Be angry at Meralco’s rate hike

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Very angry in fact—the steep electricity cost is sheer highway robbery of Meralco’s more than five million customers, most of them poor. Its audacity is shameless, executed during the Christmas season and while the nation’s attention had been nailed to super typhoon Yolanda’s horror.

Because of Meralco’s rate increase this month, a company or a small group of companies, which the firm isn’t disclosing, will generate P8 billion in windfall profits for just one month, December, and you’ll be paying for these.

graphIf your bill for the 400 kilowatt hour (kWh) you consumed in July was P4,501, your December bill would be about a thousand pesos more, at P5,671, the extra P1,000—your contribution to the dividends of the Philippine corporate elite.

What happened?
To simplify, Meralco bought in November about 10 percent of the electricity it distributed at three times its normal price, which higher cost it insouciantly passes to you in your December bill. Meralco claims it had to buy expensive power from the market because its regular suppliers couldn’t deliver the required volume, because many of them had to shut down.

The following are the facts.


Some 51 to 57 percent of your Meralco electric bill, depending on how much you consume, is the cost of the power the company buys from generators. The rest are such charges as distribution and transmission costs, Meralco’s profits margins, and the recovery of such expenses such as its P1.7-billion advertising budget.

The power Meralco distributes come from two sources.

First are its eight to ten regular suppliers which have supply contracts with Meralco. The second source, started in 2007 is the so-called “Wholesale Electricity Spot Market” theoretically a market which, in Luzon, consists about 50 companies that have power plants, a few distributors the biggest of which is Meralco, and about 300 electric cooperatives.

Meralco purportedly has to buy from the WESM when its suppliers are unable to provide it with the necessary power, either because they had to shutdown for maintenance and other reasons (as happened in November) or demand becomes too high, as happens in the summer season as more electricity for air-conditioning are used. Since 2007, Meralco buys an average of 5 to 10 percent monthly of its total power supply y from the WESM.

Like any market, from a fish to a stock market, the WESM is supposed to be a mechanism by which electricity is treated as a tradable commodity, and therefore its price is determined by its supply and demand.

However, as happened in October and then on a bigger scale in November, there was either a total failure of the market, or—the most logical reason—there has been a collusion between Meralco and its power suppliers.

From July 2007 to September this year, the average cost of power Meralco had bought from the WESM was P7.8 per kilowatt hour (KwH).

This, as in any market, represent some premium from the P4/kwH in Meralco’s Power Supply Agreements with six companies, and P5.5/kwh in its more expensive Purchase Power Agreements with three firms.
Despite the fact that there have been more participants in the WESM, the average price Meralco has bought from it has doubled from P5.2/kwH from July 2007 to June 2010 under President Arroyo’s watch, to P10.11 from July 2010 to September 2013, during President Aquino’s term.

And how much did Meralco bought from the WESM in November, which it will recover through your December bill?

A staggering P33.22/kWh, which is three times the average monthly price of P11.7 from January to September this year. It is the highest price ever sold at the WESM in its seven years of existence.

Meralco claimed it had to buy from the WESM because of shortfalls in the power volume its regular suppliers were contracted for, due to scheduled or unscheduled shutdowns for various reasons including the dearth of natural gas fuel from the Malampaya facility, which also closed for maintenance.

But there wasn’t such a huge shortfall in electricity supply in November to merit such an exorbitant price as the P33.22 price paid in the WESM.

Meralco’s regular suppliers in November provided 73 percent of its power needs. This was hardly different from the situation in October when its regular suppliers provided 75 percent of its electricity, and it bought 7.6 percent from the WESM at P13.7/kwh.

There was in fact a bigger shortfall in the power its regular suppliers could provide in December 2010. For that month, Meralco had to buy 12 percent of its electricity from WESM, but it paid only P7/kwH, less than fourth of the P33 it paid in November this year.

Transactions in the stock market are suspended when prices rise just 25 percent. Why didn’t the Energy Regulatory Commission step in and declare a market failure at the WESM? Was the national leadership alerted about this serious development that threatened the welfare of millions of metro Manila residents? Or didn’t it realize its impact? Or did it think, “Bahala na ang merkado.” (It’s all up to the market.)?

