Aquino can stop the P8-B electricity rip-off

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(This column appeared on Dec. 23 but we are running it again because of an editing error. Mr. Tiglao’s regular column will resume on January 5.)

That is, if President Aquino is willing to do so, and willing to risk the ire of his corporate backers in the industry. That is, if he has the competence to do so.

The P8-billion rip-off? The super-profits a group of power generators will get as a result of Meralco’s irresponsible purchase from them in November of grossly overpriced electricity, the cost of which is passed on to five million Metro Manila consumers in their December bills.

Based on Meralco’s data, it bought in November from these firms—through the Wholesale Electricity Spot Market (WESM), 9.5 percent of the electricity it distributed, or 286 gigawatts, at an astonishing cost of P9.5 billion, or P33.2 per kilowatt-hour (kWh).

That’s 184 percent the average monthly price electricity sold at the WESM of P11.7 from January to September this year, or 326 percent the average P7.8 price since that market started in 2007.

These firms though spent only P1.5 billion (P5.3/kWh) to P1.9 billion (at P6.4/kWh) at most to produce that power, which means super-profits for them of P7.7 billion to P8 billion.

But Meralco won’t be spending a centavo for that overprice. We will, as it is passed on to our electricity bill this month and the next, with the price shooting up by 30 percent.

There are allegations that the power firms which sold through the WESM at P33 are also owned by the majority owners of Meralco, which would make it not a case of the distributor’s dopiness, but rather of predatory collusion—if they can get away with it, that is.

Meralco and the Energy Regulatory Commission so far have not disclosed what generators sold their power to Meralco at P33/kWh.

If Aquino now realizes he can’t get good advise from his Energy Secretary Carlos Petilla, whose main professional record after all is as Leyte governor for nine years, he could call on one of his top ambassadors to help out to find ways to mitigate Filipinos’ suffering, his envoy to Japan Manuel Lopez, a director of Meralco. (I wonder if Lopez briefed Aquino that his company would be spoiling Filipinos’ Christmas during their dinner in Tokyo last week.)

A big part of the blame validly falls on Meralco. It claimed that the power deficiency that required it to buy from the WESM was due to the shutdowns of several suppliers as well as of the Malampaya gas facility which provides the cheap fuel for many power generators.

But most of these shutdowns, including that of Malampaya, had been planned and scheduled when the year started, and Meralco had been duly informed.

The big question: Why didn’t Meralco prepare for this?

Meralco could have anticipated the power deficiency by buying from the WESM months ago, for delivery in November, so it would enough power instead of buying at P33/kWh from WESM. Stupid of Meralco. And we’re supposed to pay for its stupidity?

In fact, the WESM was so much in the doldrums from January to August, because the biggest buyer, Meralco, had so much power that it purchased less than two percent of its requirements from the market in these months, depressing its prices.

Obviously, the WESM companies thought that they could recover their losses for most of the year because of the bearish market by charging an atrocious P33/kWh in November. And Meralco cooperated.

Since the outrageous increase in electricity prices this month is not because of controllable factors such as a spike in oil and coal prices—the fuel for the generators—but to market failure or most probably, to the players’ collusion, Aquino can and must stop this atrocious burden on consumers and industry.

What can Aquino do?
First, it could be that all he has to do is to have dinner with Meralco’s board of directors, and especially its new chairman Manuel V. Pangilinan, who also controls the mammoth PLDT-Smart conglomerate. Pangilinan’s Metro Pacific Investments Corp. since 2012 has become Meralco’s biggest controlling stockholder.

He could tell them over after-dinner cognac: “By the way guys, you goofed big-time. Fix it fast, as your stupid price increase would be the last straw on my falling trust ratings.”

Maybe Ambassador Lopez could give Aquino tips on how to conduct the meeting, based on his experience during President Gloria Macapagal-Arroyo’s dinners with Meralco’s Lopez owners under her term, which for some reason mitigated its rate hikes at that period. (But which, I suspect, cost her starting 2005 in some kind of Empire Strikes Back plot.)

Why would Meralco care? Because electricity distribution (and of course communication) is one of the most heavily regulated industries, and here as anywhere in the world, government in so many ways can make life difficult for firms in a regulated industry.

And Aquino certainly would be justified to make Meralco’s life difficult: Why did they buy electricity from WESM at a stupid P33/kWh price? Why didn’t they prepare for the electricity shortfalls that purportedly made them go to the market?

Second, Aquino should meet with the three or four power firms which sold the electricity to Meralco at the outrageous P33/kwh price, and tell them, “please mitigate your greed, or else . . .”

To have some bargaining chips in his meeting, Aquino could bring with him a report from WESM how much each of these companies sold at the outrageous prices, and hint that reporters have been asking copies of the report. Maybe Aquino can bring with him in his meeting BIR Commissioner Kim Henares, in the way Mafia godfathers bring their top killers to important meetings.

I don’t think these firms would finance a coup d’etat if Aquino demands a win-win solution: That Meralco instead pays them the average cost of power it bought from WESM from January to October this year, plus a “bonus” for them of 10 percent.

That comes to just P12.5/kWh.

The firms make money since it cost them just P5/kWh to generate the P12.5/kWh they’d be selling Meralco. Everybody happy, except probably one or two shareholders of these firms who planned to buy Ferraris from the killing they would have done with a P33/kWh price.

Third, Aquino should ask Meralco to fire its President Oscar Reyes as well other officials involved in the purchase of power at P33 from WESM. Do we have to explain that a company president who buys something from the market at six times its average price is incompetent? And Reyes isn’t even full time as Meralco president. He is chairman of such companies as Meralco Energy, MIESCOR, MRL Gold Philippines, and even CIS Bayad Center.

Moreover, Meralco is not just any company selling widgets or doughnuts: It is a monopoly in Metro Manila, it is imbued with public interest, its decisions affect the lives of five million Filipinos. You can’t just have it run by somebody just looking at the firm’s profits.

Fourth, Aquino must demand that the Energy Regulatory Commission institute measures to prevent such colossal failure of WESM’s mechanisms.

Isn’t it obvious to explain that a rise in power prices at the WESM from P5.6/kWh in September to P13.7/kWh in October and then P33.2’kwh in November—in a period when there’s no war that erupted, no global financial crisis, no oil price spike—means a market failure, that it’s been manipulated?

There are easy, but unfair proposals made by our stupid politicians: that moneys such as the Malampaya account or the P5-billion refund Meralco still has to distribute to consumers be used to mitigate the rate increase.

But why would we use these funds to fill up the purses of these greedy power firms that sold Meralco such outrageously overpriced electricity?

But given the track record of this government, my bet is that Aquino would do absolutely nothing. Ironically, those who are most vociferous in opposing the Meralco rate hike that they asked the Supreme Court to stop it have given him a convenient excuse for his “noynoying” on this issue that affects millions of Filipinos: “Bahala na ang Korte Suprema.”