The Consumers Dilemma that is Atimonan….The Riddle that is Energy Mix. (Part 1)

David Celestra Tan, MSK
3 October 2018

Part 1

What do Meralco consumers do now that the Atimonan One will most likely be approved in the next days, probably by the 9^th?  After all the Atimonan One power supply contract is a fruit of a poisoned tree.

Meralco’s 1,200Mw coal power project is one and the largest of the seven (7) midnight power supply contracts totaling 3,551mw that Meralco signed with companies controlled by its sister company Meralco PowerGen.  Because of the consequent imbroglio from Meralco’s scheme at evading CSP for these 20 year power supply contracts that corner 80% of the energy needs of Meralco, there has not been any new power plants approved for Meralco since 2015 up to 2018. (other than the smallish 70mw of MVP Group controlled Global Business Power in Iloilo). We are now looking at a disastrous power crisis in 2020. This without mentioning that ERC, the country’s highest regulatory body for power has been rocked to its foundation and it will never be the same.

The Dilemma that is Atimonan

Meralco consumers are now in a dilemma with Meralco determined to get their way and practically hostaging the future supply of the country, more specifically the 1,200mw Atimonan One and the 600mw Redondo in Subic.  Do we continue fighting Meralco, going to courts to get an injunction, or do we let this one go to save the consumers from punishing brownouts in 2020?

I would like to express my personal opinion. We consumers are put by the MVP Group between a rock and a hard place. No question.   Do we swallow the fact that they are getting away with the circumvention of the Competitive Selection Process with the evident facilitation of the ERC, the very government institution that is supposed to protect the consumers, in exchange for assurance of much needed power supply in the future? The violation of this law by everyone involved is the job of the government to punish. We consumer groups can of course complain and file lawsuits but if the courts and the law enforcers are apathetic and looking the other way, what can we do?

Since 2016 we have been beseeching the government, specially the DOE and ERC, to do something about the impasse before it is too late.  Now it is close to too late. It will take 2.5 years to build and commission those plants. And would you believe 3 to 5 months just to get a certificate of compliance (COC) or permit to operate from another department in the ERC?

Faced with this dilemma, I believe in the end we have to consider the greater good. We may pursue the punishment for the people who violated the law.  We can try to stop the contracts. But our people may suffer more at some point. In this case, assuring sufficient power supply which can be represented by the two controversial projects totaling 1,800mw can protect the people from further aggravation.

Moderating the Greed in the Numbers

As to the negotiated sweetheart rates agreed between Meralco and its sister company Meralco PowerGen. (yes the one that they claim with straight faces that they negotiated “arduously”. Give us a break.) I believe it is not too late.  The ERC, let’s hope,can redeem themselves and also look after the greater good which is to fine comb the negotiated rate, eliminate the inequities and sweetheart provisions, and moderate the greed of the numbers.

One area is the elimination of guaranteed capacity payments even if they are down. Allowable downtime days per year is at the most part a negotiated time off with payment. This used to be justifiable during the BOT era of the 1990’s. But this Meralco projects are not BOT. They are Build Operate and Own or BOO. There is no reason for the buyer of service (us consumers) to assure the debt service and operating cost payments of the plant when they are down. This gives the generators the incentive to maximize their downtime because they will be paid anyway.

Power Generators in this new era should be paid only when they deliver a service or energy. Not when they are down. This is true performance based payments.

Areas of Concern in Atimonan One Power Rate

The biggest risks for the Meralco consumers of an Atimonan One approval is the rate is practically non-transparent.  Your organizations efforts to secure copies of underlying documents to validate the claims of Meralco on rate benefits have been forestalled both by Meralco and ERC.

But let us try to deduce what we can from the publicly available data.

Meralco’s  officially declared rate for Atimonans 1,200mw supply amounting to 8.409 Billion a year kilowatthours is P3.7587 per kwh. That is based on the US$ exchange rate of P46.07 in April 2016. Coal base rate is US$50.38 per metric ton and coal shipping cost basis is $5.90 per ton.  They claimed a Line Rental cost of P0.091 giving a Delivered Rate of P3.8498 per kwh.

Meralco further claimed a reduction in rate of P2.9174 per kwh and a resulting average savings to the consumers of P0.7799 per kwh!  These numbers are just impressive!

And you are going to love these.  Meralco’s claimed reduction in rate was based on a WESM rate of P7.064, a number that they apparently picked from the highly fluctuating spot market to suit their savings claims.

There are just two problems to this Meralco trick. 1)  You cannot compare the generation rate of a 20 year guaranteed bilateral contract with a spot market price. It is like comparing the cost of the whole cow with the price per kilo of beef in the market. 2) Besides,  Meralco’s average WESM purchase during that period was only P4.9533 per kwh and their average generation rate was P3.8813 per kwh. This latter number is the valid comparison for Meralco’s rate savings. This means the rate established by sister companies Meralco and Meralco PowerGen for the Atimonan One of P3.8498 is only P0.0315 per kwh lower and not P2.9174.  It means also that the average savings to Meralco consumers attributable to Atimonan is not P0.7799 but an increase in rate impact.

There is more. Those rates are subject to adjustments for changes in US$ exchange rate, inflation, and coal fuel price in the world market. To answer the question what is Atimonans rate now? We chose to do a simulation for July 2018 and adjusted the rates to a US$ rate of P53.17 and Coal price of US$119.90 per metric ton. The resulting rate is P5.2811 per kwh and if we apply the exchange rate adjustment to Capital Recovery rates, it would be P5.604 per kwh. 

Are those now cheaper?  Let’s compare with Meralco’s current suppliers. Meralco’s average generation rate for July 2018 was P5.2651 per kwh. Its current suppliers updated rates were P3.855 per kwh for SEM Calaca, P5.2797 for Masinloc, and Sual SMC had P5.2417 per kwh. Only the onerous QPPL Mauban rate of P6.5388 per kwh was higher than the updated Atimonan rate of P5.604 per kwh.  

It is clear that Meralco’s claim that Atimonans rate is lower is hogwash. Ipinantay lang nila. So where are the claimed savings from the big 1,200mw project with supposed operating and fuel efficiency?  

Is this only in Atimonan One?

Let us remember that the seven (7) PSA’s of Meralco PowerGen were signed over two days on April 26 and 27, 2016. Only the small 70mw was signed on April 20. The pricing formula and contract wordings obviously came from a template.  The Meralco guys and their Cartel partners apparently had fun with the numbers. Tila Pinaglaruan lang. And to think we are talking about the serious monies that will be paid by millions of Meralco consumers from their hard earned income.  Let me show you what I mean.The numbers are from Meralco’s official ERC applications as published.

(to be continued)

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