- Get Involved
Consolidating Consensus, Advancing People’s Struggles and Building Alternatives
The Freedom from Debt Coalition (FDC) warns that another case of corporate abuse and impunity by MERALCO is about to be committed at the expense of the long-suffering electricity consumers with the power company’s recent application with the Energy Regulatory Commission (ERC) of the so-called “interim rates” in order to remedy the company’s failure to reset its power rates and charges, as required by the ERC rules, every four years.
FDC asserts that the interim rates applied for by MERALCO in ERC Case No. 2015-112RC and its capital expense program proposed in ERC Case No. 2015-016RC are illegal, highly irregular, alarming and anomalous.
MERALCO’s interim rate application effectively undercuts and sidesteps the need and process for the Rate Reset—an adversarial process that theoretically requires the ERC to review and approve, every four years, MERALCO’s Distribution, Supply and Metering (DSM) charge, under ERC’s own rules for Performance Based Regulation (PBR).
Members of Freedom from Debt Coalition (FDC) held a picket protest in front of the Energy Regulatory Commission (ERC) to oppose MERALCO's petition to refund from consumers worth P657 Million Under Recovery.
The MERALCO Franchise: RA 9209
MERALCO is the largest distribution utility in the country.
According to the flyleaf profile in its 2013 Annual Report, MERALCO powers 5.3 Million customers, is home to approximately 25% of the entire Philippine population, accounts for 75% of the Luzon electricity market – 55% nationwide – supplies the power needs for 50% of GDP, 60 % of total manufacturing output.
MERALCO’s sales revenue for 2013 was P298B. Market capitalization was P282B. But we hasten to add that “Equity…” was only P75.1B.
In exchange for this huge chunk of the market, the franchise requires that MERALCO must meet minimum performance standards, such as: the operation and maintenance, in a superior manner, of an open and non-discriminatory electricity distribution system; the supply of electricity in a least cost manner; the preservation of the franchise; the promotion of consumer interest.
Today, January 27, 2015 Congressional inquiry into the Electric Power Industry Reform Act (EPIRA), with various proponents calling for its repeal, overhaul and amendments, the Freedom from Debt Coalition reiterates its basic positions why it has been calling for EPIRA’s repeal, the junking of the government’s privatization policy and the public control of the power industry, among other demands towards making energy accessible, safe, sustainable, democratic and in the service of the people and the country’s need for real economic development.
Since the bill that became EPIRA was deliberated on the Congress floor, FDC has strongly opposed it. FDC has warned Congress and our people again and again, year after year, that privatization cannot deliver the promises of EPIRA. On the contrary, EPIRA would drive the power industry down to perennial crisis. Now, thirteen (13) years after its enactment, EPIRA is one big broken promise.
EPIRA’s Declaration of Policy from Policy A to K (Section 2) is in shambles. Instead of “transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability” (Section 2-C) we have the highest residential electricity rate in Asia and the fifth highest in the world and the second highest industrial electricity rate in Asia. At the rate power hikes occur in our country, we might end up having the most expensive electricity in the world.
FDC POSITION PAPER ON PNOY's EMERGENCY POWER DISTRIBUTED DURING THE HOUSE ENERGY COMMITTEE HEARING:
Recently, the head of the Congressional Energy Committee Rep. ReynaldoUmali declared that it will no longer heed the executive’s call for an “emergency powers” and will instead provide Malacañang with a set of “special powers” that includes purchasing additional capacity from generation companies but excludes the possibility of leasing the power plants. Together with the Interruptible Load Program (ILP), Umaliclaims that this will be able to address the supposed power crunch next year.
This is after the Department of Energy (DoE) was exposed of exaggerating and lying in their claims of a massive power shortage next year, presenting data which conflicts with that of the National Grid Corporation of the Philippines (NGCP) and even that of the Manila Electric Company (Meralco). In the end, the House Energy Committee was able to force it to admit that instead of a 300-600 MW supply shortage in 2015, there will only be deficit of 31MW – not even in the supply as admitted by Director Irma Esconde of DOE’s Industry Power Management Bureau during the committee hearing in congress , but only in the reserve.
