Meralco’s additional power from NPC: Too little, too late, and useless

The Freedom from Debt Coalition (FDC) today criticized the move of Meralco to source an additional 1,020 gWh electricity from the National Power Corporation (NPC) in an attempt to decrease power rates in this month's bill, saying it is "too little, too late, and useless."

FDC said that prior to the additional supply from NPC, Meralco was sourcing more than 25 percent of its power requirements from the wholesale electricity spot market (WESM) which has a higher generation rate than NPC. Meralco now sources 47 percent of its electricity supply from its independent power producers, 38 percent from NPC, and 15 percent from the wholesale electricity spot market.

Too Little
According to FDC, the additional supply from NPC beginning July this year is not enough to significantly lower electricity rates and bring back to the May or June level, before Meralco customers were charged with an additional P1.25/kWh rate, the cost of electricity.

In November 2006, Meralco and NPC entered into a five-year transition supply contract which locks the distribution utility to source up to 20 percent of its requirements from NPC at time-of-use rates. According to ERC, any excess consumption will make Meralco pay NPC an additional premium over and above the agreed contract energy charge plus other adjustments.

Prior to the additional supply sourced from NPC, more than 25 percent of Meralco's power supply requirement was sourced from WESM. In August last year, WESM's clearing price reached P10/kWh, almost 500 percent increase from its price in June. Investigation conducted by the Market Surveillance Committee of the Philippine Electricity Market Corporation revealed that the increase was brought about by price fixing/manipulation by the Power Sector Assets and Liabilities Management Corporation (PSALM), a major trader at WESM.

On August 1 this year, WESM's clearing price reached its highest so far, P54.965 per kWh for the Sual plant, almost breaching the P62 price cap at WESM.

"Given the high price trend in WESM, 15 percent is still a huge amount of electricity to be sourced from the spot market," said FDC.

Too Late
The coalition explained that Meralco acted too late in averting the increase in electricity charges of the consumers. "The damage has been done! It knew that prices in WESM are high yet, it continued to source more electricity from there than from the lower-priced NPC until June this year," said FDC.

"In one year of WESM's operation, only the first two months resulted in lower prices. This happened when WESM started in June and when Gloria Arroyo delivered her State of the Nation Address in July last year, announcing a reduction in power rates. Generation rates in WESM after that shot up to 500 percent or higher," FDC continued.

"Many consumers had already suffered from high generation charges since last year and the recent blow was the P1.25/kWh increase in our electricity bills last July," FDC added.

Useless
According to FDC, the alleged reason why Meralco increased the amount of electricity sourced from NPC is to protect consumers from the volatility of prices at WESM. "The bottom line is, electricity being a public utility, must be affordable and accessible to the consumers. Even the additional 1,020 gWh from NPC will not result in that," said FDC.

The coalition asserted that electricity rates in the country will remain high, even one of the highest in the world, as long as the debts and liabilities of NPC and of PSALM are not truly addressed such as the cancellation of onerous contracts with the independent power producers (IPPs) of NPC, audit of all other debts of NPC, and stopping payments to those debts found to have not benefited the public and have been due to the onerous transactions/contracts. More increases in electricity rates will be experienced by the consumers in the coming months as an estimated $9.1 billion worth of NPC debts and PSALM deficits due to power purchase obligations to IPPs will be accumulated by year 2010.

The coalition also reiterated that as long as the Electric Power Industry Reform Act (EPIRA) exists, consumers will continue to suffer from high power rates. It claimed that EPIRA is designed to the anti-people profit-making scheme of power corporations like Meralco.

"EPIRA allows anti-consumer rate setting methodologies as excessive profits by utilities are assured. Meralco now rakes in a profit equivalent to more than 15 percent of its return on rate base. EPIRA also allows cross-ownership between distribution and generation, thus the Lopezes who control Meralco – the biggest distribution utility in the company servicing about 70 percent of the country's electricity needs – strengthens its hold in the industry with its share in power generation in the country also increasing. Meralco sources almost half of its electricity requirement from its IPPs," FDC said.