Meralco accused of jacking up rates

Protesters wear masks as they hold a rally at the Philippine Supreme Court to coincide with the oral arguments on the power rates hike petition of Meralco, the country’s largest electric power distributor, Tuesday, Jan. 21, 2014 in Manila. AP PHOTO/BULLIT MARQUEZ

MANILA, Philippines—Manila Electric Co. (Meralco) engaged in anticompetition and price manipulation when it instructed a power-generating firm to sell power at a high price because this would jack up the price on the electric spot market as transactions there moved by the hour, Senior Associate Justice Antonio Carpio said on Tuesday.

Carpio made this observation while questioning Bayan Muna Rep. Neri Colmenares at the start of the oral arguments at the Supreme Court on Meralco’s staggered rate increase of P4.15 kilowatt-hour (kWh), the largest electricity rate increase ever in the country.

Carpio based his questions on the comment submitted by Therma Mobile Inc. (TMO) on Monday to the high court which had included it and three other power-generating companies as respondents in the petitions against the suspended Meralco power rate hike.

In its comment, TMO said “Meralco would instruct (it) to bid at the offer price ceiling of P62 kilowatt hour (kWh) during Meralco’s off-peak period”…. “in the expectation the TMO plant would not be dispatched.”

“In following Meralco’s instructions, TMO was merely fulfilling its contractual obligations, believing in good faith that Meralco was acting as a prudent distribution utility operator without any motive other than to ensure supply to its customers and without any intention of causing a spike in the Wholesale Electricity Spot Market (WESM) spot market prices,” it said.

Noting that TMO had been instructed to do this 25 times by Meralco, Carpio said there were two possibilities that may happen in this situation—either Meralco bought power at P62/kWh or somebody else did.

How much should Meralco pass on this TMO price to consumers? Colmenares, the party-list congressman, said it should be P8.65/kWh as this was the supply agreement between Meralco and TMO.

“Whether Meralco bought it and sold it at P62 or whether it sold and not buy it at P62, it can only pass on P8.65 (to its customers),” Carpio said.

“Let’s assume that in all 25 transactions, Meralco sold at P62 but did not buy [on the WESM], Meralco can pass it on P8.65 …. What’s the effect of selling it at P62 without buying several times? The effect on market price, it tends to go up,” Carpio said, with Colmenares agreeing.

The senior associate justice said that even if Meralco was not a buyer and seller, “the tendency is for the price to go up because a genco (generating company) sees it at P62 and sells it at P62 or P61.”

‘Price manipulation’

Carpio then asked Colmenares about the effect if this happened every hour, which was how transactions happen on WESM.

Without waiting for Colmenares to reply, Carpio said: “It tends to increase the price. That is still anticompetitive or still a price manipulation.”

High court justices on Tuesday gave lawyers of the two petitioners against the power rate hike—the Makabayan bloc and the National Association of Electricity Consumers for Reform (Nasecore)—the first crack in defending their case.

Speaking for the Makabayan bloc, Colmenares and Carlos Isagani Zarate, a fellow Bayan Muna representative, asked the high court to stop “the largest electricity rate increase ever in the country.”

Increase ‘hastily approved’

The two lawmakers accused the Energy Regulatory Commission (ERC) of committing grave abuse of discretion when it hastily approved the P4.15 rate hike despite “three highly irregular or unprecedented events, which should have stayed its approval as market abuse regulator.”

The increase, when added to the generation charge of P5.6673/kWh, would have resulted in a power-generation charge of P9.1070/kWh without the staggered implementation.

For a typical household using 200 kWh a month, a one-time increase of P830 would have pushed its monthly bill from P2,212 to P3,041.48.

Meralco wanted to collect a P4.15/kWh rate adjustment from its 5.3 million customers to recover some P9.6 billion in power generation costs.

Shutdowns

The rate increase stemmed from the shutdown of the Malampaya gas pipeline for maintenance operation from Nov. 11 to Dec. 10.

A number of power generation plants also shut down during this time, creating a 45-percent shortfall in the average 6,000 megawatts that Meralco supplies to customers.

The shortfall prompted Meralco to buy a more expensive supply from the WESM and to pass on the cost to its customers.

The shutdown of the pipeline also forced plants that use the cheaper natural gas from Malampaya and supply power to Meralco to use more expensive fuel.

The ERC approved a staggered rate increase to be collected in December, February and March.

But last Dec. 23, the high tribunal issued a temporary restraining order, stopping Meralco from collecting the increase for 60 days.

In his presentation, Colmenares said the ERC should not have approved the price increase last December because there were simultaneous shutdowns of plants.

At the same time, the power distribution company “through its contracted energy with Therma Mobile, made a P62 [per kWh] bid on the WESM, the highest possible bid, during the period of these simultaneous shutdowns, which not only increased the price of electricity Meralco itself bought on the WESM but also the electricity bought by distribution units in other provinces.”