The Freedom from Debt Coalition (FDC) insists that Congress should not grant even the set of “special powers”. FDC also calls on Umali to further investigate DoE’s conflicting claims on supply and, in the light of the recent admission of the Philippine Electricity Market Corporation (PEMC) that rules of the Wholesale Electricity Spot Market (WESM) had been violated by generation companies (GENCOs), look into why the Energy Regulatory Commission (ERC) is yet to release its decision on the December 2013 price manipulation case.
FDC also believes that the time has come for DoE Sec. Carlos Jericho L. Petilla – whoseservice of two full years has been characterized by the energy department’s lackluster performance, failure to stem price manipulation at WESM, PSALM’s violation of WESM’s rules, sinister attempt to bypass the law and dip his hands in the Malampaya funds, among others – toresign and for the administration to let him go. We believe, as many from government and private sector does, that Petilla is more preoccupied with politicking and protecting corporate interests.
Finally, FDC insists that only by repealing Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA) and rolling back the neoliberal agenda in the power sector through an alternative power bill will the government finally have the instrument it needs to rationally and strategically plan and manage the power sector. No amount of “emergency” or “special powers” can address the deficit of EPIRA.
Sheer Ineptness or Regulatory Capture?
That DoE has bungled big time is no longer a question. Even the House Energy Committee, which is effectively controlled by allies of the administration, has not been able to salvage its conflicting claims on data and projections.Petilla’s pathetic excuse of asserting the need to “harmonize” power sector data simply does not fly – he should have done this during his two-year stint at DoE. Umali’s “special powers”, in fact, can be seen as a mechanism with which Petilla and Malacañang can save face.The President himself already backtracked on the effort to request emergency powers, despite the continuing protestations and whimpering by Petilla .
We assert, however, that behind DoE’ ineptness is a more sinister truth. This is actually evidence of regulatory capture. We have to take note that DoE only gets its supply projections from claims private sector GENCOs and Private Distribution Utilities (DU) like Meralco. There is nothing stopping GENCOs and PDUs from colluding and reporting false claims of supplyand demand to DoE. There is also no disincentive for DoE when it fails to verify the claims correctly, or when it willingly peddles false information to favor PDUs and GENCOs at the expense of public interest.
The blunders of DoE serves as a lesson – an energy department thoroughly emasculated by EPIRA cannot be expected to be invulnerable to corporate capture and consequent predisposition to public deception. Of course, once captured by the oligopolistic and oligopsonistic private interests, DoE can no longer be expected to be truthful with its price monitoring nor its reports on supply and demand. As an energy planning agency, it is bound to fail.
Unhampered Market Collusion
FDC previously demanded that before Congress grants any kind of special or emergency powers to Aquino, it must first demand that Energy Regulatory Commission(ERC)release its ruling on a recent price manipulation at WESM trading from November to December 2013 . We reasoned that DoE’s claim of capacity shortage – which as we said can only come from the claims of private GENCOs and DUs – should be examined under the context this capacity withholding in the generation industry.
But the results of the “investigation”by PEMC – the firm that runs WESM –released last weeksmells like a whitewash: PEMC ruled that there had been violations of WESM rules indeed, but it cannot establish that anticompetitive behavior occurred.The sheer absurdity of this makes us ask: in what universe would market players willingly breach WESM rules without having an anticompetitive intent?
That PEMC should pre-empt ERC is already questionable, and makes us suspect that it is setting the stage for a cover-up. Of course, PEMC cannot rule on price manipulation – its authority is limited to establishing “breaches of WESM rules and market manuals”. It is ERC’s mandate to rule on the price manipulation. So why would PEMC even say anything on which it is not an authority on? Moreover, should there be a ruling on price manipulation, WESM and PEMC officials might be implicated. Any statement released by PEMC will only result to a conflict of interest. PEMC’s attempt to dilute the public outrage against price manipulating GENCOs is very sinister indeed.
Special powers – Still Pro-Corporate
It is in this context of thorough regulatory capture and systematic market collusion that we assert our opposition to Umali’s special powers. In the current context, we cannot see much difference from Petilla’s earlier request for emergency powers – they both favor the further entrenchment of corporate interests. Government will still have to buy capacity from the private sector, and the private sector still has the price-setting power.
As for the ILP, it is clear who stands to gain. Under the ILP, participating institutions and companies may be called upon to use their own power generating units to ease demand from the grid during peak hours, or when there is a supply deficit. The government then will offer compensation for their voluntary use of self-generating power capacity. Umali also promised that the ILP compensation will beVAT (value added tax)-free .
