WHO'S RAKING THE PROFITS? SENATE SETS PROBE ON MERALCO RATE BIGTIME HIKE

DECEMBER 11-Senate committee on energy chairman Sen. Sergio Osmeña III wants this question
answered when the Senate energy committee starts its hearing on Wednesday next week on the unprecedented electricity rate hike. Osmeña is keen on identifying which among the country’s operators of generating power plants have participated in the trading at the Wholesale Electricity Spot Market (WESM). “Why did it happen? We will ask each of the generating plant operators to explain why there was a downtime at almost the same time in November and the first 10 days of December,” the senator said. “I understand, the average rate that Meralco purchased from the WESM was P35. That is huge you know. Meralco buys its power at about P4.70 to P8.50… Their peak is P8.50 while P4.50 is the base price,” he noted. “So napakalaki naman. Sinong kumita?” Osmeña added.

ALSO:  Conspiracy eyed in power rate hike

DECEMBER 11- The Department of Energy (DOE) said on Tuesday that power producers may have
conspired to
manipulate electricity rates by simultaneously shutting down their power plants to push power prices to a record high. DOE Undersecretary Raul Aguilos admitted during a meeting with members of the House Committee on Energy that there could have been collusion among power generators and suppliers. The Energy Regulatory Commission (ERC) on Monday approved a historic P4.15 per kilowatt-hour power rate increase to be collected by the Manila Electric Co. (Meralco) starting in January. Meralco customers will pay the rate increase in three tranches. Aguilos explained that the power rate hike was triggered by the simultaneous, unplanned shutdown and outages of power plants that supply electricity to Meralco. (Photo: Meralco Officials)

ALSO: ERC chief Zenaida Ducut snubs House power rate hike hearing

DECEMBER 11 -Energy Regulatory Commission (ERC) Chair Zenaida Cruz-Ducut, an alleged agent of pork barrel scam mastermind Janet Lim-Napoles, snubbed Tuesday’s House hearing on Manila Electric Co.’s hefty rate increase of P4.15 per kilowatt hour where lawmakers took turns hitting her proxies for failing to defend the public interest. Oriental Mindoro Rep. Reynaldo Umali, committee on energy chair, said Ducut did not explain her failure to attend the House probe, which was held a day after the ERC approved the staggered implementation of Meralco’s rate hike over three months starting December. But Umali said Ducut could not be compelled to attend the hearing because she sent ERC Commissioner Josefina Patricia M. Asirit and ERC Executive Director Francis Juan to represent her. Cavite Rep. Elpidio Barzaga Jr. said Ducut had no excuse not to attend the hearing because 5 million Meralco customers would like to know why the ERC did not question the power rate increase despite claims of collusion among power industry players.

ALSO: (BLOG WATCH) Misunderstanding Meralco's recent power rate hikes

DECEMBER 10 -The reasons for the rage directed at Meralco range from the justifiable to the ludicrous but, almost all of it, including those wafting from the usual oppositors of anything related to Meralco, is based on a continuing misunderstanding of the role that Meralco plays in the energy sector as well as the roots and causes of the rate hike at hand. Some people just do not do their homework. Benigno Aquino III supports the tariff increase but his own position reveals the depth of his understanding of the issues behind energy economics. Mulling the use of the Malampaya Fund to alleviate the impact of the tariff increase, he stated that there are issues that need to be resolved as the fund’s usage might be so diffused that subsequent liquidation would be a problem. Clearly Aquino is misinformed. The Malampaya Fund is earmarked for energy development. Using it to purchase power in this instance, or as in the past, during his watch, to purchase generating sets or warships, stretches its usage into criminal malversation territory.


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Who's raking the profits? Senate sets probe on big-time power rate hike

MANILA, DECEMBER 16, 2013 (PHILSTAR) By Christina Mendez - Who is raking the huge profits?

Senate committee on energy chairman Sen. Sergio Osmeña III wants this question answered when the Senate energy committee starts its hearing on Wednesday next week on the unprecedented electricity rate hike.

Osmeña is keen on identifying which among the country’s operators of generating power plants have participated in the trading at the Wholesale Electricity Spot Market (WESM).

“Why did it happen? We will ask each of the generating plant operators to explain why there was a downtime at almost the same time in November and the first 10 days of December,” the senator said.

