Missing in Action: President Aquino and the Meralco rate hike scandal

The stunning Meralco power rate hike of P4.15 per kilowatt hour—the highest single increase in that utility’s history—has aroused such anger among the consuming public that it is puzzling that it has not brought the wrath of the president down on the power monopoly.  Mr. Aquino is quick to scold businesses that evade taxes, as he showed last March when he shamed many magnates attending a speech he delivered at the Filipino-Chinese Chamber of Commerce. Why not pour the same presidential vitriol on a shameless price gouger?

Malacanang’s legalistic excuse, to the effect that the Energy Regulatory Commission (ERC) is an independent agency and not subject to the president’s control, misses the point since what people are asking for is for Mr. Aquino to display his moral authority by demanding that Meralco roll back its charges.  The consuming public needs him in his capacity as advocate-in-chief.

A Hike Too Far

But whether or not the president acts, it does seem that Meralco and its power suppliers have gone a hike too far this time.  Can the key players in the power industry really expect us to believe that it was strictly a coincidence that at the very time the Malampaya natural gas pipeline shut down for its month-long bi-annual maintenance from Nov 11 to December 10—an occurrence known far in advance–some eight power plants that sold power to Meralco would at the same period undergo “unscheduled” shutdowns?  This “coincidence,” Meralco explained, forced it to go to the Wholesale Electricity Spot Market (WESM), where its added demand led to a tripling of prices from P12 to over P32 per kilowatt hour.  Meralco allegedly shelled out up to P10 billion for WESM power, a princely sum that went mainly to power suppliers to WESM, many of which were owned by the same interests that owned the plants that had shut down.   That P10 billion is what Meralco is now trying to gouge from its more than five million consumers, with the average residential unit expected to see its bill increase by close to 900 pesos a month in the next few months.

Department of Energy Undersecretary Raul Aguilos could not have said it better when he exclaimed at the House Committee on Energy hearing on December 10, “Nagsabay-sabay sila, hindi kapani-paniwala.” (“They did it simultaneously. It’s unbelievable.”). “There is possible collusion.”

The Plot Thickens

Was Meralco involved in the collusion?  Was it a victim or was it a participant in a giant swindle?   One important fact in this connection is that First Gen Corp, which belongs to the Lopez Group, owns the 1000 MW Santa Rita Power Plant, one of the plants that shut down.  And the Lopez Group owns close to 4 per cent of Meralco.

Even if Meralco is not found to have been in collusion with its energy suppliers, it is, at the least, certainly guilty of gross mismanagement.  As Maitet Diokno, Wilson Fortaleza, and Job Bordamonte point out in a recent analysis, “This excessive rate hike could have been avoided if Meralco required the generating companies with whom it has a supply agreement to provide replacement power.  Such a provision is normally included in power supply agreements anywhere in the world.  Because all power generating plants are expected to experience some downtime, whether scheduled or forced, a provision in the contract requiring the supplier of electricity to provide replacement power to the utility such as Meralco at no extra cost to the latter, would have ensured Meralco consumers against a rate hike in the event of a Malampaya shutdown.  Instead, Meralco did not include this provision in its contracts with suppliers.”

Was the Energy Regulatory Commission in on the plot?  Should not the size of the rate increase—the biggest in Meralco’s history—have thrown up a red flag and prompted it to withhold approval instead of automatically granting it?  But then, as many have asked, what is there to expect from an agency that, owing to so many past decisions favoring Meralco rate hikes and market abuse by power suppliers, has become the epitome of  “regulatory capture?”   The ERC is further compromised in the public view by the fact that it is still headed by a Gloria Macapagal Arroyo appointee, Zenaida Ducut, who has been identified as one of the bagmen of Janet Lim Napoles when she was still sitting in Congress.

And what about the Department of Energy?  Should it not have rang the alarm when it noticed that the power plants were going off line instead of waiting over a month, after Meralco’s rate hike had triggered popular anger, to declare its suspicion of collusion, thus distancing itself from the crime?

These are among the questions that the new Office of Competition of the Department of Justice will investigate and come up with a judgment by January, a promise Secretary Leila de Lima paid when several consumer advocates and I filed a formal complaint of market abuse against Meralco and its suppliers last week.  This will be the baptism of fire of the DOJ’s new unit.  We hope it will come through since the people are in desperate need of a reliable anti-trust authority that will truly come down hard on the oligopolies that have brazenly gamed the energy market.

Getting Rid of a Bad Law

The silver lining in the apparent collusion of power suppliers that led to the Meralco power rate hike is that is will most likely lead to what consumers have long demanded from legislators: the review and reform of Republic Act 9136 or the Electric Power Industry Reform Act, better known as EPIRA, passed in 2001.

This landmark law that privatized energy generation, transmission, and distribution was supposed to bring about a free market in the energy sector that would lead to more efficient power distribution and lower prices.  Instead, it has resulted in simply shifting energy generation from government to a virtual monopoly or oligopoly by private players.  Generating capacity in the key Luzon grid is now highly concentrated among three major groups:  San Miguel 30 per cent, Aboitiz, 17 per cent, and Lopez, 15 per cent.  It is estimated that these groups also control 54 per cent of energy generating capacity in the whole country.   Moreover, the cross-ownership provision of EPIRA allows for vertical integration of generation and distribution, resulting in an even more monopolized structure of energy provision in this country.

EPIRA was supposed to limit profit-making in the public interest. Under the previous regime of a Rate of Return on Base (RORB), there was a 12 per cent profit limit.  This was simple, easy to calculate, and transparent.  Now, however, we have the so-called Performance-Based Regulation (PBR), which has been widely criticized by energy expert Edna Espos as “opaque, inconsistent with international methodology, and too complex for the regulators, utilities, and consumers.”  What is clear is that under PBR, Meralco’s rates jumped by 55 per cent between 2003 and 2010, leading to its becoming one of the country’s most profitable corporations, with a profit of P9.4 billion in the first six months of 2013.

EPIRA was supposed to bring about massive investment in and creation of electric generation capacity.  Yet there has been only a 2,223 MW net increase in installed generating capacity, and this was mostly committed before EPIRA took effect.  Given the fact that the country may need a total additional capacity of 14,400 MW in the next few years, this speaks badly of the private sector’s ability to meet the country’s needs under the framework of EPIRA.  Indeed, 10 years after the process of privatization began, the DOE’s 19^th Status Report on EPIRA Implementation asserted, “The government may need to involve itself once again in power generation to avoid power shortages in the future and keep hold of the current momentum being enjoyed as an investment attractive economy. “

What EPIRA has done is to put the Philippines in the record books.  Surveys place the Philippines as having either the first or second highest electricity rates in Asia and among the top ten internationally.

After over 12 years, EPIRA has not brought about the promise of efficiency in power distribution and lower electricity rates.  Instead, as the Meralco price hike scandal reminds us, it has brought about the worst of all possible worlds:  skyrocketing power prices and a powerful corporate oligopoly that has no hesitation in gouging the consuming public.  It is high time we got get rid of it and put in its place something more consumer-friendly as the governing law of the power sector.

*INQUIRER.net columnist Walden Bello serves as a representative of Akbayan (Citizens’ Action Party) in the House of Representatives.  He was part of a group of consumer advocates that petitioned Justice Secretary Leila de Lima to investigate possible collusion in the recent Meralco power rate hike.