MANILA, Philippines--Government Service Insurance System president Winston Garcia looks like a man getting ready for war as he prepares for a proxy fight at the Manila Electric Co.'s annual stockholders' meeting on Tuesday where he could either lose his seat on the board, or end up in control of the country's biggest power distribution utility.

Garcia said the soliciting of proxies could result in a reduction of the government seats at the 11-member Meralco board from four to three, with him as the probable casualty.

Garcia said it was apparent that the utility's rates could go down only with a change in the Meralco's management team.

He said this would be his objective at the shareholders' meeting on Tuesday when a new board would be elected.

But Garcia has accused the Lopez group of "engaging in dirty tricks" by soliciting proxies even after the deadline for this had lapsed last week.

Meralco vice president Elpi Cuna said this was "not only irresponsible but downright false."

"It was and will never be the policy of Meralco management to engage in dirty tricks," said Cuna, Meralco's director for corporate communication.

The government "needs the four seats to establish a quorum as well as a majority [with the help of two independent directors]," said Garcia who has been waging a media war against the Lopez group's management of Meralco.

'Abusive practices'
Garcia said that his aim was to change Meralco's management team whose "abusive practices" were the reason why electricity rates were the highest in Luzon and even in Asia.

Garcia said his GSIS team was watching the developments leading to and during the annual meeting.

He said he would be bringing eight lawyers to face off with Meralco's "40 lawyers."

"If we see that we have been wronged, we are ready to take them to court. A lot of people could go to jail," he said.

In a slide presentation, Garcia showed what these abusive management practices were. He said that while Meralco charges its residential customers P9.64 per kilowatt-hour, the country's next-largest private power distributors like the Visayas Electric Co. bills consumers P6.92 and Davao Light & Power Co. P6.44.

While Meralco charges its large-consuming customers P8.09 per kWh, Veco bills its own large users P6.50 and Davao Light P5.87.

"Meralco's business account for 60 percent of all kilowatt-hours sold in the country and it has some 4 million customers. In terms of client base, that is 10 times the second-largest utility in the country (Veco)," he said.

"With such economies of scale, Meralco should be charging 20 percent to 30 percent lower than the other utilities" but it doesn't because of the management's abuses, Garcia said.

Self-dealing transactions
He said the root of the problem was Meralco's "disadvantageous, self-dealing transactions" with Lopez-owned, -controlled or -affiliated corporations.

He cited Meralco's supply contracts with two independent power producers which he described as the "the most disadvantageous" IPP contracts in the country.

He was referring to two power plants, the 1,000-megawatt Sta. Rita and 500MW San Lorenzo, in Batangas which are owned by First Gas Power Corp. and FGP Corp. The latter two companies are the generation subsidiaries of First Gen Corp., the primary holding company for the power generation and energy-related businesses of the Lopez group.

Manipulative purchasing
"To give the illusion that the Lopez IPPs charge lower than the [state generator] National Power Corp., Meralco buys from Napocor at peak hours," he said.

He said the electricity supplied by the First Gen plants was priced at a take-or-pay rate of P4.25 per kWh.

"Napocor's peak hour rates are higher than that, but at off-peak hours [Napocor's] prices range between P1.87 and P2.719 per kWh," Garcia said.

"Despite that, 80 percent of Meralco's purchases from Napocor is done at peak hours," he said.

"This manipulative purchasing is against the law, which says that purchases should result in the least cost (for consumers)," he said.

Garcia also denounced other abusive practices by the Meralco management, such as the creation of several subsidiaries in order to disguise or mask the purchase of overpriced goods and services. These subsidiaries are involved in engineering, contracting and consulting services, metering products and services and insurance.

Benpres P328-M debt
He also deplored the Meralco management's "subservience to Lopez interests," citing, among others, "the settlement of Benpres' P328-million obligation to Meralco through conversion of undervalued shares of stock," and Meralco management's entering into a joint venture with Benpres and First Philippine Holding Corp. (FPHC) for the development of Meralco's Rockwell property.

Benpres Holdings Corp. is the Lopez family's holding company for its investments in broadcasting, entertainment, cable, television, power generation and distribution, infrastructure, real estate development and health care delivery.

FPHC is another Lopez group holding company with investments in power and tollways, property and manufacturing.

Meter, bill deposits
Garcia also accused the management of having "no sense of accountability," for allegedly appropriating its customers' meter and bill deposits for other purposes without proper authority. These deposits totaled P14.09 billion in 2007, with accumulated interest of P7.31 billion.

Finally, Garcia accused management of having made no serious effort to curb systems losses and deplored the lack of transparency on how these systems losses were incurred. He said the losses have been steadily increasing, from P15.8 billion in 2005, to P16.4 billion in 2006, to P17.31 billion in 2007.

Jesus Francisco, Meralco president and chief operating officer, denied Garcia's accusations at a hearing earlier this month of the Joint Congressional Power Commission.

Flat rates
Francisco told senators and congressmen that under contracts with both the Napocor and IPPs, Meralco was being charged a flat rate regardless of the time of day when the purchases are made.

As for purchases made outside these contracts or through the wholesale electricity spot market, Francisco said Meralco was forced--during times when supply was scarce--to buy at a clearing price of as high as P20 per kWh.

"Our supply-demand profile is made 24 hours in advance. As a price taker, we are not sure where the power will come from," he said.

Cuna said Garcia's "habit of spewing false information about the company" was dampening investor confidence. He said it has brought down the price of Meralco shares, which fell Friday to a new one-year low.

Meralco shares closed at P64 Friday, down P3 or 4.48 percent from the previous P67 a share.

Garcia said that with a new management that is responsible and accountable to consumers, he would push for Meralco to buy as much as 90 percent of its supply needs from Napocor and at off-peak hours.

Politician's promise
While this means putting the Lopez-owned IPPs out of business, Garcia's data show that Meralco rates could go down by a range of P1.531 to P2.38 per kWh.

Cuna said Meralco is not against lowering power rates.

"We are one with him (Garcia) or anyone in reducing power rates. The question is how," he said.

Cuna said Garcia's suggestion to replace current management in order to lower power rates sounded like a "politician's promise."

"Any change in management will be decided by shareholders. They have the last say," Cuna said.

Meralco treasurer Rafael Andrada meantime explained that salaries, wages, overhead costs and systems losses of Meralco are included in an average distribution charge of P1 per kWh, which is the amount Meralco earns from consumers equivalent to its service fee.

A 20-percent reduction in the power rate as suggested by Garcia would mean a reduction by P2 per kWh. "Where will the balance of another P1 come from?" Andrada asked.