“I understand, the average rate that Meralco purchased from the WESM was P35. That is huge you know. Meralco buys its power at about P4.70 to P8.50… Their peak is P8.50 while P4.50 is the base price,” he noted.

“So napakalaki naman. Sinong kumita?” Osmeña added.

The public is outraged over the rise on electricity rates which will be imposed in three tranches by the Manila Electric Co. (Meralco), which is charging its consumers P4.15 per kilowatt per hour (kWh) beginning this month.

The huge hike will cost an additional P830 to the monthly billing of consumers using an average of 200 kWh.

“In any normal situation you'll have a law… but if there will be a collusion, that's against the law also. So even in business you cannot collude, you cannot fix prices, you cannot decide among yourselves (who) will have a shut down,” he said.

Osmeña also wants to scrutinize the list of power generators.

“Who sold in the WESM? Sino kumita dyan? Because there were plants bidding at 62 pesos, 45 pesos, 35 pesos. I understand that the average rates that Meralco purchased from the WESM is 35 pesos,” he added.

Osmeña has set next week the public hearings on the major increase, affecting millions of households in the country.

Among those invited are: Energy Secretary Jerico Petilla, Under Secretary Raul Aguilos, and Energy Regulatory Commission (ERC) chairperson Zenaida Ducut as well as Meralco executives and officers of generation plants.

Sen. Vicente Sotto III supports the Senate inquiry, noting that the ERC seemed to have adopted an "acquiescence" stance on the proposed increase.

"Well, when there is smoke there is fire…Mas mabuting imbestigahan, dapat may inquiry para mas malinaw ang mga issues na lumitaw at kung wala naman dapat ipangamba ang taong bayan eh di Makita natin pero kung meron dapat umaksyon tayo," Sotto said.

Who’s manipulating the power rates hike?

In an interview, Osmeña said his committee aims to determine who are the individuals who may have benefitted from what is perceived as artificial shutdown of generation plants, causing a massive spike in power rates.

“Why is there a coincidence of huge loss while Meralco normally buys only 11 percent from the WESM of its demand, it reached 40 percent. That’s too expensive. When you are at the 40 percent level, the rates can go up to P60,” he noted.

Osmeña also wanted the Senate to look anew at the government policy.

“I’ve been asking for one and a half years already for the need to lower the cap to P 31, or half of the P 62. Kung meron kang planta at patakbuhin mo ng two days, bawi ka na. Makaka 62 pesos ka kasi niloload up nila sa capacity phase nila. These are things we want to look at,” the senator explained.

Only a TRO can save the day

As the public opinion against the major increase in the electricity rates rages, Sen. Francis Escudero conceded that only a temporary restraining order (TRO) will prevent the Meralco from implementing the new rates.

Escudero said the TRO from the court is one of the options to prevent the implementation of the new rates.

“I think that is being studied by some groups already and even on our part, we are looking into it,” Escudero said. “Taking this to court and ask for a TRO is the closest, legal and soundest option available now.”

Abused discretion?

Escudero thinks there is clearly an abuse of the automatic increase provision granted to Meralco by the ERC.

“Meralco cannot justify its increase with the generation cost rationale. If they are too quick to impose a price hike, they must also this quick or quicker to refund the consumers and give us our rebates in the shortest period of time. It should be quid pro quo,” he said.

Escudero also blasted the ERC for sleeping on the job and allowing an antiquated system to prevail, which is inherently biased against consumers.

“The ERC has been using a cost-based formula in fixing rates when it should use a market-based formula,” Escudero said.

In the cost-based system, the senator explained that the only basis they have in pricing is the cost presented by the distribution facility applying for an increase.

“It does not factor in the general market, like that much-awaited rebate. ERC does not even factor in the multiplier effect it will have on the market,” Escudero said.

Escudero welcomed an inquiry by the Senate to scrutinize Meralco’s power rate hike, the ERC and the Department of Energy and “explain this and other distortive, biased and dilatory practices against consumers.”

“We still have one week to conduct sessions and hearing. We just passed the national budget and that’s already eighty percent off our load for this session. I believe we still have time. I hope this increase will be short-lived and hopefully will be stopped via the intervention of courts,” Escudero said.

Apart from Escudero and Osmeña, Senate President Franklin Drilon, Senators Antonio Trillanes IV and Sotto have expressed concern over the rising power rates.

