Profit-first policy of state firm slammed | Inquirer News

Profit-first policy of state firm slammed

/ 02:35 AM January 23, 2014

Lawmakers are urging regulators to throw the book at the state-owned Power Sector Assets and Liabilities Management Corp. (PSALM) for choosing profitability over public interest in refusing to help Manila Electric Co. (Meralco) cope with its supply shortage during the Malampaya shutdown.

At Wednesday’s resumption of the House committee on energy’s probe of the alleged collusion among power industry players that led to the spike in power prices, PSALM president Emmanuel R. Ledesma Jr. said its 620-megawatt Malaya thermal power plant did not make an offer on the spot market during Malampaya’s shutdown from Nov. 11 to Dec. 10 last year.

Ledesma said that selling power on the Wholesale Electricity Spot Market (WESM) would hurt the firm’s bottom line and that the additional cost would just be passed on to consumers as part of the universal charge.


He told lawmakers that when he was appointed in 2010, his marching orders were to improve PSALM’s financial records and to avoid pushing the debt-saddled firm into a deeper hole.


PSALM was created as a result of the Electric Power Industry Reform Act (Epira) 13 years ago to manage, privatize and dispose of all existing generation assets, liabilities, real estate and other resources of National Power Corp.

Stop-gap measure

Energy Secretary Jericho Petilla said the Malaya plant was retained by government as a stop-gap measure in any supply shortfall.

But because of its slow start-up period (it needs 13 hours before it can run), the government has used it for base-load supply.

Petilla said the government had asked the Malaya plant to be prepared if there was no adequate supply during the maintenance shutdown of the Malampaya gas pipeline.

“They (PSALM) actually bid [on the WESM] but it did not dispatch any power,” said Petilla. “We have a must-offer rule for all power plants and somebody did not.”


A number of power generating plants also shut down while the Malampaya gas pipeline was offline, creating a shortfall of almost half of the average 6,000 MW that Meralco provides its customers.

The shortfall forced Meralco to buy expensive supply on the WESM and to pass on the higher cost to its 5.3 million customers.


Petilla said he was puzzled why Meralco had sought a lower rate hike during Malampaya’s shutdown in 2010 when the power supply then was much lower than it was when it went off grid late last year.

ACT Teachers Rep. Antonio Tinio said: “It appears that PSALM violated WESM rules in deciding not to make offers for Malaya’s available capacity. That’s a matter for ERC (Energy Regulatory Commission) to deal within its capacity as market regulator.”

Bayan Muna Rep. Neri Colmenares said that PSALM should have set aside its profit motive and influenced the spot market by bidding at a much lower price than the other players to protect the public interest during the shortage in Meralco’s supply.

Rather damning

“We are not asking you to take a loss but couldn’t you just make a bid lower than the others and keep the losses reasonable?” Colmenares asked.

He said the public was counting on PSALM and other state entities to temper the power price spike during the shutdown.

Akbayan Rep. Walden Bello said this was rather damning because PSALM was obligated by law to make an offer, no ifs, ands or buts.

“It also raises the issue of whether PSALM could have been part of a collusive act. The concatenation of events theory behind the simultaneous outages is becoming less and less credible,” he said.

Bello said PSALM should be included in the Department of Justice’s probe of the alleged collusion in the industry along with other power generators, Meralco and the ERC.

“PSALM’s justification—it wished to avoid greater indebtedness by running Malaya at a loss—highlights another problematic provision of Epira, which allows stranded costs to be passed on to consumers through the universal charge,” Tinio said.

Tinio said that this debate on whether Malaya should have run its power during the critical supply period “highlights the role that a government-run power plant can play in stabilizing electricity prices and protecting consumers from price spikes.”

Lawmakers also scored the ERC, led by its chair Zenaida Cruz-Ducut, for dragging its feet in investigating whether market players had colluded to jack up power prices that led to Meralco’s petition to increase its rates by P4.15 per kilowatt-hour, a record increase.

The ERC approved the increase but the Supreme Court last month issued a temporarily restraining order.

In its preliminary report submitted to Congress, the ERC declined to provide details of its probe for fear of being accused of prejudging the case.

In its report, the ERC noted that the supply situation from Oct. 26 to Dec. 25 last year was affected by “plant outages and nonoffer by plants” that led to sky-high prices on WESM.


Colmenares dismissed the report as a prelude to a “whitewash” of the collusion.

“The ERC failed in coming up with its long-delayed report and its findings are more of a cover-up. It is not unreasonable to suspect that they would eventually say that there was no collusion or price manipulation,” he said.

Colmenares said the investigation should be undertaken by other agencies, including the justice department since there were charges of crime in restraint of trade.

“[The ERC] findings are nonfindings and they should be removed by President Aquino for dereliction of duty and their role as regulator,” he said.

Colmenares noted that “Malaya is government-owned but it acted like a private company that is concerned with profits and not the people’s interest.”

He said the power rate would have not gone up in Meralco’s franchise area if Malaya had provided its 610-MW capacity to the power utility.

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Bello also dismissed the ERC report, saying it was “disrespectful” to Congress because it failed to provide any new finding.

TAGS: Energy, ERC, Malaya, Philippines, power plants

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