Should your Electric Distribution Utility or Electric Coop be Replaced? And What’s The Right and Democratic Way to do it? (Part 1)

David Celestra Tan, MSK
18 January 2019

The failure of the Panay Electric Company (PECO) of Iloilo City to secure a renewal of their franchise that is expiring January 19, 2019 is now in the public’s mind. And raising people’s eyebrows is the ability of a new provider, MORE Electric Power Company of tycoon Enrique Razon to quickly secure a franchise and takeover as the new Distribution Utility for Iloilo City.

The bad and overpriced services of PECO had been in the mind of Iloilo City residents for at least 15 years. It did not help that It bit the bullet when in desperation to quickly get power supply during the crisis years of the 1990’s, it entered into a JV with the Lopez group for a 67mw diesel power plant. That project added about P1.50 per kwh to the PECO rate that gave Iloilo City the highest retail rate in Western Visayas. Subsequently, the Cacho family reportedly declined the Lopez Group proposals to upgrade PECO’s distribution facilities for fear that their ownership will be diluted and Meralco would encroach on its management.

The campaign not to renew PECO’s license started three (3) years ago. Most people only heard about MORE Electric recently. The Franchise of MORE Electric is reportedly just waiting for the signature of President Duterte which presumably is a foregone conclusion. The DOE is just now insuring a smooth transition so that the consuming public is not adversely affected. We presume that the owners of PECO will eventually get a fair compensation for their investments in the distribution systems, though the negotiations on the distribution assets will predictably be tedious and can be acrimonious.

There has not been a changeover of a distribution utility in recent memory other than the consolidation of small utilities in Laguna, Batangas, Rizal, Bulacan, and Quezon into Meralco during the martial law era in mid-70’s.  And themanagement takeover in recent years of really distressed electric coops of Albay, Lanao, and Zamboanga.

Due Process

In the aftermath, one is left to wonder about due process. Did PECO and the Cacho family have a fair chance to prove it is worthy of a renewal of its 95 year old hold on the franchise? Were they evaluated based on clear and transparent performance criteria for renewal? Or is the discretion of the legislative franchise committee of Congress and the Senate to grant franchises absolute and arbitrary?

Credentials in Public Service

Are the rules also clear on the credentials of applicant Franchisees like MORE Electric? Similarly, the current dominant DU players in the country, the Meralco group now owned by the MVP Group and reportedly in turn controlled by the Indonesian group that with the Aboitiz group together already dominate 80% of the distribution utility business in the country.

Still both the MVP Group and the Aboitiz Group have been working for years to takeover more distribution utilities especially electric cooperatives. Meralco has taken over a Pampanga electric coop and reported to have secured the sympathy of the political kingpins of Mindoro and Palawan to get a foot in the door of the Coop. They have for years been trying to take over the electric coops in Batangas, Laguna, and Quezon. Aboitiz for its part have been working on expanding their empire in Davao del Norte, Cebu, and Negros island.

How about the track record and credentials of applicant companies? In addition to financial and technical resources, should they not be judged for their satisfactory record in public services?

A case in point, we are aware that the Razon group that reportedly own majority of MORE Electric has enormous financial and political resources. Port services and Solaire Casino. We are aware of their very close connection with the Macapagal Arroyo group. The last time on record that the group took over a public service franchise is the privatization of the Napocor transmission assets and operations that turned into National Grid Corporation of the Philippines in partnership with China Grid with the blessings of the then President.  Within three (3) years their shares were however sold to the SM Group.

We consumers are left with the legacy of the NGCP national grid transmission franchise that has fabulously overpriced rates and obscenely profitable because

1) the NGCP franchise law allowed NGCP to become the “Systems Operator” that also sets the rules of connections and asset ownership in the system. It is a conflict of interest and is contrary to the specific provision of the Epira Law that reserved that function to the government owned Transco. The law makers probably got confused with the right of NGCP to operate their system, which is quite different from being a “Systems Operator” which is a rule making function.

2) the anti-public interest PBR rate setting methodology passed by the ERC allowed them to charge even for investments not “incurred” in violation of Section 25 of the Epira Law and also effectively deregulated the profits of the franchisor instead of imposing the 12% limit set by the Supreme Court.

Iloilo consumers are hoping that the incoming MORE Electric and the Razon Group will be committed to their public service for the long term.

How about the Meralco and Aboitiz groups? Should they even be allowed to acquire more distribution utilities given that they already own 80%. Distribution utilities are the main market for the power generators. The alarming consolidation of the generation sector into a Meralco cartel is a result of the market control of Meralco as is.  Should the government be allowing further consolidation of the distribution sector that eventually leads to the cartelization of the generation sector?

How about Meralco’s record as a good franchised distribution utility? MSK had written enough about the rate abuses of Meralco, their anti-competitive practices on power generation supply negotiation and contracting, and now cartelization. Does Meralco deserve to expand given their record of complying with their own franchise? Let us read their franchise.

“the grantee shall supply electricity to its captive market in the least cost manner… the grantee shall charge reasonable, just, and competitive rates for its services to all types of consumers located in its franchise area.”

“The grantee shall not engage in any activity that will constitute an abuse of market power such as but not limited to, unfair trade practices, monopolistic schemes and any other activities that will hinder competitiveness of businesses and industries.”

Is Meralco not violating their franchise? You be the judge!

As for the Aboitiz group, their main distribution utility operations are Davao Light (350mw) and Visayan Electric in Cebu (400mw). Aboitiz seems to be doing a great job in Davao but in Cebu, many local businessmen are complaining about the high generation rates and systems loss charges that they say go to 14% instead of the 8.5% allowed.  Some have specifically complained about the P80 million a month capacity fee for diesel plant CPPC, a BOT plant that was supposed to be turned over to VECO in 2013 yet because it was fully paid by that time.

News flash!

As we are about to post this article Part 1, Word quickly spread that Two Congressmen of Palawan just filed House Bill 8829 seeking to grant MORE Electric the franchise for the distribution of electric services for the mainland Palawan that is currently served by electric coop Paleco.

In Part 2 of this article we will tackle the challenges and ramifications of taking over Electric Coop distribution franchises .

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph