CRISIS AHEAD: Aquino inutile in stopping power hikes

President Aquino’s administration is inutile in stopping the surge in Meralco electricity costs.

Consumers have been spared from paying their atrocious bills only because the Supreme Court issued a 60-day temporary restraining order on December 20 against Meralco’s rate hikes, in response to suits filed at the court that the price increase was unconstitutional.

However, because of the bungling by the Aquino government in its regulatory role over electricity prices, either way the Supreme Court rules on the suit, the country faces an electricity and even possibly a financial crisis.

The surge in Meralco’s electricity rates in our December bill was due to the fact that in November it bought from the so-called Wholesale Electricity Spot Market (WESM) 9.5 percent of the power it distributes to its customers at an astonishing price of P33 per kilowatt hour (kwh) for a total cost of P9.5 billion. (The cost of WESM-bought power is added to that of the electricity Meralco purchases from its regular suppliers to make up its total generation cost, which accounts for about 45 percent of your electricity bill.)

“Astonishing” since the average price of such WESM-bought power by Meralco since that market was created in 2007 was just P8/kwH, in October the price was only P14/kwh and in November, P6/kwh.

Several reasons for Meralco’s expensive purchases have been advanced: a supply shortage due to the shutdown of several power plants; generators’ more expensive costs due to the maintenance shutdown of the Malampaya facility that produces the cheaper natural petroleum gas fuel; and collusion by the power generations among themselves or by the power generators and Meralco. .

What has been proven to be a major factor for the shortage was the boo-boo by Energy Secretary Petilla in not ordering the government-owned Malaya plant to produce electricity, which could have eased up the shortage (see my column on this on Friday Jan. 17, 2014.) A senate hearing conclusively proved this to have been the case, that even pro-administration senator Sergio Osmena III angrily asked for Petilla’s resignation, saying “If he can’t understand (the electricity industry ) until now after one-and-a-half years as energy secretary, I suggest that he resigns.”

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And guess what?
After all the Senate hearings and public furor over the issue, after the Energy Regulatory Board announced that it would put a P32/kwh price cap on bids at the WESM, Meralco bought from the market in December at P36/kwh, the highest ever.

And this is at a period when Malampaya’s maintenance shutdown—that everyone was blaming for the spike in WESM prices in November—ended December 10. The share of WESM-bought power to its total power purchased even increased from 9.5 percent in November to 14.1 percent in December.

Already shouted at by everyone to stop a repeat of Meralco’s purchases of expensive electricity in November, Aquino’s government did nothing in December.

Crisis ahead
Because of the Aquino administration’s bungling in overseeing the power industry, we could be on our way to an electricity or even a financial crisis.

If the court rules that Meralco’s increases are legal, our electricity bills for the next few months will soar, as the company will pass on the high cost of its power purchases from the WESM for November and December to us consumers.

To collect the cost of the electricity it distributed in December and January which the Supreme Court stopped, Meralco would charge us P21/kwh, or nearly double the P11/kwH it has been charging us in the past two months.

Even if Meralco allows consumers to stagger the payment, this would only spread out the huge cost of our electricity. Correct that: Not only huge costs of electricity used in “our” homes but huge costs especially for our industries, which already have been suffering the highest power costs in Asia.

On the other hand, if the Court rules these as unconstitutional and bars Meralco from implementing the increases, Meralco would have to pay the power generators at least P16 billion, representing roughly the unpaid cost at the price it agreed to when it bought the power at WESM in November and December.

But Meralco won’t recover these costs precisely since it would be banned from passing these on to consumers.

That would be such a shock to Meralco that it could even trigger its financial crisis. The firm has billions of pesos in short-term liabilities, which debtors could call in, fearing that it couldn’t be able absorb that P16 billion payment to the power generators.

And what happens if Meralco tells the power generators it can’t pay them the power it purchased from them? Some of them would likely declare bankruptcy, as they also borrowed money to buy the fuel it used to generate the power, and shut down.

What would that mean? Meralco would be unable to provide at least some 10 percent of the electricity demand, especially for peak hours.

What would be the consequences? Brownouts that will devastate the economy as much as, or probably worse than, during the administration of Aquino’s mother Cory.

How did we come to this? In one word: Incompetence.