FROM THE MANILA TIMES

Conspiracy eyed in power rate hike December 10, 2013 10:38 pm
by Llanesca T. Panti and Jhoanna Ballaran Reporters


Meralco officials explain the power rate hike at the
House of Representatives on Tuesday. Photo by Mike De Juan

MANILA -
The Department of Energy (DOE) said on Tuesday that power producers may have conspired to manipulate electricity rates by simultaneously shutting down their power plants to push power prices to a record high.

DOE Undersecretary Raul Aguilos admitted during a meeting with members of the House Committee on Energy that there could have been collusion among power generators and suppliers. The Energy Regulatory Commission (ERC) on Monday approved a historic P4.15 per kilowatt-hour power rate increase to be collected by the Manila Electric Co. (Meralco) starting in January. Meralco customers will pay the rate increase in three tranches.

Aguilos explained that the power rate hike was triggered by the simultaneous, unplanned shutdown and outages of power plants that supply electricity to Meralco.

“These were actually the major reasons, factors, why such a spike happened, because these were not anticipated,” he said.

He noted that the power plants were shut down at a time when the Malampaya plant was undergoing a scheduled annual maintenance. This unseen development raised the possibility of collusion among power producers to increase the electricity rates in the wholesale electricity spot market (WESM).

“We anticipated the Malampaya shutdown, and so we coordinated with the stakeholders with the necessary interventions to mitigate the impacts of the spike.

Listing these as factors, we anticipated the generation cost to rise by P1.58 per kilowatt-hour, so we were surprised when it was P4.15 because there were forced outages from other power plants. It’s possible that the power suppliers are in collusion because it would be hard to believe that they all have forced outages at the same time,” Aguilos told the House Energy panel.

“That’s why the [DOE] secretary would want this investigated to identify the culprits and penalize them if ever, that’s why we also have to seek the assistance from PEMC [Philippine Electric Market Corp.] and ERC because this is also part of their mandate so this is an ongoing process which we would like to be finished within a reasonable period of time,” Aguilos said.

Of the P4.15 per kilowatt-hour increase for Meralco users, the bulk will P3.44 will be from the generation charge because of the Malampaya natural gas plant shutdown from November 11 to December 10.

“We are now conducting an investigation on this [possible collusion]. If not for the unplanned outages, the increase would not have been as high,” Aguiluz added.

ERC Commissioner Josefine Patricia Asirit agreed that the government should investigate the unscheduled shutdown of several power plants to determine if these facilities were really crippled by defects, leaks or malfunction.

“I do understand that the DOE has a mechanism to address and even to visit the different plants that have been on unplanned or forced outages,” Asirit said.

According to a report submitted by Meralco to the House committee, at least nine power plants went on scheduled but extended shutdown and forced outages—Sual, GN Power 2, Santa Rita Module 20, Santa Rita Module 30, Ilijan 2, QPPL, Sual 1, Calaca 1 and Masinloc 1. Together, these plants supply 3,427 megawatts to the Luzon grid.

Had these plants continued their operations, the price increase would only have been P1.58 per kilowatt-hour.

Meralco gets 40 percent of its power supply from Malampaya. But because the natural gas plant was shut down, Meralco had to purchase power from the Wholesale Electricity Spot Market (WESM) at a price of P33.24 per kilowatt-hour.

Meralco President and COO Oscar Reyes said that the company is still undecided whether to implement another rate increase in April to make up for the value-added tax (VAT).

“The increase [in generation charge] is 69 percent due to the fact that we are getting supply from WESM since the Malampaya is on shutdown,” Reyes said.

He urged the government to build more power plants, saying that the last power plant built in the Luzon grid was in 2000.

Also on Tuesday, ACT Teachers Party-list Rep. Antonio Tinio criticized the government for its failure to regulate power rates.

“This seemingly absurd situation points to a massive failure on the part of government, particularly the [ERC], to regulate and protect the public from the predatory behavior of a handful of power producers, who were able to dictate the price of electricity sold in the WESM,” the lawmaker said.

According to Tinio, three power producers can dictate the price of electricity in the spot market—t he Aboitiz-owned Therma Mobile, Bauang Diesel Power Plant which is also operated by the Aboitiz group, and the Limay Combined Cycle Plant owned by Millennium Holdings, Inc. of businessman Mike Valencia.

