• What to do about Meralco?

    Ben D. Kritz

    Ben D. Kritz

    I thought my column from Tuesday (“Meralco: Ang Liwanag ng Conspiracy”, January 21) would probably elicit a little bit of a reaction from The Times’ readers and I was not disappointed. As I suspected, people are not actually okay with paying extremely high prices for electricity and many of them offered a number of suggestions to correct that problem, such as nationalizing the electricity industry, breaking up the Manila Electric Co. (Meralco), or revoking the company’s franchise entirely.

    While the sentiment is understandable, public fury is often a poor basis for major development or policy goals, and it certainly would be in the case of the Philippines’ largest electricity distributor. The Times editorial on Monday (“A good way to scare off foreign investors,” January 20) made a valid point: Casting Meralco as the sole demon in the electric rate hike scandal overlooks the bigger issues of a poorly planned and regulated industry, and since Meralco is a private enterprise, could have a chilling effect on potential investors, particularly investors in basic infrastructure that the country so desperately needs.

    It is entirely appropriate to remind ourselves to look beyond a single company to the larger issues of the entire system, but when the company at the center of the controversy is a large part of that system, something that from the company’s perspective is going to look and feel a lot like punishment is going to be an unavoidable part of the solution. And scaring away investors, if they are investors who are looking for an opportunity to as comprehensively manipulate a dysfunctional system for their own gain like Meralco has, is actually a worthwhile goal.

    Nonetheless the goal must be to correct the flaws in the entire system, and since Meralco is just the largest and most visible of many electric distributors in the country, the solutions applied must not apply only to Meralco. While the particular issue on the table now—the exorbitant rate hike—is enormous in scale because of the large number of people it affects, it is relatively narrow in scope: If the rate hike was, as it appears to be, in fact the result of fraud or poor management, it should be rejected. But as much as we may despise Meralco and the smugness with which Chairman Manuel V. Pangilinan regularly boasts of its record-setting revenues and profits, there really is not a logical path from “determining if the rate increase was unavoidable and imposed as fairly as possible” to “putting Meralco out of business.”

    There is a practical consideration as well; for all its oppressiveness, Meralco does have a well-developed distribution infrastructure and is largely very reliable in the provision of its service. If Meralco were to be “broken up” or had its franchise revoked, the result would likely be chaos on a scale we can scarcely imagine, because there is no effective alternative. Nationalizing the power industry is not an acceptable solution, either; the government’s poor performance in following and enforcing the provisions of the existing system tends to suggest things would get worse, not better.

    The reality is that “doing something about Meralco” to fix the unsustainably high costs of electricity paid by its customers actually has little to do with Meralco, but instead must focus on the environment in which Meralco operates. With that in mind, here are a few suggestions; not a comprehensive fix to the problems of an entire sector by any means but a rational start:

    • Impose rational limits on what power producers can charge distributors for electricity—At the Wholesale Electricity Spot Market (WESM), the maximum price per kilowatt-hour that can be charged is now P32, lately reduced from the completely obnoxious limit of P62/kWh it was before the rate hike scandal erupted. The lower figure, however, is just as arbitrary as the earlier higher figure; because the pricing structure of the WESM is set up so that “the highest accepted bid” becomes the price for any electricity sold at the same time, producers can and do regularly collect a much higher price than what their electricity actually costs to produce. The ceilings on power prices should be set according to the sources of power; electricity from a gas-fired plant, for instance, costs much less to produce than from a diesel-fired plant.

    • Allow distribution utilities to adjust their generation charge within a reasonable range without regulatory approval, BUT end the arrangement that makes these “pass-through” charges—The “blended generation charge” that appears on the customer’s bill is actually a benefit to consumers, because it is much lower than what the distributor actually pays at any given time; through averaging out all the different prices from different suppliers and amortizing its payments for electricity, Meralco can charge only P5.67/kWh (the figure before the rate hike) rather than the actual price it pays. The need for this arrangement is obvious; if the generation charge was a direct “pass-through,” then according to the power supply agreement between Meralco and Therma Mobile, for example, customers would be hit with a generation charge of about P11.26/kWh.

    Beyond that, however, because the generation charge is a “pass-through,” Meralco knows that whatever price it pays for power will eventually be passed on to its customers, and therefore has no incentive to demand competitive pricing from its suppliers. Making Meralco a wholesaler of power and imposing limits (with some flexibility to allow for changing costs and a fair profit) on what it can charge its customers will provide that incentive, and will require Meralco to use its considerable influence and buying power to take advantage of it.

    • Abolish “system loss” charges, and remove subsidies from customers’ bills—These measures will have only a small impact on reducing power costs for consumers, but are important changes. The system loss charge is another instance of inefficiency being rewarded by regulation, and is completely unfair to end-users. The subsidies, which include the lifeline subsidy, senior citizen subsidy, missionary charge, and environmental fund, are mandated by the Electric Power Industry Reform Act (Epira) of 2001 and are supposedly used for financial assistance for poor and elderly electricity customers, electrification of rural areas, and the rehabilitation and management of watershed areas.

    Those charges are only a small imposition on electricity customers, but they should be the responsibility of the government, which has more than adequate funding for them through the royalties it collects from the Malampaya gas field and the value-added tax imposed on electricity. The less obvious reason for removing these from the customers’ bills is a practical one; by making the distribution utilities the collection agents for these subsidies, the government has imposed additional accounting and management costs on the distributors—costs that eventually find their way to the customer by way of higher distribution charges.



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    1. Hi Ben, noong kinuha ni Mac ang Meralco, tumaas ba ang koryente? Pumalpak ba ang serbisyo? Hinde. So dont tell me na hindi option kunin muli ng pamahalaan ang monopolyang ito. Alam mo ba na nakarating na yan sa La Union? Pinapatay ng Meralco ang mga Co-operativa kahit na sa 3rd class towns ng bansa

    2. Just give back the ownership of Meralco to the Philippine Gov,t. just like what it used to be during the Marcos administration . The Lopezes did not spend a single centavo for the ownership of Meralco, all the money is from the Pilipno people since all the money spent to set up Meralco before is foreign loan with the Phillippine government as guarantor. Pero ang mga Lopezes ginawa lang nilang Cash-Cow ang Meralco with the money earned by Meralco spend on their other Businesses instead of using it to pay for Meralcos Debt. So Marcos was forced to takeover Meralco and have NAPOCOR manages it.
      Because the Lopezes is a big Political Supporter and Lobbyist of the Aquinos during their exile in the US, Cory Aquino as a Gratitude, after so called Peoples Power Revolt, has given back ownership of Meralco for free! to the Lopez. Kawawa naman tayong mga Pilipino, we are always in the losing end.