Leave Meralco alone!

By J R Ruaya

Energy and Chemistry Consultant

It started with an apparently innocent query by Winston Garcia, GSIS administrator and government representative to the board of Meralco, for certain documents from Meralco. The government is after all, a significant shareholder of Meralco with a combined stake of about 33%.

“It is not about ownership, says GSIS chief Winston Garcia. It is about transparency and proper governance of Meralco,” rues Garcia. Garcia has been asking Meralco management to furnish him copies of the company’s financial and operational documents.

Christian Monsod, Meralco director and consultant to the chairman, said that the management has repeatedly invited Garcia to review the documents he has requested at the company premises anytime during office hours and has even provided him copies of certain requested documents.

“All directors have a fiduciary responsibility to balance the interest of the demanding shareholder against the interest of the corporation as a whole and all other shareholders,” Monsod earlier said. However, Garcia said he wants copies of the “volumes and volumes of documents.”

“I want to study the volumes and volumes of documents. I want my own copies. I don’t want to just view the documents,” Garcia snapped back.

Carmen Pedrosa, a GMA supporter, in her Philippine Star May 4 column, fully agrees. Garcia's smoke signals drifted rapidly to Malacanang, who went into the offensive, citing Meralco for mitigating the high cost of electricity to the consumers. Specifically, Meralco is accused with buying electricity form the wholesale market (WESM) at peak hours when the prices are generally high.

And to pull the rug under Meralco, the President ordered Napocor to cut by half its charges to Meralco, apparently to pressure the latter into cutting its own rates.

This time there will be no excuses, the Palace resident warns, who said that Napocor's rates are often cited by Meralco as their basis for charging its customers.

She also directed the Department of Trade and Industry to file four petitions with the Energy Regulatory Commission (ERC), all aimed at pulling down Meralco rates.

The four petitions are as follows: to enjoin Meralco from buying electricity from the Wholesale Electricity Spot Market during peak hours; ensure preferential treatment for households and power-intensive industries in the distribution of TransCo (National Transmission Corp.) charges; to prohibit Meralco from charging its system loss as a separate item; and to require Meralco to charge the same rates as the Visayan Electric Co. (VECO), Cebu Electric Co. (CEBECO) or Davao Light.

Pedrosa, on the other hand, went on to rail against Meralco and the Lopezes, saying that President Arroyo not only wants lower electricity rates " but a beginning of the end of rent-seeking oligarchs". According to Pedrosa, GMA is merely continuing her father's legacy who was said to accuse the (older generation) Lopezes of “using political power and influence to promote the interests of its business empire".

”She is taking on the Lopezes for the high cost of electricity with whatever risks it involves because of powerful media and politicians in their pocket."

So the issue is not only transparency or high electricity cost, but a bitter campaign against entrenched oligarchs? This is probably stretching the rubber too much.

Napocor as the whipping boy

The President, who has a doctorate in economics, seems ill-advised on the dire consequences of her order to Napocor. Or is she just trading economics for political expediency or GMA misinformed on power economics? asks Federico Pascual in his Postscript column at Philippine Star today.

Senator Joker Arroyo, a GMA ally and one-time human rights lawyer, quickly warned the government against cutting the rates charged by the National Power Corp. (Napocor) to the Manila Electric Co. (Meralco), saying it might again leave the state-owned power firm in deep financial trouble.

He said he finds the President’s order to Napocor disturbing. “This was done in 2003 and was corrected in 2005 because Napocor lost big time and the public in the end had to shoulder the cost,” he said over dwIZ.

The suspect responds

As if to defang the recent criticisms hurled against itself, Meralco quickly responded by expressing support for the move of the National Power Corp. (Napocor) to lower power rates.

Meralco announced that the company would immediately pass to electricity consumers any generation cost reduction.

Meralco clarified that through a memorandum of agreement signed by the company with Napocor, the two firms have already been implementing an ecozone rate program that has significantly reduced the power rates of economic zone locators.

“As required by the Energy Regulatory Commission (ERC) for all distribution utilities, Meralco publishes its monthly purchased power cost data (generation and transmission cost) on its website (www.meralco.com.ph/Corporate/rates/rates.htm),” Meralco said.

Meralco data showed that the cost of power bought from independent power producers (IPPs) was lower by 30 centavos to P1 per kilowatt-hour than that purchased by Napocor.

Napocor sells power through its transition supply contracts, special programs, and the power it sells through the Wholesale Electricity Sport Market (WESM).

For the month of March this year, the average cost of generation from the three IPPs —First Gas’ Sta. Rita, San Lorenzo gas plants and Quezon Power —selling power to Meralco was at P4.55 per kWh.

Vox populi

This time personalities associated with the left and the public servants do not buy the charges levied against the utility firm.

Public school teachers chided Garcia for the efforts to take over Meralco for alleged “mischievous management” of the power distributor.

The Teachers’ Dignity Coalition (TDC) and the Alliance of Concerned Teachers (ACT) both criticized Garcia’s reported takeover moves against Meralco, saying the GSIS chief should attend to the problems of the state fund first, especially the GSIS-related problems of public school teachers.

“Garcia must fix his own mess (at GSIS) first before he tries to clean others,” Melchor Cayabyab, a teacher in Araullo High School in Manila and TDC’s secretary-general, said in a statement issued yesterday.

