Meralco, what is your problem?

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Ben D. Kritz

Ben D. Kritz

Public rage over the announcement of significantly higher electric bills from Meralco this month has been directed almost entirely at the country’s largest distribution utility, and while the company—which seems, inexplicably, to have been completely clueless as to the explosion of anger its move would cause—has been trying to justify itself, it deserves the full force of the hate and discontent being hurled in its direction.

Meralco and its apologists in Malacañang have pointed out—correctly, in the context of cynical technicalities—that the P3.4397 increase in the generation charge is beyond the company’s control; it represents the cost of the electricity Meralco purchases to distribute to its customers, and what consumers pay for it is simply “passed through” to the power generators. The sudden increase is largely blamed on the shutdown of the Malampaya gas platform for scheduled maintenance between November 11 and December 10, as well as maintenance work at a number of generating facilities. This forced Meralco, so they say, to source their power from the higher-priced Wholesale Electricity Spot Market (WESM) or from plants that had to switch to more expensive fuels while Malampaya was off-line.

Meralco also announced that the official amount of the increase would be announced Monday, December 9 (yesterday); this column, being written ahead of that announcement, is offered with the hopeful caveat that it might contain some inaccuracies if Meralco decided over the weekend to try a little harder to not appear to be reckless bandits bent on hamstringing about a third of the national economy. If that turns out to be the case—although there is no reason to think that it would—that will be cheerfully taken up in another column later this week.

As it stands, the estimated P3.4397 generation charge increase will result in residential customers’ electric costs increasing from P12.32 per kilowatt-hour to P16.16 per kilowatt-hour; the figures are a close approximation of all charges, taxes and subsidies—when describing rates in terms normal people are supposed to understand, the company’s spokespeople usually overlook the extras. To put that in perspective, that makes Meralco’s rates higher than any place in the world except for some island territories (for example, the Solomon and Marshall Islands) that rely exclusively on generators powered by imported diesel fuel.


The cost of the increase was originally estimated to be between P2 and P2.50 per kilowatt-hour; to explain the sudden increase beyond that estimate (which itself was ridiculous), Meralco President Oscar Reyes claimed there was a sudden surge in prices on the WESM “due to a spike in demand.” (For reference, this was reported in the Inquirer last Friday, December 6). Curiously, however, public updates of the supply and demand situation from the National Grid Corporation of the Philippines (NGCP) do not reflect a “spike in demand,” certainly not one of a sustained nature that would justify a huge supply charge increase for an entire month. In the period between November 13 (just after the Malampaya shutdown) to December 6, average daily demand on the Luzon grid was 6,969 megawatts (MW), and average daily available supply was 7,959 MW for an average surplus of 990 MW, comfortably larger than the approximately 647 MW required reserve. On the five days in that period with the highest peak demand (November 18, November 27 to 29, and December 2), the average peak demand was 7,330 MW with an average supply capacity of 8,285 MW, a surplus of 954 MW ranted, electricity is not a normal commodity that can sit in a warehouse waiting until it’s needed; supply and demand are time-dependent and must be closely coordinated, and prices of electricity fluctuate hourly depending on how hard the generating facilities have to work to produce it. Nevertheless, Meralco has been in business for 110 years; one would think that would be plenty of time for the company to become familiar with patterns of usage and supply, and plan ahead with a reasonable degree of accuracy, especially in the case of scheduled maintenance of facilities.

One also has to wonder why phantom demand spikes at the WESM are suddenly an issue, when Meralco took an obvious step to avoid or at least minimize its market exposure (ordinarily the company sources about 4 percent of its supply from WESM, according to Meralco’s third quarter financial and operations summary), by securing a supply agreement with Aboitiz’s Therma Mobile to take up to 242 MW of power from its four power barges in Malabon. At the time, according to Meralco Chairman Manuel V. Pangilinan’s own TV-5 and repeated by a number of other media outlets, Meralco estimated the arrangement would actually amount to a reduction of P0.13 per kilowatt-hour in customer bills once Therma Mobile’s supply charges were “blended” with the charges from Meralco’s other sources.

Instead, Meralco’s customers are now being informed that their bills, which should not have gone up at all according to Meralco’s earlier statements, will be at least 30 percent higher. Meralco will undoubtedly have a good explanation for all this, and it would behoove them to provide that quickly, in simple terms that an enraged public can understand. Because as it is now, the question on everyone’s mind—“What is Meralco’s problem?”—only has two apparent answers. Meralco probably does not think of itself as either greedily dishonest or incompetent in simple planning and accounting matters; now is the time for the company to explain why not.

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