Before the Malampaya shutdown, the average rate in the WESM is only at P13.74 per kWh but it soared to P33.22 per kWh.

FROM THE INQUIRER

ERC chief snubs House power rate hike hearing By Gil C. Cabacungan Philippine Daily Inquirer 2:57 am | Wednesday, December 11th, 2013


Zenaida G. Cruz-Ducut, Chair of the ERC

MANILA -Energy Regulatory Commission (ERC) Chair Zenaida Cruz-Ducut, an alleged agent of pork barrel scam mastermind Janet Lim-Napoles, snubbed Tuesday’s House hearing on Manila Electric Co.’s hefty rate increase of P4.15 per kilowatt hour where lawmakers took turns hitting her proxies for failing to defend the public interest.

Oriental Mindoro Rep. Reynaldo Umali, committee on energy chair, said Ducut did not explain her failure to attend the House probe, which was held a day after the ERC approved the staggered implementation of Meralco’s rate hike over three months starting December.

But Umali said Ducut could not be compelled to attend the hearing because she sent ERC Commissioner Josefina Patricia M. Asirit and ERC Executive Director Francis Juan to represent her.

Cavite Rep. Elpidio Barzaga Jr. said Ducut had no excuse not to attend the hearing because 5 million Meralco customers would like to know why the ERC did not question the power rate increase despite claims of collusion among power industry players.

“This is the public interest that the ERC is bound to protect, not the profits of industry players,” said Barzaga.
Several lawmakers, including House Speaker Feliciano Belmonte Jr., Barzaga and Umali, previously asked Ducut to take a leave of absence after she was implicated in the malversation charges filed in the Office of the Ombudsman.
The National Bureau of Investigation accused Ducut of acting as a broker of several former lawmakers, including resigned Customs Commissioner Rufino Biazon, who transferred their pork barrel funds to dubious NGOs allegedly controlled by Napoles.

Ducut used to be the representative of Pampanga’s second district, a post taken over by former President Gloria Macapagal-Arroyo after she appointed the former to the ERC.

“I am disappointed with the ERC because it has become a mere rubber stamp of Meralco and power producers instead of defending the rights of consumers by immediately stopping the power rate hike,” Bayan Muna Rep. Carlos Zarate said.

During the hearing, Asirit said the ERC was in no position to approve or reject Meralco’s rate hike because the rules allowed it to automatically pass on any increase in fuel costs to consumers.

Asirit claimed that the ERC did its part by implementing the rate hike over three months to minimize its impact on the public.

BLOG WATCH

Misunderstanding Meralco's recent power rate hikes Tuesday, 10 December 2013 13:33 Written by Dean de la Paz

There is burning indignation, even increasing anger, over the power rate hikes scheduled to substantially steal from our bonuses and hard-earned Christmas money should we belong to the Meralco (Manila Electric Co.) franchise area.

Desperate to cleanse their tarnished images, our solons have quickly gotten in on the act and have once more clambered up the grandstand seeking audiences to debate an aberration they were mostly responsible for.

It was, after all, congress that passed the deregulation and restructuring laws that set the electricity generation sector free from regulation thus allowing the complete pass-on of technical and financial inefficiencies, foreign and domestic debt and stranded costs, thus bottlenecking these at the distribution stage where Meralco is compelled to collect for anything aberrant in the electricity value chain whether they are at fault or not.

It was also Congress that had passed the founding statutes for the Wholesale Electricity Spot Market (WESM) - an electricity trading exchange that leads to higher tariffs when supplies and capacities are tight, and works well only when competition and substitution of generation sources are available.

The reasons for the rage directed at Meralco range from the justifiable to the ludicrous but, almost all of it, including those wafting from the usual oppositors of anything related to Meralco, is based on a continuing misunderstanding of the role that Meralco plays in the energy sector as well as the roots and causes of the rate hike at hand.

Some people just do not do their homework. Benigno Aquino III supports the tariff increase but his own position reveals the depth of his understanding of the issues behind energy economics.

Mulling the use of the Malampaya Fund to alleviate the impact of the tariff increase, he stated that there are issues that need to be resolved as the fund’s usage might be so diffused that subsequent liquidation would be a problem.

