Trial in error

The “collusion” angle in the scandalous increase in Meralco rates tickled the fancy of the media. It is now the one and only good reason for the biggest ever increase in the long history of power rate increases in this country.

Even the Supreme Court seems dead serious in the case that accused some 19 power generating companies of fixing the high power rates.

Last week, for instance, the high court agreed with Meralco—yes, Meralco, of all those involved in the scandal—that some more electricity companies should be included in the “collusion” case.

But to the guys down here in my barangay, who must suffer the huge increase in their Meralco bills, the “collusion” angle seemed rather convenient to none other than Meralco, perhaps even beneficial.

It simply sent out the message that— one, power firms “fixed” their rates really high and, two, Meralco was so helpless it had to tack it all into our bills.

In other words, the rest of the power industry should be on trial regarding the huge Meralco rate increase. No, sir, not Meralco itself!

The petition before the Supreme Court came from Bayan Rep. Neri Colmenares and his group called Nasecor, or the National Assembly of Electricity Consumers for Reforms.

The case was just to be expected. Media already played up the announcement of Meralco last month on its huge P4.15-per-kilowatt-hour rate increase. Even the Department of Justice held a press conference to say it would investigate the increase.

It was, in short, an issue of political worth, although—surprisingly—the Aquino (Part II) administration had tried to distance itself from the scandal. The Office of the Solicitor General would not even bother to comment on the case before the Supreme Court.

Anyway, the Meralco rate increase should affect millions of consumers and thousands of businesses in the 31 cities and 80 municipalities in the Meralco franchise, which cover almost the entire Philippine economy.

Just imagine the broad ripple effect on the economy of the cost-push inflation from the huge rate increase. We all know that once the price of anything moves up, it will stay up there.

Power industry police ERC, or the Energy Regulatory Commission, echoed the line of Malacañang, saying it could not do anything about the rate increase.

The reason for ERC’s helplessness—and our defenselessness —had something to do with the rule called Agra, or the automatic generation rate adjustment, which allows power distributors to pass on to everybody else the price of electricity that they bought from the power firms.

Question: Was Meralco really helpless in dealing with those power producers?

It started a couple of months ago when, in mid-November to mid-December, Meralco had to buy from those power companies a huge volume of electricity, about 50 percent of its electricity need for 30 days.

There—Meralco incurred the high costs of its power purchases in just one month. It so happened to be the exact same period when Malampaya natural gas system was supposed to shut down for maintenance.

It was actually a scheduled shutdown of Malampaya for yearly maintenance. Every year, ever since the gas fields started production, Malampaya must do its yearly shutdown maintenance. It was not something that could have surprised anybody, least of all Meralco.

The Malampaya gas fields supplied about 2,700 megawatts of electricity to Meralco, about half of all the power used in the entire Meralco franchise area. It was  a large supply, and because it was a routine maintenance shutdown of Malampaya, you would think that Meralco should have been ready for it. Not really!

From what I gathered, way before the scheduled Malampaya shutdown, all sorts of power companies were stepping over each other’s heads in a rush to offer to Meralco part of their production to cover for the Malampaya shutdown.

After all, there was a glut in the supply of electricity, and those power companies should have been willing to offer Meralco part of their production, perhaps even at lower than their regular rates, because Meralco would already be a “sure” sale, a ready market. From what I gathered— guess what—Meralco disregarded the overtures from the power companies.

Still, as sure as day would turn into night, the Malampaya shutdown was certain to happen, forcing Meralco to go to other power companies for its one-month supply of electricity. What did Meralco do? It tapped the WESM, the wholesale electricity spot market, that bid-and-offer buy-and-sell open market system for power, similar to the stock market.

In the dog-eat-dog open market, all sorts of things, including greed, can determine the pricing, but mainly the law of supply and demand prevails. In the WESM, the participants must have sensed that Meralco would need a huge volume right away.

For one, an instant supply of some 2,700 megawatts of electricity would not be an easy order to fill. Those power companies, to begin with, did not have huge production to spare.

From what I gathered, when Meralco went to WESM, the company had to source those 2,700 megawatts on a piecemeal basis. The situation should only tell the power companies that Meralco was sort of frantic, needing to gather together the excess production of those power companies to cover for Malampaya’s 2,700 megawatts.

In the electricity spot market, much like the stock market, acquisitions were always bound to drive up the prices.

Question: Did Meralco have to anticipate all those things, needing astute management decisions, even cunning as a buyer, as part of its job in selling electricity to millions of consumers and businesses, as the middleman?

Methinks that Meralco had it so easy when it came to those things, because the framework in the power industry favored Meralco heavily. Thanks to the Epira!

That is the Electric Power Industry Reform Act of 2001, which contained that Agra provision for Meralco—its pass-on ability at whatever cost it bought power through negotiated contracts or in the open market.

Epira was the same law that gave Meralco the PBR, or the performance based regulation, which would also determine Meralco rates based on its “promise” of good performance. In other words, we were already paying Meralco for something that it had yet to deliver.

Under the Epira, Meralco could just pass on the entire P4.15 per kwh that it was forced to buy in the WESM at exorbitant rates. The ERC could not do anything. It was an automatic pass-on.

But then again our lawmakers only need to review the records on the hearing of the energy committees in the House and the Senate during the deliberation on the Epira to find out who pushed from the Agra and PBR provisions. What surprises await them!

And so the poor Meralco said that, without the P4.15 per kwh increase, its finances would be “impaired.” Really?

The last time I checked, Meralco’s profit could easily hit more than P22 billion in 2013. The total revenue involved in the P4.15-per-kwh increase would be about P6 billion.

It seems to me that Meralco must force itself to cover the “loss” as the cost of management error. After all, many other businesses must suffer the cost of misjudgment of the market, right?