Meralco’s slogan is “Ang Liwanag ng Bukas” (“The Light of Tomorrow,” according to my somewhat sketchy grasp of the Tagalog language), but it may as well be “Ang Liwanag ng Conspiracy,” or “Ang Liwanag ng We Think the Government and Citizens of the Philippines are Stupid” given the astonishing scam the electric distributor has apparently tried to perpetrate with the cooperation of Aboitiz Power subsidiary Therma Mobile (TMO).
Of course, the conspiratorial power supplier and distributor would not have been able to even make the attempt if they had not been handed the opportunity by an Energy Regulatory Commission (ERC) that was either complicit in their electric pricing collusion or ignorant of the consequences of its approval of the Power Supply Agreement between the Manila Electric Co. (Meralco) and TMO.
For the benefit of people who should not be expected to have a comprehensive understanding of the intricacies of power sector economics just to go about their daily lives, here is a relatively simple explanation of what happened, and why Meralco and its supply partner should be called to account.
In 2011, Aboitiz Power, through a subsidiary created for the purpose called TMO, acquired the four power barges of Duracom moored near the Navotas Fish Port complex, and commenced rehabilitation of the facilities, which at that point had not been operated for at least five years.
On July 27, 2012, TMO filed an application before the ERC “for the authority to develop, own, and operate a dedicated point-to-point limited facilities to connect to the distribution system of the Manila Electric Co.” This involved the necessary switching equipment and line connections between the power barges and Meralco’s 115-kilovolt Malabon-Grace Park supply line, a little over 400 meters away from where the power barges are located. One of the key assertions in TMO’s petition was that,
“The connection of its Generating Facility to Meralco’s distribution system is critical as it is the only viable option that will enable it to dispatch its plant capacity when the need arises. Without such interconnection, its generating facility may become idle and its capacity put to waste” (Emphasis added, because that is an important point to remember). The ERC issued provisional authority for TMO to proceed with the connection to Meralco’s distribution system on October 1, 2012, and made that authority permanent with an order on September 30, 2013.
That latter date is significant, because it is the same day Meralco filed an application before the ERC for the approval of the Power Supply Agreement (“PSA”) it signed with TMO three days earlier, on September 27. The PSA is a complex, 96-page document, but its essentials are that Meralco contracted for up to 234 megawatts (MW)—the entire effective capacity of the TMO Navotas facility, in other words—at a price that worked out to a rate of P11.2623 per kilowatt-hour (kWh), which Meralco noted would slightly reduce their blended generation charge—the amount that actually appears on the customer’s bill—by about P0.1299 per kWh.
The ERC granted provisional authority for the PSA on November 4, just in time for the planned maintenance shutdown of the Malampaya gas platform on November 11, which of course has been used as the ultimate excuse for the increased rates since they were first announced at the beginning of December. What “provisional authority” actually means is that the ERC is authorizing a plan—in this case, the PSA—to proceed, subject to certain conditions which the parties involved must satisfy before “final authority” can be granted.
The ERC set six conditions for the granting of its provisional authority for the Meralco-TMO deal; five of those addressed adjustments to and final calculations of the rates Meralco would eventually pay TMO for electricity, but the final condition is the most interesting. It specifies that the provisional authority does not apply to 26 different clauses of the PSA, meaning that those cannot be followed or enforced by the two companies. Two of these provisions in particular constitute the “smoking gun” that confirms the story Rep. Neri Colmenares of Bayan Muna partylist has been spreading for the past few days, that Meralco engineered an overpricing scam through the Wholesale Electricity Spot Market (WESM).
The first relevant provision disallowed by the ERC specified that shortly after the PSA took full effect, TMO would conduct a test to verify that it could provide a minimum capacity of 100 MW to Meralco; if it could not, Meralco could suspend the agreement until 100 MW of dependable capacity was achieved. ERC’s provisional authority bypassing this provision in effect tied both parties to the PSA whether TMO was able to provide any power to Meralco or not, and by inference, let Meralco off the hook of being required to purchase any power from TMO via the PSA.
The second relevant provision would have allowed Meralco to reassign a portion—specified as the “amount reduced as a result of Open Access and Retail Competition”—of its contracted capacity to any of its affiliates or “to any third party acceptable to the Power Supplier.” Since that provision was also excluded by the ERC’s provisional authority, that means the output of TMO up to the contract capacity of 234 MW must be sold to Meralco according to the PSA; hypothetically, if TMO could squeeze a few more megawatts out of their plant, those would be theirs to sell to whomever they liked, but functionally, the ERC approval again tied both parties into an exclusive relationship.
In responding to Colmenares’ allegations last week, a Meralco spokesman declared the accusation that TMO “sold electricity 71 times on the WESM at P62/kWh” was “absolutely false and untrue.” And indeed it may have been. According to logs from the WESM for the months of November and December, there are 4,121 entries (they are compiled hourly) of capacity offers from TMO for amounts ranging from 7 MW to 45.5 MW, and prices ranging from P6.5/kWh up to P62/kWh. Exactly 658 of those entries are at the P62/kWh price, and an additional 766 of them are at a rate of 61.99/kWh. So it is possible that TMO didn’t actually sell electricity at those extreme prices 71 times (the log records offers, not purchases), but it certainly wasn’t for lack of trying.
And power from TMO even being offered at the WESM is a violation of ERC’s provisional authorization, as it would have necessarily involved Meralco giving the okay to put some of its contracted capacity up for sale.
But wait, it gets better: Remember that the reason it was “vital” that the ERC approve the construction of TMO’s connection to Meralco’s system was because it was “the only viable option?” Meralco is the only customer TMO is physically capable of delivering power to; while there is an application pending before the ERC for the construction of new substation near TMO’s facility by the National Grid Corp. (NGCP) which would connect the plant to the national grid, the hearing on that was only held on November 24, and a decision has not yet been announced although it is likely to be favorable. Thus TMO’s connection to any other customer besides Meralco is an impossibility for at least several months more, if not longer. Which, obviously, means that if anyone bought any of TMO’s power any of the more than 4,000 times it was put up for sale at the WESM, it could have only been Meralco.
There is another issue that warrants regulatory attention as well.
Although the ERC rather foolishly made a ruling that effectively exempts TMO from producing any power at all, the assertions from both Meralco and TMO that only 100 MW of capacity have been provided are quite odd. At the beginning of June, Aboitiz Power announced it had completed the rehabilitation of the four power barges, and that they were fully operational at their 242-MW rating. Even as early as September, 2012 TMO informed the ERC that rehabilitation of two of the units had been completed. The claim that only 100 MW has been provided so far (100 MW is, coincidentally, roughly the effective net capacity of the two smallest barges, rated at 57 MW and 52 MW, respectively) begs the question whether the TMO facility may have been another of those supposedly “unplanned” plant outages that forced Meralco to buy higher-priced power from the spot market.
That the Supreme Court is weighing the matter of the extreme rate increase is actually an indictment of the ERC, which should have instantly withdrawn its provisional authorization and disallowed the rate hike as soon as Meralco’s and TMO’s shenanigans came to light. Since the regulatory body failed to properly regulate in accordance with its duty to utility consumers, the Supreme Court must surely intervene to prevent power suppliers and distributors from profiting from their brazen collusion and violations of regulatory conditions imposed on them. If the court rules otherwise, it will be responsible for turning what is now a still-correctable problem into a full-blown crisis, with grave implications for the entire country.