Government’s political will to stop P4.15/kWh power rate hike; Meralco and IPPs are not ‘scot-free’

The P4.15/kWh power rate increase announced and started to be collected by Meralco last December is not the first of the power rates increases that we have had. But it is definitely the first rate increase that high – more than three hundred per cent (300%) than the usual power rate hikes that we’ve had so far in the country – and it is probably one of the highest, if not the highest rate of increase in the world. This makes the power rates in the Philippines – a lower middle income country where 60 percent of its labor force live with about $2 or less a day – undoubtedly the highest in Asia, and also one of the highest in the world.

It is already immoral that consumers are always held hostage and taken advantage of by the power firms – Meralco, its independent power producers and other generation companies in this case. And it is greed at its highest form when these immoral acts are done even under a situation when the country is in a state of national calamity.

The Malampaya scheduled maintenance shutdown and forced power outages that Meralco claims are unacceptable excuses for this high increase in its electricity charges for the period November-December 2013. The power firms must exercise prudence in their charges to consumers; they should not be allowed to pass on to the consumers the unwarranted costs resulting from their wrong business decisions or practices nor they be allowed to continue doing business scot-free if they are engaging in predatory pricing and other abusive and anti-competitive business practices.

The Trade Union Congress Party (TUCP Party-list) recognizes the initiatives of the Committees on Energy in both Chambers of Congress and of the Executive Department to find solution to this mess. But it should not be quick-fix remedy; it should be able to hit the nail where the head is. Using Malampaya funds to pay for the high generation rate may not be our best solution, it just makes the power companies scot-free from their anti-competitive and abusive practices that resulted in this record-high power rates charged to customers.

We want to find immediate recourse to stop this unfathomable and unconscionable power rate increase of Meralco. It is also our desire to look for long-term redress in order to protect all electricity consumers against future unjust power rates hikes or spiralling cost of electricity.

When the Electric Power Industry Reform Act (EPIRA) was passed almost thirteen years ago, the intention was not only to stop the financial bleeding of the National Power Corporation and its consequent financial burden to the government and the taxpayers; above all, the objective was to ENSURE QUALITY, RELIABLE, SECURE, and AFFORDABLE supply of electricity.

The P4.15/kWh power rate increase of Meralco goes against the above and other objectives of EPIRA such as ensuring transparent and reasonable price of electricity to enhance the competitiveness of Philippine products in the global market; to ensure fair and non-discriminatory treatment of public and private sector entities in the process of restructuring the electric power industry; and to protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power.

THE GOVERNMENT IS NOT HOPELESS IN THIS CASE. IT CAN DO SOMETHING TO STOP THE P4.15/kWh MERALCO POWER RATE HIKE as well as PREVENT UNWARRANTED RATES INCREASES IN THE FUTURE. IT IS JUST A MATTER OF POLITICAL WILL TO REALIZE THESE.


• The President can exercise his police powers as public interest so requires. He can ask the power companies to lower their profit margins.

This can be done. In fact, this was already done by the Department of Energy (DoE) and the Philippine Electricity Market Corporation (PEMC) when they lowered the price offer cap of generation companies at the Wholesale Electricity Spot Market (WESM) to P32/kWh from P62/kWh – this was based on their testimony at the Energy Committee hearing last week. If the price cap can be reduced by half of its original amount, then there could be so much leeway or room for negotiation to lower the amount to be collected by generation companies that supplied power last November-December 2013 between P62/kWh and P32/kWh. At P62/kwh, as the clearing price in WESM between November-December 2013, all power companies that supplied power at that period have undoubtedly raked-in so much profit.


• The Energy Regulatory Commission should withdraw its December 9 approval of Meralco rate hike. Instead, it should immediately conduct due process where consumers can participate, and determine as well if there was gaming or market abuse before granting the power rate increase being sought by Meralco and the generation companies.

The approval of the Meralco price hike by the ERC without undertaking public hearings and concomitant investigations as to the simultaneous shutdowns of the Malampaya plant and the other independent power producers and the market behaviour of Meralco is violative of the EPIRA mandate for the ERC to protect consumers against anti-competitive behaviour and market abuse.

Red alert bells should already have been ringing when ERC saw a Php. 4.15 per kwh tariff increase and a WESM where some IPPs were selling at Php. 62 per kwh. The ERC should already have been forewarned as to the danger of overrecovery of generation costs.

Apologists for the power industry want us to accept that when the Malampaya facility was shutdown for scheduled maintenance and when coincidentally the other power providers of MERALCO were hit by force majeure outages, all of these fell within the allowable market activities of the EPIRA and also within bounds of the implementing rules and regulations of the ERC. They would have us believe that some IPPs saw the opportunity and just took advantage of the rules and the law to make significant profits, that no one is at fault and therefore no one is to blame.


• The Executive Branch can step-in to either lower the price cap on offers at the Wholesale Eelectricity Spot Market or totally suspend the operations of WESM if public interest and or national security is at stake.

The P32/kWh price cap that the tripartite government body decided to implement should be made retroactive from the time the country was put under a state of national calamity. This will compel recourse so that MERALCO and the power producers enter into cheaper bilateral contracts between themselves. Without WESM, the power producers have no choice but to sell under bilateral contracts to MERALCO which constitutes 70% of the market, and has market dominance. In short it should be a buyer’s market (in this case, MERALCO), thus generation companies will be forced to lower their rates.

• The rate-setting practices and methodologies such as the Performance-Based Rate Methodology (PBR) as well as the Automatic Generation Rate Adjustment (AGRA) should be suspended and replaced by a more transparent mechanism of determining the power rates.

Both PBR and AGRA violate the EPIRA mandate of having a transparent and reasonable price of electricity. The automatic rate adjustment for generation costs violates due process and the mandate of EPIRA against market abuse; the automatic rate adjustment is tantamount to a surrender by the ERC of its regulatory powers.

The grant of an automatic rate adjustment prevents consumers from raising valid concerns and real objections even as it mandates the collection of additional charges from them. It effectively precludes any prior challenge to the claims of MERALCO for additional generation charges without subjecting those claims to the legal standards of whether those economic costs being recovered by MERALCO are PRUDENT and REASONABLE, as to whether such constitutes the obligation of MERALCO to provide its customers power “AT LEAST COST,” and whether in passing through the generation charges, MERALCO acted in compliance with its obligations under its franchise.

• Revoke franchise license of abusive or misbehaving power companies.

• The 16th Congress should change EPIRA in order to strengthen protection of consumers from market power abuse. These changes shall include:

o Declaring power generation a public utility, thus subject to profit regulation

o Replacing the current un-transparent rate-setting methodology (PBR) with a simplified and transparent formula based on a 12% ceiling on profits and net income

o Effective prohibition of cross-ownership between the generation, distribution, and transmission sectors.

o Ensuring representation of workers and consumers in the Energy Regulatory Commission as well as in the oversight body over WESM

o Ensuring shareholding dispersal to broaden ownership base, de-monopolize the power industry, and prevent or limit market control of few companies or families.

Workers ask Senate to declare EPIRA a failure

WITH the committee on energy resuming its probe on the spike in Meralco rate today, the labor coalition Nagkaisa, pressed the Senate as a whole to declare the Electric Power Industry Reform Act (EPIRA) a failure and consider crafting a new policy framework for sustainable energy and energy democracy.

The group, which held another picket outside the Senate building, said that unless there is a declaration to that effect, public hearings and investigations will offer no material relief to consumers.

Nagkaisa explained that since 2008, consumer groups have attended, submitted position papers, and argued against the ills of EPIRA before committee hearings of both houses of Congress, including those conducted by the powerful Joint Congressional Power Committee (JCPC). Yet no actions were made to address those concerns.

“Public hearings end with another scheduled hearing then nothing happens until another controversy arises. Workers are really tired of wishy-washy intervention on a social problem of this scale,” Nagkaisa said, referring to the crises of escalating power rates and diminishing supply.

Nagkaisa asserted that since the enactment of EPIRA which led to the deregulation of the generation of generation sector, privatization of Napocor assets, creation of the spot market, and the introduction of performance-based regulation. Fraud became the norm in the power industry as shown by rising prices and cartelization.

The group reminded the Senate that in 2008, Senator Miriam Santiago who chaired the JCPC then stated in her opening remarks in one of JCPC’s public hearings that EPIRA is a failure; the Senate is a failure as well as the Executive.

