No matter what the eventual outcome of the Supreme Court hearings on the electric rate crisis, the mere fact that the hearings are being held is a public service.
They have cast a bright light on at least some of the dark back alleys in which the ethically bankrupt players in the power industry have always been most comfortable, and have exposed what is either gross incompetence on the part of the government, or a policy of systemically pillaging the Philippine economy.
In the latest Court session this past Tuesday (February 11), the focus shifted from the Manila Electric Co. (Meralco) to the Energy Regulatory Commission (ERC), represented by the Office of the Solicitor General, and the real star of the show, Energy Secretary Jericho Petilla. Whether it was because the justices were particularly well-prepared to ask the right questions, or whether it was because the respondents to those questions did not seem to be particularly well-versed in the subject matter, the latest session provided some information that makes it much easier to explain the complex conspiracy that attempted to rob close to P22 billion from Meralco consumers.
The following explanation is somewhat oversimplified, but what now appears to have happened is this: In preparation for the planned maintenance shutdown of the Malampaya gas platform, which would in turn result in three power plants either shutting down or being forced to use more expensive fuel for a period of time, Meralco obtained a supply agreement from Therma Mobile (TMO), and the 600-megawatt (MW) Malaya generating plant owned by the government through Psalm (Power Sector Assets and Liabilities Management Corp.) was given notice by the Department of Energy (DOE) to be ready to operate to prevent electricity supply shortages. So far, so good.
Whether it was intentional or not, the shutdown at different times, some of which overlapped with each other, of nine other power plants during the period Malampaya was off-line created a technical shortage of available electricity—technically, rather than in reality, because the available supply was never at risk for an extended period of time, and when it was, it was only in the sense that it was below the amount (roughly 647 MW) considered a safe reserve for short periods of time, an hour or perhaps a couple hours on different days.
Because of that condition, Meralco had the justification it needed to source more of its power than it ordinarily does from the Wholesale Electricity Spot Market (WESM), even if Meralco was not fully utilizing its available supply. For instance, the TMO facility in Navotas, according to Meralco’s own admission last month, was only operating at 100 MW, even though the plant has a capacity of 242 MW and was declared fully operational by its owners as long ago as last July. According to the supply agreement between Meralco and TMO, the latter was to supply 234 MW of capacity to Meralco; an explanation for the discrepancy from either party has yet to be made.
Now the attention shifts to the WESM, where, completely contrary to the justification used for its creation, electricity is considerably higher-priced than it is through direct supply contracts. Two things happened at the WESM: First, TMO—acting on Meralco’s orders, according to TMO’s managers—offered its capacity on the open market at the highest allowable bid price, P62 per kilowatt hour (kWh). Second, the Malaya plant also posted its available capacity, but because the plant was not actually operating, did not deliver any power to the Luzon grid when it was dispatched by the National Grid Corp. of the Philippines (NGCP).
The explanation given for TMO’s bid was that Meralco wanted to prevent any other distributors from buying its capacity, so it was offered at an insanely high price. And in the Supreme Court hearing on Tuesday, Secretary Petilla explained that what Psalm did—bidding Malaya’s power and then failing to produce any—was a violation of WESM rules, and not the first time it had happened. The effect of it would have been to create an actual momentary shortage (WESM operates on an hour-to-hour basis), driving up market prices for electricity. The failure of Malaya to deliver power might have been the reason the NGCP actually dispatched TMO’s offered capacity despite its exorbitant price, although no one has yet made that connection; that too would have made market prices higher. Meralco and TMO have both explained that the power delivered to Meralco was charged at their previously agreed contract price (closer to P8 per kWh) and not the higher price, and they’re probably telling the truth; however, any other electricity Meralco bought at that time on the WESM would have been higher priced than it should have been, and it is that excess cost that the company is now trying to pass to its beleaguered customers.
So who is to blame for the increased rates, and what should be done about it?
First, Meralco and TMO: Why the TMO plant was operated at less than half-capacity is not known; was it intentionally done to let Meralco buy higher-priced power on the WESM, or was it a poor judgment call on Meralco’s part to try to avoid buying power from the diesel-fired TMO on the assumption it could make it up with cheaper power from elsewhere? If it was the latter, then it wasn’t collusion or something otherwise illegal, but it was stupid, because it obviously didn’t work. As the President himself has said in one of his exceedingly rare moments of clarity, the public should not be made to pay for bad management decisions. But the biggest mistake, and one that is pretty clearly evidence of malfeasance, is the decision to offer TMO’s power at P62 per kWh on the WESM. That was both unnecessary—according to the WESM rules, TMO could have offered its capacity in the amount of 0 MW at P0 per MWh—and unrealistic, as TMO can only physically deliver power to Meralco and not the rest of the Luzon grid. Thus by offering power at a price when it was incapable of delivering that power (except to a customer that had already reserved it), TMO very likely violated the same rule Petilla accused Psalm of doing.
Second, the energy secretary himself. Psalm is a government entity chaired by the secretary of finance, and among whose directors is the secretary of the DOE. The DOE chief is also chairman of the Philippine Electricity Market Corp. (PEMC), which governs the WESM. Petilla took no steps to even acknowledge these strange activities, to say nothing of putting a stop to them, until he was hailed before the Supreme Court nearly three months after the fact. If his lack of action, which caused electricity prices to skyrocket, was intentionally done to let some actors in the power industry collect higher prices from customers, he should be fired immediately and brought up on charges of economic sabotage. If it was not intentional, then he was simply incompetent to a depth that can scarcely be imagined for an official even in this administration; he should be given the opportunity to resign in shame, and removed immediately if he shows even the slightest hesitation to avail that opportunity.
And finally, the ERC, for approving a breathtaking rate hike on the basis of a letter from Meralco, using the flimsy excuse that it was acceptable to do so under the automatic rate adjustment mechanism. That is simply abusing a rule to benefit a favored company, not the first time the ERC has done that, and probably not the last unless the President has the fortitude to remove the commission’s head—a career politician with no experience in the industry and currently under indictment for serious corruption charges—and demand the agency follow its own rules. If President Benigno Aquino 3rd seriously meant it when he said “customers shouldn’t pay for bad management decisions,” he will note that means his own bad decisions as well, those that put people not qualified either ethically or technically in charge of a sector imbued with public interest.