The Freedom from Debt Coalition (FDC) denounces the unjust settlement agreement forged between Meralco and Napocor last July 15, 2003 wherein Meralco has to pay Napocor a net amount of P20 billion. The agreement explicitly states that this amount will be recovered from the consumers.

This agreement punishes the hapless consumers who have long suffered these high electricity rates. Why penalize us, consumers, when we were not party to the contracts entered into by Meralco? We were neither consulted regarding these expensive power contracts of Meralco with its independent power producers (IPPs) nor did we agree to these power contracts.

Ironically, rather than penalize, the settlement agreement rewards the offender - Meralco. The distribution utility stands to gain from the agreement while consumers are the clear losers.

This agreement is another proof of how convenient it is for Meralco to get away with its breach of contract at the expense of the consumers. Meralco's actions have greatly contributed to making our electricity rates the highest in the country, and the second highest in Asia:

1. Meralco's unilateral decision last year to reduce the volume of energy it was taking from Napocor, resulted in the increase in the Purchased Power Adjustments (PPA) by Napocor, thereby increasing also the PPA collected from the consumers.

For the first quarter of 2002 alone, energy sales by Napocor reached a level of 7,324.7 GWh, declining by 18.6% relative to the 2001 level. In Luzon, the reduction in sales reached almost 25% year-on-year as Meralco's IPP, Sta. Rita, started commercial operation. The reduction in NPC's sales to Meralco during that quarter relative to the year-ago level totaled to 1,743.8 GWh - equivalent to a decline of 32.9 per cent. With San Lorenzo power plant now on stream, Napocor's sales have further decreased, thus resulting in increased PPA of Napocor.

The considerable decline in Napocor's energy sales has put pressure on Napocor to increase its effective selling rate, particularly on its Purchased Power Adjustment Cost (PPCA) and foreign exchange (Forex) portion of its PPA. Meaning, the lower the volume of energy sales of Napocor, the higher the PPA.

2. Now, that Meralco has to pay Napocor for the unconsumed contracted energy, the only way Napocor can recover its claims from the former is through charging this to the consumers.

According to the settlement agreement: "Twenty billion fifty million and 00/100 (P20,050,000,000.00) ONLY to be recovered from MERALCO customers and settled with NPC."

3. By allowing Meralco to dispatch its IPPs - QPPL, Sta. Rita and San Lorenzo - at their respective contracted Minimum Electrical Quantity (MEQ), equivalent to "take-or-pay", the agreement tolerates the high cost of electricity rates of Meralco's IPPs. The average rate of Meralco's IPPs is P4.21/kwh compared to Napocor's P2.46/kwh, a difference of P1.75/kwh being charged to the consumers.

Sec. 2.1. of the agreement states: "NPC shall allow MERALCO to dispatch its Independent Power Producers, namely, Quezon Power, Sta. Rita and San Lorenzo, at their respective contracted MEQ levels in order to minimize its (Meralco) Power Purchase Adjustments (or its equivalent) to its customers."

This recognizes, in effect, the fact that Meralco's IPPs have bigger PPAs.

The agreement does not push Meralco to reduce the electricity rates it had contracted from its expensive IPP contracts. Instead of compelling Meralco to reduce its electricity rates by either scaling down its contracted energy or by reducing the electricity rates of its IPPs, the agreement has legitimized these burdensome power agreements. Majority of these power agreements are with Meralco's sister companies.

4. Consumers will again face another petition for rate increase that Napocor will likely file at the ERC as the agreement would result in additional losses to Napocor. The P1.51/kwh rate for the undrawn electricity is P0.95/kwh lower than the P2.46/kwh rates that ERC allowed NPC to charge Meralco. This would result in an estimated loss of P17.3 billion for the unconsumed electricity amounting to 18,222 GWh.

Even taxpayers stand to suffer from this agreement. As Napocor has incurred additional losses, its capacity to pay its financial obligations to its creditors diminishes further. To address this, it would have to acquire additional loans guaranteed by the government.

While the government and Meralco have repeatedly made pronouncements that they want to bring down electricity costs, their actions speak otherwise. The government, having the majority share in Meralco, should show resolve in truly bringing down the cost of electricity. It must thoroughly review the contracts of Meralco and work towards reducing its costs which should not be at the expense of the consumers.

Further, we call on the Energy Regulatory Commission to disapprove this lopsided settlement agreement. In stead, it should also compel Meralco to reduce its rates by bringing down the cost of its IPP contracts.


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