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(last of three parts)

Yesterday, upon orders of the High Court, petitioners questioning Meralco’s power rate hike amended their complaint to include the power generating companies as well as the Philippine Electric Market Corporation (PEMC) which manages the Wholesale Electricity Spot Market (WESM), from which Meralco bought power at extraordinarily high rates last November and December.

By impleading said parties, petitioners Bayan Muna, et. al. has given the Court a golden opportunity to initiate sweeping changes in the entire power industry, affecting how power is produced, priced and distributed.

The petitions as amended, plus Meralco’s and the Energy Regulatory’s replies to the original petition, brings to the fore what I think are the main problems afflicting the power industry:

1. The problem of the ERC’s incompetence and regulatory capture by the major players in the power industry;
2. The problem of oligopoly and market manipulation that has made power rates in the Philippines among the highest in the world;
3. The problem of deregulation and privatization of public utilities that has allowed the State to abandon its obligations and allowed the ERC and the power oligopoly to screw the Filipino consumer.

The common perception on the ERC, as with most regulatory agencies, is that it is corrupt and beholden to the rich and powerful players in the power industry. That it is headed by a former congresswoman who acted as broker to pork barrel scammer Janet Lim Napoles certainly does not help.

But more than this is the reality that, even during its own hearings, ERC commissioners don’t quite know how to challenge Meralco’s dizzying facts and figures. They usually end up accepting hook, line and sinker Meralco’s self-serving position, with the Supreme Court having to reverse some of its rulings. Last month’s approval of Meralco’s highest rate hike ever, which the ERC did within one working day, is a testament to the coziness between ERC and the entities it is supposed to regulate.

Perhaps due to these over and under the table relationships, the ERC, PEMC and Dept. of Energy (DOE) tend to look the other way in the face of possible abuses and market manipulations by the power oligopoly. Again, the incidents of November and December, where eight power plants went on unscheduled or extended shutdowns coinciding with the scheduled maintennance shutdown of the Malampaya natural gas facility, should have raised red flags all over. At the very least, the ERC, PEMC and DOE should have investigated before allowing Meralco to pass on the price spikes to its customers.

That there is an oligopoly in the power industry is beyond question. According to research by IBON Foundation, five families control 80% of power capacity in the country: the Cojuangcos (22%), the Aboitizes (20%), the Lopezes (18%), the Tys (12%) and Consunjis (8%). The smaller players are not really so small – the Ayalas, Alcantaras and, in the future, Manny Pangilinan and his Indonesian partners.

I have yet to come upon data on the interlocking interests between Meralco and its suppliers or among the power generators themselves. But power being an inelastic commodity, it is safe to assume that it is in their indivdual and collective interest to raise power rates given an opportunity like the Malampaya shutdown.

A problem of policy

All these – an incapacitated regulatory agency captured by a rich and powerful oligopoly – is the result of bad policy. In this case, the culprit is the Electric Power Industry Reform Act (EPIRA), the first major law enacted by newly installed Pres. Gloria Arroyo in June 2001, a few days before the adjournment of the 11th Congress.

EPIRA set the comprehensive framework for the deregulation and further privatization of the power sector, a process started by the Cory Aquino administration, expedited by the Ramos administration and completed under Arroyo. Under the law, the government-owned power plants under the National Power Corporation (NPC) were sold to private companies and declared as private businesses subject to minimal government regulation. The law provided for a mechanism of automatic rate adjustments whenever power distributors like Meralco would “pass on” to its customers the charges of these power generators. It removed subsidies and prohibited NPC from further running or putting up power plants.

Proponents of the law were beyond themselves in promising that EPIRA would entice new investors and foster competition in the power industry, leading to cheap and stable electricity for consumers.

After 12 years of EPIRA the reverse has happened – we suffer from a chronic shortage of power and have the highest rates in Asia thanks to an oligopoly conniving with incompetent and corrupt regulators. It is an understatement to say that this situation has had a debilitating effect on our economy.

A law to make a few people rich

I recall a conversation I once had with a major player in the power industry who made billions because of EPIRA. Telling me not to ever quote him, he said: “The truth is, the EPIRA was meant to make a few people rich at the people’s expense.”

And so it has. From the EPIRA stemmed policies like the Automatic Generation Rate Adjustment mechanism that allows Meralco and other distributors to automatically pass on generation charges to its customers; or the Performance Based Regulation that allows them to charge customers for future capital expenses.

EPIRA allowed for cross-ownerships, meaning allow conflicts of interests to exist among the subsectors of the power industry. So you see distribution companies like Meralco having interests in power generating firms. This opens the door to collusion and other market abuses.

The EPIRA also created the WESM, a psuedo spot market where trading is rigged (90% are negotiated, bilateral contracts) and where the highest bidder rules (power bought at the highest price becomes the clearing price at which rates are based). In fact, in November and December last year, Therma Mobile claims that Meralco, with which it had a contract to provide all its supply at P8.34/KwH, was ordered by Meralco itself to sell its power in the WESM at P62/KwH, which was then also bought by Meralco. Go figure.

Unfortunatey, it does require a rocket scientist to figure out how WESM, PBR, AGRA and a host of other technical mumbo-jumbos work. I’ve been to numerous hearings in Congress and I have to admit, one tends to get drowned by it all. Even ERC commissioners are confused and usually end up with the promise that “we will just provide you with the data, your honor.”

I know for a fact that there have been various efforts to get Congress to review or amend EPIRA. But the institution itself remains indifferent to the plight of the ordinary consumers. The same goes for the Palace whose present occupant, while attacking former Pres. Arroyo at every turn, vigorously implements her flawed programs and policies.

And that is why the people’s outrage over this latest power rate hike, and the case in the Supreme Court it has spurred, is so important. The Court has so far stopped Meralco from imposing the highest rate hike in history. We hope it will eventually order the ERC to rescind its approval of the rate hike and do its job of protecting consumers. With other industry players now impleaded, we hope the Court penalizes the power oligopoly and ERC for screwing the people. Most importantly, we hope the Court strikes down EPIRA, or some of its provisions, as unconstitutional and against the national interest.#

4 thoughts on “SC paves way for overhaul of power industry (part 3)

    • I agree. But because the law allows for unregulated pass through charges DUs like Meralco don’t care a hoot about passing on their incompetence and insensitivity to their hapless customers.

  1. From what I understand, MERALCO posted a bid of P60+/KwH (or around 400% more than the usual rate) for the power produced by an Aboitiz-owned plant that’s already contracted out to them. This, and other unusual spikes in WESM prices are their bases for charging us, the consumers, with exorbitant rates.

    Further reading on the matter, however, reveals that Aboitiz and other similarly situated power producers are already bound by the pricing stipulations in their existing agreements with MERALCO, Therefore, they cannot benefit from the abnormal movements in WESM. So who was supposed to make a killing, MERALCO?

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