Be angry at Meralco’s rate hike

Very angry in fact—the steep electricity cost is sheer highway robbery of Meralco’s more than five million customers, most of them poor. Its audacity is shameless, executed during the Christmas season and while the nation’s attention had been nailed to super typhoon Yolanda’s horror.

Because of Meralco’s rate increase this month, a company or a small group of companies, which the firm isn’t disclosing, will generate P8 billion in windfall profits for just one month, December, and you’ll be paying for these.

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If your bill for the 400 kilowatt hour (kWh) you consumed in July was P4,501, your December bill would be about a thousand pesos more, at P5,671, the extra P1,000—your contribution to the dividends of the Philippine corporate elite.

What happened?
To simplify, Meralco bought in November about 10 percent of the electricity it distributed at three times its normal price, which higher cost it insouciantly passes to you in your December bill. Meralco claims it had to buy expensive power from the market because its regular suppliers couldn’t deliver the required volume, because many of them had to shut down.

The following are the facts.

Some 51 to 57 percent of your Meralco electric bill, depending on how much you consume, is the cost of the power the company buys from generators. The rest are such charges as distribution and transmission costs, Meralco’s profits margins, and the recovery of such expenses such as its P1.7-billion advertising budget.

The power Meralco distributes come from two sources.

First are its eight to ten regular suppliers which have supply contracts with Meralco. The second source, started in 2007 is the so-called “Wholesale Electricity Spot Market” theoretically a market which, in Luzon, consists about 50 companies that have power plants, a few distributors the biggest of which is Meralco, and about 300 electric cooperatives.

Meralco purportedly has to buy from the WESM when its suppliers are unable to provide it with the necessary power, either because they had to shutdown for maintenance and other reasons (as happened in November) or demand becomes too high, as happens in the summer season as more electricity for air-conditioning are used. Since 2007, Meralco buys an average of 5 to 10 percent monthly of its total power supply y from the WESM.

Like any market, from a fish to a stock market, the WESM is supposed to be a mechanism by which electricity is treated as a tradable commodity, and therefore its price is determined by its supply and demand.

However, as happened in October and then on a bigger scale in November, there was either a total failure of the market, or—the most logical reason—there has been a collusion between Meralco and its power suppliers.

From July 2007 to September this year, the average cost of power Meralco had bought from the WESM was P7.8 per kilowatt hour (KwH).

This, as in any market, represent some premium from the P4/kwH in Meralco’s Power Supply Agreements with six companies, and P5.5/kwh in its more expensive Purchase Power Agreements with three firms.
Despite the fact that there have been more participants in the WESM, the average price Meralco has bought from it has doubled from P5.2/kwH from July 2007 to June 2010 under President Arroyo’s watch, to P10.11 from July 2010 to September 2013, during President Aquino’s term.

And how much did Meralco bought from the WESM in November, which it will recover through your December bill?

A staggering P33.22/kWh, which is three times the average monthly price of P11.7 from January to September this year. It is the highest price ever sold at the WESM in its seven years of existence.

Meralco claimed it had to buy from the WESM because of shortfalls in the power volume its regular suppliers were contracted for, due to scheduled or unscheduled shutdowns for various reasons including the dearth of natural gas fuel from the Malampaya facility, which also closed for maintenance.

But there wasn’t such a huge shortfall in electricity supply in November to merit such an exorbitant price as the P33.22 price paid in the WESM.

Meralco’s regular suppliers in November provided 73 percent of its power needs. This was hardly different from the situation in October when its regular suppliers provided 75 percent of its electricity, and it bought 7.6 percent from the WESM at P13.7/kwh.

There was in fact a bigger shortfall in the power its regular suppliers could provide in December 2010. For that month, Meralco had to buy 12 percent of its electricity from WESM, but it paid only P7/kwH, less than fourth of the P33 it paid in November this year.

Transactions in the stock market are suspended when prices rise just 25 percent. Why didn’t the Energy Regulatory Commission step in and declare a market failure at the WESM? Was the national leadership alerted about this serious development that threatened the welfare of millions of metro Manila residents? Or didn’t it realize its impact? Or did it think, “Bahala na ang merkado.” (It’s all up to the market.)?

Why didn’t Meralco complain of an obvious market failure? Or would have its owners one way or another profit from the market failure?

I was told that only three companies through the WESM sold Meralco the 286.4 gigawatt hours of power, at an average of P33.22/kwH. How much would they have made?

The cost of power generated by these companies would be about P5.3/kwH, if we use the average price of power sold to Meralco in November by its regular power suppliers.

This means that the firms which sold Meralco power at P33.22 for P9.512 million generated their electricity at a cost of only P1.5 billion.

How much will they make when Meralco pays them, after we pay our electric bills? A staggering P8 billion, super-profits generated by 5 million mostly low to middle-income metro Manila residents, like you and me.

Three groups own Meralco: that of Manuel V. Pangilinan (PLDT-Smart), the Lopezes of ABS-CBN, and the San Miguel conglomerate. Firms owned by the Lopezes and San Miguel though are also Meralco’s regular power suppliers, with the former being the biggest supplier accounting for a fourth of its electricity and the latter, 20 percent. Other major suppliers are firms owned by the Aboitiz and DMConsunji conglomerates.

It is important to note though that these firms are also players in the WESM. A very important information the Electricity Regulatory Commission should disclose to the public: Which companies sold Meralco electricity at the exorbitant price of P33.22/kwH in November, which will be charged to us, the consumers?

The one fundamental reason for our high electricity rates is the cost of coal and oil, since we do not have the much cheaper nuclear power.

Under an incompetent government though which is impotent in intervening in a market that has failed, there has emerged an even more important factor: the greediness of the elite.