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Collusion eyed in power rate hike

DOE to identify, punish culprits

The Department of Energy is looking into a possible “collusion” among power plants that suspiciously shut down almost simultaneously last month that resulted in Manila Electric Co. buying a more expensive supply from the spot market and charging consumers P4.15 per kilowatt hour, its biggest rate increase. INQUIRER FILE PHOTO

The Department of Energy is looking into a possible “collusion” among power plants that suspiciously shut down almost simultaneously last month that resulted in Manila Electric Co. (Meralco) buying a more expensive supply from the spot market and charging consumers P4.15 per kilowatt hour (kWh), its biggest rate increase.

The huge power rate increase has drawn the ire of Meralco customers already reeling from higher prices of cooking gas and petroleum products. The rate increase is equivalent to an additional P830 for households using 200 kWh a month.

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At the hearing of the House committee on energy, Energy Undersecretary Raul Aguilos said Meralco was supposed to charge only an additional P1.58 per kWh to accommodate the scheduled shutdown from Nov. 9 to Dec. 9 of the Malampaya natural gas pipeline based on the available alternative power generators during the period.

But Aguilos, a province mate of Energy Secretary Jericho Petilla, said the rate increase “spiked” to  P4.15 kWh or nearly three times what the government had expected when several power plants that were supposed to take up the slack for the Malampaya shortfall were shut down during the period.

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Study, observation

“That’s why we came up with a study, an observation of our own. There were unplanned outages in several plants, like Sta. Rita, San Lorenzo, Pagbilao, Masinloc, Gen Power, Calaca and Ilijan,” Aguilos said.

The energy undersecretary was referring to the 1,000-megawatt (MW) Sta. Rita and 500-MW San Lorenzo power plants owned by First Gas Power Corp. (First Gen); the 1,200-MW Ilijan plant of Kepco Philippines Corp.; the 730-MW Pagbilao power plant of Team Energy Corp.; the 600-MW Masinloc power plant of AES Philipines; and the 600-MW Calaca power plant of DMCI Holdings Inc.

However, an official of First Gen told the Inquirer late Tuesday night that the Sta. Rita, San Lorenzo and Ilijan plants had planned outages since they are powered by Malampaya gas.

By running on liquid fuel, the three plants somehow eased the shortage, the official said.

The official clarified that unplanned outages were made by the power producers who were selling to the Wholesale Electricity Spot Market (WESM).

Aguilos said Meralco was forced to buy more expensive power from WESM, where power producers sell excess power to the highest bidder.

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Aside from buying from WESM, suppliers were also forced to buy diesel and other more expensive fuel to make up for the Malampaya shutdown, Meralco president and CEO Oscar Reyes said.

ACT Teachers Rep. Antonio Tinio said the supply that Meralco was buying from the WESM accounted 70 percent of the rate hike.

‘Predatory behavior’

“This seemingly absurd situation points to a massive failure on the part of government, particularly the Energy Regulatory Commission (ERC), to regulate and protect the public from the predatory behavior of a handful of power producers, who were able to dictate the price of electricity sold in the WESM,” said Tinio.

Tinio cited three power producers for dictating the price of electricity in the spot market from Oct. 26 to Nov. 25—the Limay Plant of Millennium Holdings Inc. owned by businessman Mike Valencia; and Therma Mobile and Bauang Diesel Power Plant of the Aboitiz Group.

The ACT Teachers lawmaker noted that from an average of P13.74 per kWh before the Malampaya shutdown, the spot price skyrocketed to an average of P33.22 kWh over the last four weeks.

“The predatory behavior is best illustrated by the behavior of the Aboitiz group’s Therma Mobile during this period. Initially, it had a short-term contract with Meralco to provide 234 MW of electricity at a cost of P8.65 per kWh.

“However, Therma Mobile delivered only 100 MW of power at this price and chose to sell the rest of its capacity on the WESM, resulting in the jacked-up prices,” Tinio said.

He said another indicator of price manipulation was the report of Philippine Electricity Market Corp., which administers WESM.

The report said electricity was being sold at the bid cap of P62 per kWh even during periods of low demand, such as Sundays and holidays.

‘Penalize culprits’

“These were actually the major reasons, factors, why such a spike happened, because these were not anticipated. That’s why the [energy] secretary would want this investigated to identify the culprits and penalize them,” Aguilos said.

Bayan Muna Rep. Carlos Zarate said that the timing of the shutdown of power plants was “unnatural” and “fishy” because it was when Malampaya was conducting its scheduled maintenance.

“The power players are obviously operating as a cartel and Meralco is its collector,” Zarate said.

Senate probe

Senators also want to find out whether there’s a conspiracy among power producers.

“There was a sudden shortage. I don’t know but we should investigate why all of a sudden many plants went down. That’s too much of a coincidence,” said Sen. Sergio Osmeña III, the chair of the Senate committee on energy.

“We should find out whether there is a collusion,” Osmeña said.

He said that he had proposed “a year and a half ago” a P30-per-kWh cap on the electricity offered by generation firms on WESM.

“The cap of WESM is too high at P60. We should bring that down,” he said.

Sen. Antonio Trillanes IV, chair of the Senate committee on national defense, has formally sought an inquiry into the record increase in electricity cost through Senate Resolution No. 411.

“Republic Act No. 9136, or the Epira law, was enacted in 2001 to implement reforms in the energy sector, including the assurance of the quality, reliability, security and affordability of the supply of electric power in the country,” Trillanes said.

“However, the proposed increase in the generation cost of Meralco runs counter to this purpose of the aforesaid law. Added to this problem are the reports of the alleged collusion among power plants and the unusual number of power outages during the Malampaya shutdown, which put into question the validity of the said proposal,” he added.

ERC role

Sen. Ralph Recto, a former chair of the Senate committee on ways and means, wants to know whether the ERC was still being true to its mandate to protect consumers from unwarranted power price hikes.

“Every year, there’s a maintenance shutdown. But it is only now that I see this high a spike in the electricity rate,” Recto said.

“Does the ERC have the power to look into this matter? I think it has,” Recto added.

Interest penalties

At the House hearing, Reyes, former chair of Shell Philippines that built the Malampaya gas production line, said that Meralco could not heed the lawmakers’ request to defer the rate hike because every day of delay would mean interest penalties.

Reyes said this was the reason Meralco, the country’s biggest power retailer, could not discount the possibility that it would seek a rate increase to refund the staggered implementation of the rate adjustment.

Use of Malampaya Fund

He suggested that the government focus on encouraging the construction of additional power plants to ensure more supply.

The last power plant built in the country was 13 years ago, according to the Meralco CEO.

This led some lawmakers to propose that the P130-billion Malampaya Fund, royalties of the government from the natural gas extracted off the western coast of Palawan province, be used to build the power plants.

Reyes estimated that a 135-MW plant would cost $275 million, or P12 billion each.

He reiterated that Meralco only earned 17 centavos for every peso that it collected from its 5 million customers, with the balance going to power generation firms.

Reyes said it had not changed its distribution rates.

Asked about the possible collusion among power producers, Joe Zaldarriaga, Meralco public information office head, said, “We will leave that up to Congress and the agencies concerned” to investigate the matter.—With a report from Riza T. Olchondra

 

Originally posted: 8:02 pm | Tuesday, December 10th, 2013

 

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TAGS: Business, Department of Energy, Electricity production and distribution, electricity rate hikes, Energy Regulatory Commission, government investigation, Manila Electric Company, Oscar Reyes, Raul Aguilos
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