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Proof of collusion in power rate hike cited

ERC execs testify at Senate hearing
By: - Deputy Day Desk Chief / @TJBurgonioINQ
/ 02:36 AM December 19, 2013

The power generators are also players on the spot market from which Manila Electric Co. buys power at a higher rate in a possible conflict of interest, officials said on Wednesday. INQUIRER FILE PHOTO

The power generators are also players on the spot market from which Manila Electric Co. (Meralco) buys power at a higher rate in a possible conflict of interest, officials said on Wednesday.

Gaming in the spot market and shutting down without justification are clear indications of “collusion,” energy regulatory officials told a Senate inquiry into the huge power rate increase in Meralco’s franchise area that has a fourth of the country’s population.

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Meralco is collecting a P4.15 per kilowatt hour (kWh) rate adjustment from its customers to recover some P9.6 billion in power generation costs.

At the Senate hearing, Melinda Ocampo, president of Philippine Electricity Market Corp. (PEMC), said all generators were trading on the Wholesale Electricity Spot Market (WESM).

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“It’s clear there’s conflict of interest. It appears you shut down here and then you sell there; it’s higher there,” said Sen. Antonio Trillanes IV.

Later, in the nearly five-hour hearing, Energy Regulatory Commissioner (ERC) Gloria Victoria Yap-Taruc cited instances where collusion could be detected.

“If there’s gaming at the spot market,” Taruc said when asked by Sen. Alan Peter Cayetano how could the ERC determine collusion. “And if they said they should not be on outage, but they’re on outage.”

Collusion detectable

“Both are very much detectable,” Cayetano commented at the joint hearing on the possible collusion of power generators by the Senate energy and trade committees.

A preliminary investigation report by the Department of Energy (DOE) said that power plants had reneged on their commitments to fill the supply gap as a result of the scheduled monthlong shutdown of the Malampaya pipeline, causing power rates to shoot up.

The Malampaya gas pipeline was shut down for maintenance operation from Nov. 11 to Dec. 10. The power generation plants also shut down during the period, prompting Meralco to buy more expensive supply from the WESM and pass on the cost to its customers.

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The shutdown of the pipeline also forced plants that use the cheaper natural gas from Malampaya and supply power to Meralco to utilize more expensive fuel.

Unscheduled shutdowns

Those who made unscheduled shutdowns in November were Sual 1, Calaca 1, Masinloc 1, GN Power 1 and 2, Masinloc 1 and 2, and Ilijan plants, according to Meralco officials.

Sen. Sergio Osmeña III, chair of the energy committee, said no collusion has been established so far.

Actual breakdowns

“As far as I see now, there is no proof of collusion. It might turn up next week. It might turn up in the investigation of the Department of Energy, but I myself don’t see any collusion at this stage. And I have been looking for it,” he told reporters after the hearing.

He said the power generators had actual breakdowns. He doubted that a power generator would shut down a 600-megawatt plant only to allow a 100-MW plant to run.

“There was no collusion because there was no cross-ownership,” he said. He, however, said he would determine how much each generator earned.

The hearing resumes in January.

Suppliers on WESM

Trillanes requested Ocampo to submit a list of the generators that transacted on the WESM during the shutdown and “then we’ll cross-reference with the owners of the plants.”

The senator, who called for an inquiry into the power rate increase, reminded the ERC about its powers to check cross-ownership, market power abuse and anticompetitive behavior of power generators.

He specifically mentioned ERC’s powers to impose price controls, injunction, divestment and fines ranging from P50,000 to P50 million on violators, citing Section 45 of the Electric Power Industry Reform Act (Epira).

“If we have the same owner and member of the board, then we have a problem,” Trillanes said, egging on the ERC to go after violators.

Not yet final

ERC chair Zenaida Ducut said the commission had approved Meralco’s request to impose the rate increase in installments over three months, but had to review the rate increase itself.

“We will look at the P4.15 if it’s the right figure,” she said. “It doesn’t mean that the P4.15 had been approved. There’s still a confirmation process.”

Meralco president Oscar Reyes said the P4.15/kWh rate increase was composed of P3.44/kWh in generation charge plus taxes.

Of the P4.15, P2 will be collected in December, and the rest in February and in March. By the end of April, there would be an “automatic rollback,” Reyes said.

While no amount will be collected in January, Trillanes observed that Meralco appeared to be imposing an additional P2 charge next month based on estimated additional generation cost.

Instead of the P5.6/kWh normal price, Meralco is imposing P7.3 in January, Trillanes said, indicating an attempt at overrecovery.

Reyes bristled at this suggestion, saying “We take exception to that. The P3.44 is a general charge that translates to an absolute amount.”

“Once we have recovered the absolute amount, we wish to assure your honor that there’s no single cent overrecovery. We will simply recover the absolute amount,” he added.

Who profited?

Sen. Ralph Recto, for his part, wondered who profited from the close to P10 billion that Meralco was seeking to recover.

“Let’s look at WESM. Who turned off the power and switched it on? Are they relatives?” he wondered, pointing out that P6 billion of the amount would go to the power producers on WESM.

“The power rate was increased by P10 billion. That means somebody profited from the P10 billion,” he said. He batted for the establishment of a regulator of WESM as an amendment to Epira.

Ocampo said that 31 power generators were registered with the PEMC, but clarified that the body was merely administering the spot market.

Tripartite committee

Energy Undersecretary Raul Aguilos said the tripartite committee composed of the DOE, ERC and PEMC had until the end of the year to complete its investigation of the alleged collusion.

If there was a finding of collusion, Recto said the rate increase should be suspended.

Since there are two billing periods, from November to December, and then from December to January, Recto wondered how much Meralco would charge for “underrecovery.”

Would it range from P5 billion to P10 billion?

Reyes replied: “I don’t think it’s prudent to discuss that. We’ll advise your honor.”

RELATED STORIES:

No proof yet of collusion among power producers – Osmeña

Recto urges gov’t to suspend power rate hike

Collusion angle in power rate hike bolstered

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TAGS: Collusion, Energy, MERALCO, power rate hike, Probe, Senate inquiry
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