“That is seven years ago and the people will not accept another decade of unrewarding probes to a mess that has been there since day one of the implementation of EPIRA,” said the group.
Nagkaisa has been protesting the power hikes which they believed were caused by flawed policies under EPIRA.

Workers to ‘gods of Faura’: Stop power firms’ blackmail, fraud

While politicians and businessmen have joined President Aquino for the National Day of Prayer and Solidarity to the victims of natural and man-made calamities, workers in Metro Manila belonging to the labor coalition Nagkaisa, trooped to the Supreme Court to seek relief and ultimate deliverance from unjust power rate hikes.

The fifteen (15) justices, also known as ‘The gods of Faura’, were set to hear oral arguments tomorrow on several petitions seeking injunctions to Meralco’s P4.15/kWh rate increase. Prime in the agenda to resolve are questions on whether or not the Energy Regulatory Commission (ERC) committed grave abuse of discretion in approving Meralco rate hike; whether or not automatic rate adjustment is valid; and whether or not the generation sector is not a public utility and therefore beyond regulation by ERC, among others.

“We pray that the justices deliver us from a decade-old fraud and industry blackmail,” said Nagkaisa in a statement released during their picket at the gates of the Supreme Court building. The group was referring to frauds committed under the Electric Power Industry Reform Act (EPIRA), including the latest allegations on collusion and market abuse among power firms and the latter’s threat of rotating blackouts had they fail to collect rate increases.

Nagkaisa asserted that since the enactment of EPIRA which led to the deregulation of the generation of generation sector, privatization of Napocor assets, the creation of spot market, and the introduction of performance-based regulation, fraud became the norm in the power industry as shown by rising prices and cartelization.

“It is no secret that owners of power firms, the so-called Voltage 5 (Aboitiz, Lopez, San Miguel, Henry Sy, and Pangilinan) have been earning record high profits from record high tariffs of their power-related firms,” said Nagkaisa.

The labor coalition recalled that lowering the cost of power was the pledge of the Arroyo administration when it prodded Congress to pass the EPIRA upon assumption to power 13 years ago today.

Nagkaisa explained further that since 2008, many of its convenor groups have attended, submitted position papers, and argued against the ills of EPIRA before committee hearings of both houses of Congress, including those conducted by the powerful Joint Congressional Power Committee (JCPC). Yet no actions were made to address those concerns.

It likewise chided the Executive for peddling the line that the only choice for now is between expensive power, or having no power at all.

“We hope the Supreme Court brings light to a dark decade of power hikes, naked greed, and blackmail amid unreliability of power supply,” concluded Nagkaisa!

If Petilla can offer his head, why can’t Ducut and Ocampo do the same?

The news of Department of Energy (DoE) Secretary Jericho Petilla tendering his resignation in the wake of failure to meet his self-imposed deadline in bringing back electricity to areas ravaged by typhoon Yolanda is all over the air.  Whether the President will accept his resignation or not can be part of a ploy. But nevertheless, Petilla had the guts to place his head on the chopping board.

We wonder, however, if other inept officials in the energy family – particularly Energy Regulatory Commission (ERC) Chairperson Zenaida Ducut and Philippine Electricity Market Corporation (PEMC) head Mel Ocampo can do the same.

Petilla who heads the DoE is equally responsible for the government's failure to stop the P4.15/kWh rate increase imposed by Meralco.  But Ducut and Ocampo who are in the frontline and supposed to be the first persons to detect market failure and protect consumers' welfare stood idle before the coming tsunami of power hikes. They therefore should go.

Truth is, throughout their tenures, they have consistently failed to discharge their duties of regulating the power industry properly. The latest fiasco is just the culmination of years of ineptitude and incompetence.

As early as 2012, they were aware of scheduled maintenance shutdown and yet they did nothing to prevent the largest market failure in the power sector to date. In the process they unduly enriched Independent Power Producers (IPPs) to the tune of 10 billion pesos for a month's worth of power outages!

They should go based on the principle of command responsibility. At the least, they allowed the electricity market to be gamed, and at the most, they are a party to the reported collusion among power firms.

Ducut and Ocampo should be investigated for possible charges of economic sabotage.

It's also the time for the regime of Electric Power Industry Reform Act (EPIRA) to go.