When power distributors place on the WESM a demand for a certain volume of power, power producers offer bids through the spot market’s Internet operations on an hourly basis.

Highest bid

Under WESM rules, the highest bid for electricity that was sold becomes the clearing price, which in turn becomes the price of the entire market. As a result, Meralco practically increased to P62/kWh the price of electricity it would buy through the WESM as generation charge, Colmenares said.

He said the ERC agreed to pass on to consumers the generation charge, injuring consumers in other distribution units in the entire grid.

Acts of manipulation

Colmenares said these were “acts of price manipulation” and violated Meralco’s duty under Section 4 of its franchise to supply electricity to its captive market “in the least cost manner.”

He asked the high court to strike down the power rate increase because the ERC had committed grave abuse of discretion and “abandoned its role under the law and Constitution as market abuse regulator.”

Meralco’s franchise area covers 31 cities and 80 municipalities in Metro Manila, the entire provinces of Bulacan, Rizal and Cavite; and parts of the provinces of Laguna, Quezon, Batangas and Pampanga.

Quarter of PH population

The franchise area is home to 24.7 million people, roughly a quarter of the Philippine population. Also, about 50 percent of the country’s gross domestic product is generated within Meralco’s franchise area.

Meralco’s customers account for 70 percent of the 72 billion kWh used annually in the country.

Associate Justice Marvic Leonen asked Colmenares how the court could intervene given that the pricing of electricity was based on the law of supply and demand.

Leonen also asked Colmenares whether the TMO case was an anticompetitive behavior. The lawmaker said he would look into that and state this in a memorandum to the high court.

Leonen underscored the need for the petitioners to address this because the petitioners were alleging that a large distribution firm had colluded with one generating firm.

“I hope it would be clear what the court can do whether there was anticompetitive behavior,” he said.

Indications of collusion

Colmenares said his group was not saying that there was collusion but maintained that there were “indications of collusion.”

Other justices queried Colmenares and Leonard de Vera, Nasecore lawyer, on whether the rate hike, the prices on the WESM during the period leading to the increase, or ERC’s pass-on could just be the ones declared null and void by the court instead of provisions in the Electric Power Industry Reform Act (Epira), which is an output of the legislative branch.

Chief Justice Maria Lourdes Sereno said there were other provisions in the Epira that could serve as standards for the court to decide the case that should have been raised by the petitioners.

Sledge hammer

Sereno compared the Makabayan bloc’s petition—which includes the invalidation of Sections 6 and 29 of Epira that state that generating companies are not to be treated as public utilities—to “using a sledge hammer when a surgeon scalpel could have sufficed.”

Justices Jose Perez and Bienvenido Reyes also asked whether it should be left to Congress to amend the Epira, considering that there were pending resolutions pushing for such a move.

Colmenares said the relief that the petitioners wanted pertained to the exercise of grave abuse of discretion by the Department of Energy (DOE) and ERC that only the court can decide.

Justice Presbitero Velasco asked if the principle of the rule of law was applied, should Meralco be penalized for merely complying with the pass-on rule, which has not yet been declared invalid.

De Vera replied that Meralco also had a Congress-granted franchise that mandated the power firm to deliver electricity at the least cost.

Both Leonen and Velasco also warned about factual allegations raised by the petitioners such as cross-ownership, oligopoly, price manipulation and anticompetitive behavior that the court could not examine because it was not a trier of facts.

Justice Teresita Leonardo-de Castro asked if the new rules on the pass-on provision for generation cost meant that the ERC could no longer determine if the increases were appropriate, reasonable or valid, especially if the cost asked by a generation company was the same amount the distributor was charging its customers.

De Vera pointed out that the provision only stated that the charges shall be “subject to verification” but consumers were not guaranteed whether verification “shall always” be conducted.

The Supreme Court suspended the hearing at 7:30 p.m. after five hours, with Sereno setting the next hearing for Feb. 4 and 11 when counsels for Meralco and the ERC will present their arguments against the petitions opposing the power rate hike.

Sereno instructed lawyers of the DOE, ERC, Philippine Electricity Market Corp., Power Sector Assets and Liabilities Management Corp., National Grid Corp. of the Philippines, Meralco and the impleaded generating companies to submit on or before Jan. 30 documents, such as power outlook reports, market regulations, supply agreements, minutes of meetings regarding shutdowns, outage schedules and list of stakeholders.

The DOE and ERC were also asked to submit their reports on the alleged collusion, price manipulation and other anticompetitive behavior relating to the generation charges and power plant outages.—With  Inquirer Research

RELATED STORY

Makabayan bloc accuses Meralco of price manipulation

No need for actual evidence to prove collusion between Meralco, generation firms