MERALCO: ALSO GOOD AT DIGGING HOLES

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Ben D. Kritz

Ben D. Kritz

IN a hearing held by the evidently very annoyed House Committee on Energy on Wednesday, Meralco admitted that they not only instructed their power supply partner, the Aboitiz-held Therma Mobile (TMO), to offer some of its electricity at the highest allowable rate of P62/kilowatt-hour on the Wholesale Electricity Spot Market (WESM), but that Meralco purchased power at that rate in spite of having a contract with TMO to buy it at between P8.65/kWh and P11.26/kWh.

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That revelation was infuriating, but the man who delivered it, Meralco director and Chief Counsel Rey Espinosa, deserves at least a little credit for trying to soften the blow by providing an absolutely comical explanation for it. According to Espinosa, Meralco only directed TMO to offer its capacity at the highest price during off-peak hours to prevent the supply from being used during peak hours when Meralco would need it. “We do not want to run that plant during off peak because it is more needed during peak hours. Prices are cheaper if we get supply [from Therma Mobile]during peak hours,” he explained. “When you get power supply from that plant during off peak hours, its price is more expensive compared to WESM.”

To Meralco’s surprise, the power from TMO was dispatched by the National Grid Corporation (NGCP). Espinosa implied it was the grid operator’s fault Meralco bought such overpriced power, particularly because there was no supply shortage at the time.

There is so much desperate failure in Meralco’s attempt to explain its way out of a charge of price-fixing that it’s actually a challenge to sort it all out. The most glaring issue is the somewhat significant fact that TMO is not connected to the national grid, but to Meralco’s distribution grid directly; NGCP has plans to build a new substation that will integrate TMO in its grid, but that connection is still at least several months away. Thus, NGCP is actually in no position to dispatch power from TMO, and they are certainly aware of that. Hypothetically, NGCP could divert an equivalent amount of power in its grid intended for Meralco to some other area and assume Meralco was instead receiving power from TMO, but why that would result in a higher price has no possible explanation—other than the obvious one, that Meralco was intentionally using the WESM to pay more than the contract price to TMO.

If that is what they were doing, it was a momentarily clever but ultimately boneheaded ploy to get around an inconvenient condition imposed by the Energy Regulatory Commission (ERC) that prevented Meralco from implementing a clause in its power supply agreement with TMO that would allow Meralco to transfer some of its contracted capacity to a third party. Redirected TMO’s power to the WESM under the guise of protecting it from other buyers—buyers who do not, we should keep in mind, actually have access to the power supply—and then buying it from the market technically doesn’t constitute a transfer; no third party besides the contracted supplier and buyer are actually involved.

Unfortunately, that argument won’t hold any water, thanks to a point inadvertently made in a lengthy, highly-technical article by Nonoy Oplas, attempting to shore up Meralco’s crumbling credibility in a post to its sister company TV-5’s website this past Tuesday.

The nature of the WESM is such that it is virtually impossible for buyers of power to identify which generators are supplying it. As Oplas explains it, there may be 10 generators supplying power in a given hour, and 60 buyers; the price for that hour is determined by the highest accepted bid (he conveniently omits this uncomfortable point from his explanation, though), and the appropriate amount of power is delivered by the NGCP grid—it may come from anywhere, as what the distribution utilities are actually buying is a part of the bulk amount of power being supplied to the grid at a given time.

This puts Meralco in a bit of a trap: If they insist that TMO’s power was really for them all along (as the physical reality of its direct-to-Meralco connection actually dictates), then they are guilty of manipulating the price beyond its contractual range.

If Meralco insists that the ‘normal’ function of the WESM applies, however, then they are guilty of violating not only the specific condition of the ERC’s provisional authorization of the Meralco-TMO power supply agreement, but also the general admonition of the Electric Power Industry Reform Act of 2001 (Epira) to distribution utilities to supply electricity to consumers at the “least possible cost.”

So in the simplest possible terms, this is what apparently happened, and why you and I now have to rely on the mysterious wisdom of the Supreme Court to avoid paying for it: Despite its entire capacity being contracted to Meralco, and despite not having a physical connection to any customer except Meralco, the power produced by the TMO facility in Navotas was offered for sale at the WESM at a rate more than five times in excess of the price stipulated in the Meralco-TMO agreement, which Meralco then purchased. According to NGCP records as well as the statement of Energy Secretary Jericho Petilla before the House Committee, there was never a power supply shortage during the period in question that would have forced TMO or any other plant to abide by the WESM’s “must offer” rule. Even if there were, because TMO cannot physically deliver power to any other customer but Meralco, the amount of power it can make available at the WESM must be zero— therefore, any price offer attached to that capacity is irrelevant (multiply any number by zero and see what happens), and cannot be the price of any power purchased by anyone.

All this time, I’ve been under the impression that Meralco only distributed electricity. Apparently, they’re pretty good at digging holes for themselves, too.

benkritz@outlook.com

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2 Comments

  1. victor hernandez on

    Assuming that the analysis in the foregoing discussion is true and correct we have a case against Meralco and TMO of price manipulation and collusion ,abuse of consumer welfare, and economic sabotage; and gross incompetence on the part of ERC for granting Meralco a price increase. I wonder what the oversight hearing in Congress and Senate will arrive at, and what possibile sanction to be imposed on concerned parties. Commissioner Ducut seems to be bereft of guilt, and persist in the dry provisions of the law, without appreciating the technical aspects of the case, favoring the utility company, without regard to the welfare of the consumer. My sense is that the government should throw the books at them.

  2. anti-investorpolicy on

    hehe so that’s epira – wesm bringing down the price of electricity, supposedly! hihi talaga naman, napaka-greedy