- NAGKAISA! Statement

Lawmakers, activists want collusion in power firms investigated by DOJ

Citing possible cartelization or combination by several power firms which led to Meralco’s sharp increase in generation charge this month, a group of lawmakers and social activists filed before the Department of Justice (DoJ) this morning, a petition asking the Office for Competition to conduct an inquiry into the matter.

Executive Order No. 45 series of 2011 has designated the Department of Justice as the Competition Authority in the country. Created under this EO was the Office for Competition which can receive any form of complaint as a basis for inquiry or further study on possible violations of laws prohibiting cartelization, monopolies, or combinations in restraint of trade as defined in competition laws.

The petitioners availed of this remedy after the Energy Regulatory Commission (ERC), with neither public hearings nor conduct of probe into allegations of market abuse, approved en toto the amount of P4.15/kWh that Meralco can recover from its purchase of power this month due to the scheduled shutdown of Malampaya natural gas platform.

Signatories to the letter/petition include Akbayan Representatives Walden Bello and Barry Gutierrez, Representative Raymond Mendoza of Trade Union Congress of the Philippines, economist Maitet Diokno of the Center for Power Issues and Initiatives, Wilson Fortaleza of Partido ng Manggagawa (PM) and NAGKAISA, and Freedom from Debt Coalition (FDC) President Ricardo Reyes.

These groups and individuals were involved in campaigns on the power issue prior to and after the passage of the Electric Power Reform Act or EPIRA. They maintain that the unabated increase in power rates, market concentration and the threat of another power crisis were the results of EPIRA which for the past eleven years produced nothing but escalating rates and diminishing power supply.

In particular, the petitioners pointed to possible collusions by Meralco, First Gas Power Corporation, San Miguel Corporation, Kepco Philippines, Aboitiz Power, Team Energy Corporation, AES Philippines and DMCI Holdings, Incorporated when their plants went into simultaneous and unscheduled shutdown resulting to more load deficits in the Luzon grid and which forced Meralco to buy a more expensive power from the Wholesale Electricity Spot Market or WESM.

“The expected and scheduled maintenance of Malampaya notwithstanding—an event Meralco was aware of more than six months before its occurrence—and Meralco’s claim that such was not anticipated, and the unscheduled shutdown of several power plants that resulted to Meralco’s recourse to expensive electricity from the WESM, are information that point to a contrived scenario of extreme short-term shortage of electricity for the purpose of raising the price of electricity beyond what it would cost to generate it,” said the petitioners.

The petitioners bewailed that the increase in electricity costs can only add to the economic burden of end-users and consumers who, at a time when the whole nation is reeling from the brunt of Typhoon Yolanda and in anxious anticipation of the holiday season, face increases in prices of basic commodities like liquefied petroleum gas, Metro Rail Transit fares and the like.

The group vowed to escalate their campaign for the overhaul of EPIRA next year.

Predatory MERALCO price hike slammed by NAGKAISA

Meralco already insured against maintenance shutdowns, Power Supply Agreements cover Meralco risk with power providers

The NAGKAISA labor coalition denounced the December P3.50 per kWh rate increase as an immoral imposition and an unconscionable predatory move in the face of our massive national suffering and despair. Instead of moderating its greed, MERALCO and the generating companies First Gas (Sta. Rita), South Premier Power Corporation (Ilijan) and Therma Mobile, Inc. (San Lorenzo) – which are its cohorts – chose to further impoverish hardworking Filipinos and complicate the already difficult road to national recovery.

MERALCO residential rates currently pegged at Php12.46 per kWh will now be hiked to Php15.96 per kWh, representing a 28% increase. The new rate is equivalent to US$ 37 cents per kWh. That is the highest residential rate, bar none, in the WORLD. Its consequences for families coping with the triple whammy of NAPOLES-scale corruption, spiralling oil and LPG prices, and natural calamities are immense.

For industry, where power rates already constitute 45% to 55% of operational costs, particularly for Small and Medium Enterprises (SMEs) and BPOs, the rate increase will greatly affect their business viability. For the national economy, it compromises our regional competitiveness in the ASEAN and will be a disincentive to locators remaining and to the entry of foreign direct investments.