Clearly Aquino is misinformed. The Malampaya Fund is earmarked for energy development. Using it to purchase power in this instance, or as in the past, during his watch, to purchase generating sets or warships, stretches its usage into criminal malversation territory.

The usual non-government organizations (NGO), quickly shedding their universally-tarnished persona from complicity in the pork barrel scandals, have dug up long mothballed placards and other protest paraphernalia, dusted off their fading generic red banners, unfurled these to consequently protest in front of the Meralco offices as they’ve done countless times before.

Their themes, shouted from the Ortigas gutters and sidewalks, are, however, old and crusty. So are those now shouted from the congressional grandstand under the klieg lights and microphones of media.

Maliwanag ang Pasko 2010Note the hollowness of the polemics. Critics railed and ranted, “What kind of government is this that it would rather defend profits of big companies rather than work for the welfare of the people?

This planned power rate increase is obviously artificial and contrived, considering that the supposed maintenance shutdown of the Malampya natural gas plant was scheduled long ago. Other cheaper sources could have been used.”

One, Meralco does not profit from the generation tariffs. The increase is due to a spike in generation charges. Meralco is a distribution utility.

Two, the increase is neither artificial nor is it avoidable albeit scheduled. The increase is due to the dispatch and energy mix utilized during the Malampaya shutdown. As the Malampaya fuel is indigenous, it does not entail as much foreign currency components as does dollar-depleting fossil-fired plants.

There are few, if any, compensatory substitutes for natural gas. It is one of the cheapest and cheaper substitutes in the same base load quantities are not readily available or these would have been sourced if only to keep the input costs-of-distribution for Meralco down.

Allow us to shift gears to demystify the recent rate hikes and explain to those intellectually-challenged congressmen an aberrant pricing structure congress was largely responsible for.

Part of the problem in comprehension is the jargon and the limited intellectual capacity of our pork-fed legislators whose severely limited knowledge of the alphabet might be restricted to the letters P-D-A-F. For too long, Meralco personified the whole electricity industry and the span of its totally diversified value chain.

For many, the differences among the generation, transmission and distribution sectors which includes Meralco remain unclear.

To understand the recent rate increases, one needs to understand that invoice drawn up by Meralco that shows the different costs that make up our light bill.

The bill is unbundled into three invoices just as the industry has three separate sectors. The first are for companies that produce electricity called generators. The second, for the National Grid Corporation of the Philippines (NGCP) - a monopoly that takes the electricity from the generators and transmits these. The last are for companies that receive the electricity from the NGCP and distributes these to consumers.

Because distributors deal directly with consumers, they collect payments for all three sectors. Most payments reimburse generators or NGCP. Distributors like Meralco only charge for their end. Nothing more.

The prices of NGCP and distributors are regulated. They cannot price without our permission and only after requisite approvals granted by the Energy Regulatory Commission.

Congress designed the industry that there is virtually no limit to the prices of generators. Yet downstream, pricing is highly regulated. When they purchase the electricity from generators, transmit and then distribute the electrons, respectively, NGCP and then the distributors pay what generators charge.

In effect, distributors like Meralco shoulder for consumers all prior charges up the chain from transmission to generation.

The recent increases were from increases in costs in the generation sector where plants produce electricity by burning relatively more expensive fossils. This is not contrived pricing.

These are real costs. When a cheaper source such as those fed by the Malampaya gas lines go off-line, the slack is taken up by burning the more expensive fuels. These lead to temporary tariff spikes as the fuel mix goes from cheaper to more expensive sources.

THE AUTHOR

Dean dela Paz is an investment banker. He is a consultant in the fields of finance and banking and has packaged some of the most prolific public offerings in the Exchanges. He is a member of the Executive Committee and sits in the Board of one of the oldest financial institutions in the country. He is likewise an energy consultant having served on the Boards of several foreign-owned independent power producers and as CEO of a local energy provider.

He is currently the Program Director for Finance in a UK-based educational institution where he also teaches Finance, Business Policy and Strategic Management. A business columnist for the last fifteen years, he first wrote for BusinessWorld under the late-Raul Locsin and then as a regular columnist for the Business Mirror and GMANews TV. He also co-authored a book and policy paper on energy toolkits for a Washington- based non-government organization. He likewise co-authored and edited a book on management.


Chief News Editor: Sol Jose Vanzi

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