Why didn’t Meralco complain of an obvious market failure? Or would have its owners one way or another profit from the market failure?

I was told that only three companies through the WESM sold Meralco the 286.4 gigawatt hours of power, at an average of P33.22/kwH. How much would they have made?

The cost of power generated by these companies would be about P5.3/kwH, if we use the average price of power sold to Meralco in November by its regular power suppliers.

This means that the firms which sold Meralco power at P33.22 for P9.512 million generated their electricity at a cost of only P1.5 billion.

How much will they make when Meralco pays them, after we pay our electric bills? A staggering P8 billion, super-profits generated by 5 million mostly low to middle-income metro Manila residents, like you and me.

Three groups own Meralco: that of Manuel V. Pangilinan (PLDT-Smart), the Lopezes of ABS-CBN, and the San Miguel conglomerate. Firms owned by the Lopezes and San Miguel though are also Meralco’s regular power suppliers, with the former being the biggest supplier accounting for a fourth of its electricity and the latter, 20 percent. Other major suppliers are firms owned by the Aboitiz and DMConsunji conglomerates.

It is important to note though that these firms are also players in the WESM. A very important information the Electricity Regulatory Commission should disclose to the public: Which companies sold Meralco electricity at the exorbitant price of P33.22/kwH in November, which will be charged to us, the consumers?

The one fundamental reason for our high electricity rates is the cost of coal and oil, since we do not have the much cheaper nuclear power.

Under an incompetent government though which is impotent in intervening in a market that has failed, there has emerged an even more important factor: the greediness of the elite.

tiglao.manilatimes@gmail.com
www.rigobertotiglao.com and www.trigger.ph

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13 Comments

  1. florentino maddara on

    Alam nyo kung bakit nagmamatigas at nagmamayabang ang Aquino Admin? Ito ay dahil sa mataas na GDP % ng bansa compared to other asian countries. However, if you analyze deeper the basic fundamentals of said strong economy kuno, it is very far from the basic economic fundamentals of the more sturdier economies of Japan, S. Korea, China, Singapore, etc. because their economy is based on industrial/manufacturing while ours is based on realty/retail and BPO’s that is primarily sustained by the money coming from our hard working OFW’s. Whether Aquino regime is behaving well or not, as long as OFW’s are not stopping sending dollars our economy is sure to be strong and continue in that basic fundamentals as is now as well as if they will not change their policy to transform ours into industrialized nation.

  2. Bongbong Marcos will activate the Bataan Nuclear Power Plant, to solve our energy problems….no one else will….!

    Anyone else, will always favor Meralco and manny Pangilinan, that traitor SOB frontman for the Salims of Indonesia…

    Poor Filipinos should be aware of politics being responsible for their misery, really!

    Someone should be elected in 2016 who will make these Yellow THIEVES accountable for their corruption….

    BONGBONG or MIRIAM, 2016….nobody else CAN do this for us…

    • Correct ka diyan. Kailangang i-revive ang BNPP. Bongbong will surely do it. Bongbong for 2016.

  3. I think Meralco will end up in the hands of the lopezes before Aquino step down. The lopezes will be buying meralco shares at runaway prices. MVP will never know what hit him.

