered to P3.50 per kwh and make our country truly competitive in power costs and attract more investments in manufacturing. Without systemic reforms however, when these fortuitous events reverse themselves eventually as they would, the generation rate of Meralco would easily be back to P5.63 per kwh.
Maybe there is less manipulation in the WESM market and the secondary cap set by the ERC is having its desired safeguards for consumers. Meralco said the WESM market average price reduced by P1.70 per kwh which sufficiently offset the increases of P0.10 and P0.03 per kwh from their bilateral power suppliers.
In August and September 2014 Meralco’s reported purchases from WESM averaged 43.05 and 35.59 per kwh which were higher than the reported P23.00 and P33 per kwh in November and December 2013 when they asked for generation rate increases of 80% and 100%. Yet, in August and September 2014, Meralco’s average generation rate decreased 8.5% and 5.28% respectively instead of increasing.
The logical conclusion is Meralco’s rate is influenced more by the quantity of power it is buying from the WESM and less of the price of the WESM. And the amount of power it is buying from WESM is dependent on the energy delivery, downtime, and performance of their contracted generation suppliers.
To permanently lower generation rates, what we need are systemic improvements in how Meralco is buying, managing, and strategizing their power supply. Achieving least cost for consumers should always be their objective, not maximization of profits. This is something that the new owners of Meralco must realize. Meralco is a public service utility and distribution monopoly. Unlike the telephone business, there is no competition. They therefore must be faithful to their franchise obligation.
These they can achieve only if they buy power on competitive and arms-length basis. If they manage their power suppliers and hold them accountable for excess downtime. If they improve their energy mix by buying more from lower cost sources including hydro. If they don’t monopolize power supply with negotiated sweetheart prices and terms with their own companies. These are uncompetitive and market domination practices that are detrimental to the consumers.
We welcome reductions in power costs. Temporary and transient reductions however must not make the consumers and government policy makers believe that reforms are no longer needed because “Meralcos rate is going down”.
The reduction in Meralco’s generation rate is welcome but it is only temporary.
Let us work for permanent and systemic reforms for sustainable reductions in power rates to consumers.
Matuwid na Singil sa Kuryente Consumer Alliance.Inc.