NAGKAISA pointed out that before a new tariff formula called Performance-Based Rate-making (PBR) was implemented by the Energy Regulatory Commission (ERC), MERALCO only made an annual net profit ranging from Php3 to Php6 billion. Under PBR in 2012, MERALCO declared a net income of Php16.25 billion. For 2013 MERALCO expects a consolidated net income of Php17 billion. NAGKAISA decried this overly-generous rate of return allowed by ERC which allowed MERALCO to earn in just one year what it used to take them 3 years to earn.

NAGKAISA also countered the MERALCO assertion that the maintenance work on Malampaya and resorting to the more expensive sources of WESM would result in a power rate increase of anywhere from Php2 per kWh to Php3.50 per kWh. NAGKAISA argues the following:

• · The scheduled maintenance of Malampaya and other plants should or was already imputed in the MERALCO rate. If MERALCO management did not prudently build this into their rate then the owners and management of MERALCO should bear the loss, not the consumers. The maintenance was scheduled way ahead of time and the cost consequences should already have been placed in the power supply agreements which MERALCO entered into.

• If there is a forced outage, MERALCO and the power producers First Gas (Santa Rita), Therma Mobile (San Lorenzo) and SPPC (Ilijan) from which MERALCO buys its power are insured against possible spikes in costs. Why is MERALCO passing the burden to consumers when there is insurance for forced outages. Again, if MERALCO did not enter into any form of insurance or contract stipulation as to who will pay for the alternative supply in case of an outage (the alternative supply in this case is WESM), then MERALCO again has acted imprudently and should bear the cost of its imprudence.

• MALAMPAYA is providing only a certain percentage of the power needs of MERALCO. Why are the entire costs of the downtime of Malampaya being borne by MERALCO consumers? How did it amount to a possible P3.50 per kWh increase?

• Why has the ERC as regulator not stepped-in to validate the current claims of MERALCO when there are Commission on Audit findings of overcollection in 2004 and 2007 in the generation charges of MERALCO? Does ERC take the manifestations of MERALCO and the generation players as gospel truth?

• Why has the DOE – or the Palace for that matter – not addressed the possibility of resorting to the MALAMPAYA FUND to reduce rates and to cushion the impact if indeed there is a problem not anticipated in the power supply contracts entered into between MERALCO and the generators?

THE TRUTH OF THE MATTER IS THAT CONSUMERS ARE BEING MADE TO ADVANCE WHAT THE MERALCO WILL BE COLLECTING FROM ITS INSURERS EVENTUALLY. When MERALCO entered into its supply contracts, it inputted and covered against all projected events and the cost consequences. These costs were built into the original power supply agreement and are therefore built into the rate. Further, MERALCO insured against all risks. MERALCO IS TRYING TO COLLECT FROM ITS CUSTOMERS BECAUSE IT THINKS IT CAN FOOL THEM. ENOUGH IS ENOUGH.

NAGKAISA has warned that the Wholesale Electricity Supply Market (WESM) does not and cannot work where you have insufficient supply. Given inadequate power supply, there will be no competition to drive down rates because it will be a sellers market. NAGKAISA, as a disinterested party, had already warned the government of this in its meetings with the economic cluster of the Cabinet in April and May 2013. NAGKAISA notes that notwithstanding the notable failure of WESM to bring down electricity prices in Luzon and Visayas, the DOE is currently piloting it in Mindanao where power supply is also inadequate.

NAGKAISA warns that the general public are beginning to realize that the Palace is a defender of MERALCO by its statements that there is “regularity” to the rate increase because it was “in accordance with the law.” NAGKAISA reminds the Palace that it is not for the NAGKAISA or the Palace nor the DOE to determine regularity. That is a function that clearly lies with the ERC. It is the ERC which must determine the course of action to be taken: to set the increase aside or to cushion its impact through rate increases staggered over a longer period of time.

NAGKAISA also reminds the Palace that perhaps something is deadly wrong with the EPIRA Law and that it is time to take a second hard look on how to ensure affordable power and supply that is reliable. We reiterate our call for the creation of a Presidential Task Force to bring down power rates. The Palace should talk to disinterested parties – not the power cartel.

Finally, NAGKAISA reminds the Palace that if in its fight against corruption, it brought down an Ombudsman and a Chief Justice, it can certainly do something about a certain ERC Chairperson named Ducut. Consumer and labor representation in the ERC is long overdue.