  4. The present problem that confronts the power industry has exposed the fundamental flaws of the system. We have one dominant market player — MERALCO — there is total regulatory failure, we have marginalized the consumers, we have a rate setting mechanism that is too technical, opaque and designed to confuse the consumers, we have a Legislature whose interest in consumer welfare is passing and seasonal, and we have a power industry driven by greed and profits. The things to do would be:
    1. Revisit EPIRA and make sure its policy of upholding consumer interest and welfare will not be trifled with; specify and define the parameters of rate setting, to correct the abuse of power by ERC thru its PBR or Performance based rate setting.
    2. Recall the MERALCO franchise, so there will be no market dominance by any one player. Since MERALCO was granted its mega-franchise, there have been no benefits at all from economies of scale, given the sheer size of the mega-franchise. 60% of Luzon; 54% nationwide; 5 provinces; 88 cities & towns; 5 million households; 19 million people; 70% of production capacity; etc. etc.
    Based on present experience, it is safe to conclude that MERALCO is way beyond the economic size that would yield efficiency gains to consumers. The MERALCO franchise can be cut up into four smaller franchises, and the consumers can organize themselves to own and run the utility together with a technical partner. There are models for customer-owned utilities. This will not be the first.
    3. Abolish PBR and restore Return on Rate Base rate setting. RORB was defined and clarified by the Supreme Court decision that led to the MERALCO P30Billion refund, and the guidance of the SC on chargeable and recoverable costs is much clearer than the opaque and confusing PBR. SC has shown the game under RORB.
    4. Create an Office for Consumer Protection or Welfare, separate from the ERC or DOE. Both are supposed to be neutral and should look after the consumers and utilities interest. What we need is an office or institution that will do research, provide legal representation, litigate, and appear solely for consumers in regulatory proceedings, legislative and all other hearings and all other matters. Consumers deserve their own office and representation. We are being charged by MERALCO and ERC P2.2Billion for consultants and experts, yet we have no independent and reliable means for protecting and upholding our interest in the rate setting process.
    5. Provide consumer representation in ERC. Engineers, accountants and lawyers have representation in ERC, yet consumers who carry all the costs have none.
    This is a chance for consumers to fix not only the symptom — the price gouging in generation — but more so the disease that plagues the industry.
    let’s hope consumers are riled up enough, and some congress persons are bothered enough, to make sure the long term solutions are put place.

  5. florentino maddara on

    Who will protect us from this greedy (zero conscience, anti-christian, etc) taipans? Shall we wait for Karma to come for all this bad players including the colluding gov officials? Those good souls from congress and SC’s must find a way to stop this evil doings.

  6. Kung gumagana lang sana ang nuclear power plant natin wala sanang abusadong electric company ngayon.

  7. We never learn. At the time EPIRA was adopted and our WESM was created, ENRON was gaming the electricity market in California, leading to the ruinous collapse of that market. Now that WESM yields P33. pkwh power, we are ramming it down the Visayas and Mindanao consumers. At the time that our Supreme Court capped the earnings of utilities at 12%, specifically MERALCO, ERC changed the rules and thumbed its nose to SC by adopting the Performance Based Regulation that removed the cap on earnings and allowed recovery or charging of corporate income tax to us. At the time when the Commission on Audit, after a regulatory audit of MERALCO’s operations upon directive of the SC, found irregular charges and collections, the ERC literally swept such findings under the rug, saying it amounted to retroactive rate setting,. We never learn. In California, we saw ENRON consumed by its greed. What are we to expect here?

  8. We should bring back the days when electric utilities were restricted from having more than a certain percentage of its total operational cost. However instead of the very low profit margin allowed, it should be high enough, equivalent to the average profit at the same perod of the top 20 corporations. This should be good enough to encourage investors–even foreign investors–to put their money in our power companies but will prevent the GREED of such people as the present owners of Meralco from further pulling down Philippine businesses, ordinary family-consumers and the Philippine Republic itself.

    Those who can in the government and private sectors MUST mobilize to punish with imprisonment and confiscation of funds and assets the government officials and businessmen and managers who participated in the collusion between Meralco and the supplier companies.

    Carlo L. Adan

  9. And this was allowed by Abnoy’s administration because 1) Big business is his supporter, 2) Big business is his kamag-anak, 3) Big business is his real Boss. Tama na! Impeach!! Bilibid!!!

  10. Is this not a wake up call for all of us? Power companies has long been fooling the people. On what happened to us was a very clear evidence that with only a handful of power plants operating, power requirements on the Meralco franchise areas can be supplied. There is an over supply of electric power in the Philippines today and years ago. With the operation of Malampaya gas and 9 other power plants that went on their unscheduled shutdowns, we have an over supply of electricity!

    Prices of electricity should have gone down years before! What do you think will happen next? will we again experience this folly when those powers plants that shutdown starts to operate again and the power plants that were operating will simultaneously shutdown? It will be their turn to earn that 8 Billion?

    Have you heard of under declaration on the electricity that is produced by these power plants? They have been doing these for many many years now. They sold their excess production somewhere else so that they can maintain to manipulate power rates sold at WESM. They are all guilty of a crime of which our government watch dogs fails to detect or are all mouthful of bribes!