Electric companies’ P20-B highway robbery thwarted

There were two big news stories in the past two days affecting the lives of millions of Filipinos in Metro Manila and adjacent towns, but which, surprisingly or unsurprisingly, were buried in the inside pages of mainstream newspapers and reported only as in-the-meantime items. Except for this paper, that is. It bannered this news, for which I’m proud to be part of it.

The Energy Regulatory Commission has stopped the Manila Electric Company’s (Meralco) attempt in December and January to overcharge consumers by P20 billion.

Stung by public outrage that it wasn’t doing its job in protecting electricity consumers, the ERC last week ordered the Philippine Electricity Market Corp. (PEMC) that runs the wholesale Electricity Spot Market (WESM) to find out if Meralco’s claims of the high costs of electricity it bought at that market were correct.

Meralco had claimed that the steep rises of its rates for December and January were due respectively to the P33 per kilowatt-hour and P36/kWh price of the electricity it bought from the WESM in November and December.

False prices, PEMC president Melinda Ocampo reported Tuesday, because the power producers violated market rules, resulting in a colossal market failure. (See for clarification my January 5, 2014 column “USAID study: Electricity ‘spot market’ a farce.”)

Ocampo reported that her firm’s investigation showed that the WESM average price should be P6 per kilowatt-hour for November 2013, and P6.24/kWh in December—shockingly less than one-fifth of what Meralco claimed were the prices it paid for.

Meralco’s profits zoomed up in 2009, when the Indonesian tycoon Anthoni Salim’s firms took control of it.

(The WESM is the market in which companies are required to offer the power they produce, from which Meralco and other electricity-distribution firms purchase the electricity they need whenever the generator firms with which they have long-term supply contracts are unable to provide them with the power consumers need. )

Energy Secretary Carlos Petilla on Tuesday also pointed out: “The recalculated rates (of WESM) show a big gap.” And, “The (real) rate is a little over P6 per kWh. It’s an average price for both months. Compared to November and December, it’s a big drop,” said Petilla, who also chairs the PEMC.
This means the WESM power it bought in November should have cost Meralco not the P9.5 billion it reported, but just P2.1 billion, for a difference of P7.4 billion. For December, it cost Meralco not P12.3 billion that it claimed, but only P2.1 billion–a discrepancy of P10.2 billion.

The sum of the discrepancies of the two months is a staggering P20 billion.
An Oxford dictionary defines the idiom “highway robbery” as “the fact of someone charging too much money for something.” That’s a good definition as any for what Meralco and the power generators it bought from attempted to do.

This P20 billion cost would have been passed on in December and January to its captive market, the 10 million residents of metropolitan Manila and adjacent provinces, had the Supreme Court not stopped it in response to petitions claiming the rate hikes were illegal. The Supreme Court action, together with exposes by the independent press on the issue, drove the Energy Regulatory Commission and the PEMC to investigate Meralco’s pricing, especially the costs of its purchases from WESM.
Based on the more accurate WESM prices, the ERC yesterday ordered that Meralco adopt the more accurate rates. It should be P5.9/kwh for December, not the P9.1/kwh Meralco had claimed last year, and for January, P6.1/kwh, not P10.2/kwh.

Those false prices mean huge amounts for a consumer. If you consume 400 kilowatts per month, the more accurate computation would cut your bill by roughly P1,280 for December and P1,640 in January.

The necessity to report and explain the issues using per-kilowatt hour figures conceals the suffering — yes the suffering — inflicted by Meralco’s high rates on Filipinos, who have no choice but to get their electricity from Meralco.

A worker would have paid P1,820 for the 200 kilowatt hours he consumed in December, based on Meralco’s original billing. Under the more accurate bill ordered by the ERC, he would pay only P1,180 — P640 less, a boon that he he would use to buy more nourishing food for his malnourished family.
Try visiting a Meralco frontline office: It’s usually crowded as wageworkers and the poor try to beat the deadline to pay their bills. I’ve even seen poor folks begging, crying for more time to pay, and for the lineman to reconnect their electricity.

The P33/kWh and P36/kWh price at which Meralco bought from the market were the highest in WESM prices since July 2007, when it became fully operational. From that date to October 2013, WESM prices averaged only P7.8 percent, which would give the generators reasonable profit.
However , WESM average prices spiked in the 2012 months of March (P16.3/kWh), June (P20.7), and July (P14.7/kWh). These rate spikes however were not noticed at all, since no one complained against these by filing a suit at the Supreme Court.

The very valid question therefore arises: Were these spikes also unreasonable and due to market failures? Shouldn’t the ERC also investigate these to find out if consumers were actually fleeced by Meralco’s rates, pushed up by these “market prices”?

Discovering now that WESM prices in the last two months of last year were wrong, the ERC should fulfill its mandate for protecting consumes by investigating how Meralco’s profits have been zoomed up since 2009, the Indonesian Anthoni Salim’s firms became Meralco’s controlling stockholders. (See table, and also my column Jan.12, “Meralco’s been raking it in: Why?”)

Is this due to Meralco’s efficiency, to the skill of its new management, especially the purported management genius, its CEO Manuel Pangilinan?

Or is it due to ERC’s failures by allowing the utility company to raise its rates every year, a case of what has been called in economic literature as “regulatory capture”?

Indeed, Indonesian-owned First Pacific Co., Ltd that effectively controls Meralco reported in its 2011 annual report that Meralco’s core income rose to $344 million that year (from $270 million) “due largely to higher tariffs.” In 2012 when its core EBITDA* margin fell, the firm’s report said it reflected “a decrease in (Meralco’s) distribution charge.” (*EBITDA: Earnings before interest payments, taxes, depreciation and amortization.)

What I find outrageous is that even as we have been suffering higher electricity rates since the Indonesian tycoon took over Meralco, his corporate vehicle First Pacific, right after it gained control of Meralco, has jacked up its dividends from it, totaling $128 million from 2009 to 2012.
I’m afraid we’ve lost the capacity to be outraged.

tiglao.manilatimes@gmail.com
www.trigger.ph and www.rigobertotiglao.com

source:  Manila Times