Cayabyab said that until now, teachers continue to suffer problems with the GSIS despite so many dialogues they had with the officials of the state-run insurance company.

Cayabyab said that Meralco and GSIS have both “exploited” their clients with Meralco allegedly overpricing and GSIS overcharging teachers.

“GSIS is charging teachers of many interests, surcharges and arrearages that were acquired and compounded not because of our liability,” Cayabyab said.

“At least, Meralco was able to refund.” Cayabyab said. TDC is a federation of public school teachers’ associations all over the country.

Antonio Tinio, ACT national chairperson, echoed the sentiments of TDC.

Party-list representative Teddy Casino, a member of the House committee on energy puts the blame on high electricity costs not to Meralco, but to Napocor, whose privatization efforts through PSALM are proceeding at snail's pace, its "onerous" contracts with independent power producers, and the failure of the full implementation of the EPIRA law.

Garcia at it again

Why is Garcia going ballistic against Meralco?

To recall, the government has been eyeing to sell its substantial Meralco stake as part of its fund raising campaign to plug the budget deficit. It can command a better price if all government shares are consolidated as a strategic block. It has doing this quietly by allowing the GSIS to purchase the Meralco shares held by other smaller institutions. Its 23 % stake when combined with another 10 % held by Land Bank of the Philippines, Social Security System, Philhealth and Pag-ibig Fund constitute a formidable block which commands not only a premium, but a strong platform to thwart the Lopezes' plans whatever these are. Or, in a most nefarious scheme, to take over the utility.

At the very least, Garcia wants a good price for the block. After all, his head hangs in the balance on the performance of the GSIS fund, of which the Meralco shares, along with other stocks like Petron and San Miguel, constitute a significant portion of the portfolio.

Garcia's antics are his trademark. These are not new. Not too long ago, he tangled with the Sy empire over the then Equitable PCI shares acquired during the previous administration. At least he walked away in that case with slight bruises, with Teresita Coson-Sy's BDO swallowing the bank, and Garcia getting a better price than initally offered.

All the other reasons proferred--transparency and good governance--are merely smokescreen.

The real culprit

There other ways to make Meralco lower its rates, Senator Arroyo suggests.

Senator Juan Ponce-Enrile says that by removing certain charges that the EPIRA allows to be passed on to consumers, prices of electricyt can be brought down.

Under Senate Bill 2121, Enrile said the (EPIRA) law failed to check market abuse or to make the review process for power contracts transparent.

He said consumers should only be required to pay for actual consumption, while industry players should shoulder the risk costs in every business venture.

Two of the extraneous charges Enrile wants power-generating companies to assume and not pass on to end users are: the cost of unused power, brought about by “stranded debts and contract costs” (debts and other liabilities) of Napocor and the “stranded contract costs” (fixed contract price regardless of actual consumption) of distribution utilities through the so-called universal charge; and the cost of royalty on energy from indigenous or renewable sources also through the universal charge.

To further lower the cost of electricity, Enrile also wants franchise taxes imposed by local government units to “be limited only to the distribution and wheeling charges earned by the distribution utilities, and not on... gross receipts.”

The bill also provides for public hearings – not public consultations where resource persons and witnesses are not bound by oath and have limited accountability – on applications for rate increases.

To ensure real competition, Enrile also proposes lower requirements for the privatization of generation assets from 70 percent to 50 percent as well as lower requirements for transfer of management and control of total energy output of power plants under contract with Napocor to independent power producers, also from 70 percent to 50 percent.

Enrile said his was the only negative vote for EPIRA when it was passed into law in 2001. He said that while he believed in restructuring the industry, encouraging competition, privatization, and effective regulation, he said he did not think the EPIRA would be able to accomplish these.

“It was my firm belief that the EPIRA’s promised benefit of ensuring the quality and reliability of the supply of electricity that would translate to lower consumption costs could not be achieved, thus making this promise illusory,” he said.

Business in a wretched environment

As it is, Meralco is operating in a wrenching environment. It in an industry restricted by a multitude of laws and regulations. Its profitability capped by provisions in its franchise, e.g., the rate-of-return provision.

If it is reaping windfall profits, just ask the thousands of small shareholders who saw the dividends vanish and the value of their investments shrivelled as years pass by. Why do you think Union Fenosa, the biggest utility firm in Spain, quietly divested its stake in Meralco after clinging to it for years?

If the perceived problem is the oligarchic hold of the Lopezes on the utility firm, then by all means let us make the utility firm a truly professionalized, public corporation by broadening its shareholder base. There is a provision in its original bylaws which says in effect that it is prohibited to own by any individual or entity more than 10 % of Meralco, except the Lopezes and the government. We can replace the word "except" by "including".

I am also groaning under the weight of my Meralco bill. But I would train my guns on the masterminds, not on the accomplices. As the song goes, shot the sheriff, not the deputy.

In short, it is not Meralco which is causing all our electricity and energy misery. It is failure of EPIRA implementation. It is the footdragging in privatizing the government's power assets. It is failure to attract sufficient investments in the power sector. It is failure to implement a comprehensive energy plan.

It is a failure in governance.

And if the grand plan of the government is to ultimately take over Meralco in the name of "public service", heaven forbids!

Noli me tangere!