The corporate sector, of course, will not pass up on this generous offer of subsidy, contrary to Petilla’s claim that it will scare businesses. As of the time of writing, the Joint Congressional Power Commission (JCPC) reports that 911 MW has already been committed by private firms under the ILP. We have to remember that some of the participating retail and property developer conglomerates are already engaged in power generation anyway.
The acolytes of EPIRA riled against vertical integration of the government and championed the unbundling of the power sector. In an ironic twist, the private sector seems to have no problem doing it – from the classic case of Meralco being owned by tycoons with stake both on privatized, public utilities with high power consumption (read: MVP) and power generation (read: the Lopezes), to retail giants Ayala and SM gaining foothold on energy generation and corporatization of electric cooperatives. The lack of EPIRA provisions against cross-ownership provision has led a systematic collusion of industry players from generation to distribution, and now, to demand. ILP is just further evidence of this.
Addressing the “Deficit”
Assuming without conceding that there is indeed a reserve deficit of 31 MW, we assert that this is already solvable with the existing instruments of DoE and the executive. The most effective way is for NPC to operate its remaining power plants. We know, for instance, the deal with the Malaya Thermal power plant under the control of PSALM, which DoE itself admitted to violate WESM rules by bidding without any intention of operating. There are others, like the 728-MWCaliraya-Botocan-Kalayaan (CBK) Hydro-Elecric Power Plant, which has to be run at full capacity.
If this is not enough, then we go full blast with the proposal of FDC and the Philippine Movement for Climate Justice (PMCJ), and Social Watch Philippinesfor the 2015 budget to contain financing for renewable energy and the rehabilitation of the Agus and Pulangui Hydropower Complex . Rehabilitating the complex will provide an additional 350 MW dependable capacity. After rehabilitation, the AgusPulangui can provide for almost half of the 1,523 MW electricity demand in Mindanao by 2016.
But ultimately, the most strategic response would be to roll-back the operations of WESM. Not only did WESM fail to give credence to the neoliberal theory that creating supply markets will lead to more competition and lower prices, it has also served as the primary venue for intentional market failure – pre-planned and coordinated supply restrictions and price manipulation – and the trading center of the most expensive electricity in the country, and one of the most expensive around the world.
WESM has to be replaced with more rational allocation and regulatory system . Its subsequent implementation in the Visayas and Mindanao must be put to a full stop. This will ensure that there will no longer be any incentive to withhold capacity, whether through financial (false bidding) and physical (supply constriction) means. In the interim, we can look at the current structure of the NGCP itself and demand that its Systems Operations Division (SOD) faithfully implement its mandate of rational load planning and scheduling.
Participatory Power Planning towards Energy Democracy
The strategic response would always be the repeal EPIRA and give the state not just “emergency” or “special” powers on the power industry, but to give it the full set of instruments to strategically plan energy development and effectively manage energy demand in a democratic setup. In this way, the public through the state can overpower the machinations of the power industry players. If we add institutional mechanisms from transparency and accountability, an empowered energy agency will be relatively immune to regulatory capture.
But at the interim, we are facing a Congress reluctant to repeal this legislative failure and an executive thoroughly infiltrated by people whose interests are linked to that of corporate players. Repealing EPIRA might be a good start, but there are immediate was to move forward to energy democracy now.
We can, for instance, “devolve” some of the power planning functions to level of the community.Taking off from DoE’s mandate to conduct regional planning processes and the government experience with participatory planning , we can replicate the experience of Panay Multi-Sectoral Development Planning (MSPDP) process. MSPDP is a transparent and bottom-upprocesslaunched in Western Visayasdesigned to give peoples participation in the industry’s priority-setting.
Panay MSPDP is also a demonstration that a grassroots process can have the technical rigor practiced by the corporate sector or the state in energy management. MSPDP, in fact, exercised all the components of effective strategic planning: load modeling and forecasting, generation capacity planning, reliability analysis , generation resource, risk and capacity expansion modeling, determination of required baseload and intermediate and peaking plant capacities . A comparison of DoE projections of demand growth for Western Visayas at that time, and that of the MSPDP, shows the latter to be closer to actual demand.