Meralco rate hikes, prepaid electricity and neoliberal “users pay”

2014_02_10_16_21_46
Photo from GMA News Online

First published as IBON Features

The February rate hike of Php0.92 per kilowatt-hour (kWh) that the Manila Electric Co. (Meralco) announced is actually just the initial strike. In March, the unfortunate public should expect an even stronger blow from the utility giant as another rate hike of as much as Php1.44 per kWh looms.

Meralco has a simple solution for consumers who find it hard to cope with their ever-increasing monthly electricity bills. Go prepaid and supposedly save up to 20% in consumption. About 40,000 customers are already using Meralco’s prepaid system called Kuryente Load (KLoad). By yearend, Meralco expects to add 100,000 more.

But the basic question is – how can customers save amid the staggering rate increases? The answer is – they can’t. But with prepaid electricity, as the Energy Department once said, consumers will “not unnecessarily spend for what they cannot afford”. Put another way – If you can’t afford electricity, then don’t use it.

Indeed, looking past Meralco’s dodgy claim, KLoad is nothing more than the worst form of the neoliberal tenet “users pay”. It merely passes on the burden of high power rates further to the consumers. It also deepens the exclusion of the poor from access to electricity as a basic service and their right to decent living.

How it works

KLoad was pilot tested in 2013 and commercially rolled out in 2015. To use it, a customer must have Meralco’s “intelligent” meter installed first and register a mobile number for the account. Through SMS (‘text’) using the registered mobile number, the user can load KLoad cards worth as low as Php100 and as high as Php1,000.

The user will receive a text message confirming that the amount has been loaded successfully to his or her account. KLoad also lets users receive text notifications on the account’s remaining balance, low load reminder, and rate adjustments. Like prepaid cards for mobile, KLoad cards can be bought even at retail stores.

For Filipinos who have long been accustomed to prepaid mobile service, KLoad is pretty easy to grasp. In fact, it is this familiarity with and preference for prepaid mobile that Meralco banks on for its KLoad. Saddled with tight budget, most Filipinos use prepaid mobile to control spending.

Lack of a steady income, in fact, forces many to buy in tingi not just mobile credits but most of their daily needs – from shampoo to 3-in-1 coffee. The same concept supposedly applies to prepaid electricity.

The problem is it’s not quite the case.

Rising power rates

Under the KLoad system, retail rates will be the same as the effective postpaid rate at the particular month the load was consumed. Unconsumed credits in a given month will be charged with prevailing rates in the following month.

Unlike in prepaid mobile and other consumer goods where charges are more or less predictable, electricity rates vary monthly (often upwards). The reason is deregulation under the Electric Power Industry Reform Act of 2001 (Epira), which allows automatic adjustments in the generation charge and other periodic adjustments.

The fluctuating rates make it difficult for a household to effectively monitor and regulate their consumption, and accordingly plan their use of electricity based on prepaid credits.

But far more crucially, the ever-increasing power rates will offset efforts by a household to cut their electricity bill even when they shift to KLoad. No matter how much kilowatt-hour that a household tries to reduce in their consumption, the end result is still an exorbitant electricity bill.

Meralco’s own commissioned survey in 2016 shows that its rates are the third highest in Asia. An average Meralco customer is also paying 4.5% of their disposable income for electricity, higher than the global average of 3.9 percent.

Aside from deregulating rates, Epira also privatized the country’s power plants. In Luzon where Meralco operates, just three groups (i.e., San Miguel, Lopez, and Aboitiz) control 70% of power generation. Such tremendous control makes alleged collusion and price rigging easier like during power plant shutdowns that lead to rate spikes.

The whopping rate hike of up to Php1.44 per kWh that Meralco advised its customers to expect in March, for instance, is due to Malampaya maintenance shutdown from 28 January to 16 February. Other power plants will also be on maintenance shutdown on 13-17 February, placing more pressure on power supply and rates.

Anti-consumer, anti-poor

Instead of addressing these policy issues, the onus of coping with rising electricity costs is further passed on to hapless consumers under the prepaid system. With KLoad, no prepaid credits, no electricity. Disconnection is automatic, done remotely by Meralco. It’s that straightforward and heartless.

Through remote and automatic disconnection when credits run out, KLoad violates the rights of Meralco customers as outlined in the Magna Carta for Residential Electricity Consumers. These rights include the right to due process and notice prior to disconnection and suspension of disconnection.

Prepaid customers are supposed to be notified via text three days before the remaining load is estimated to run out. The warning shall be based on the average consumption of the household. But what if the household used more electricity than their average consumption and depleted the load in two days instead of three?

KLoad primarily targets poor communities where collection of monthly bill is problematic and illegal connection is prevalent. A prepaid system for these households ensures that bills are paid to and collected by Meralco. As explained by the Energy Regulatory Commission (ERC), prepaid electricity reduces pilferage and improves collection efficiency and cash flow for distribution utilities.

Meralco has an existing partnership with the National Housing Authority (NHA) to provide KLoad service to urban poor families resettled from waterways and danger areas in Metro Manila. Recently, in a Tondo slum, Meralco installed KLoad for former Smokey Mountain residents.

Notably, prepaid system is among the supposed best approaches to slum electrification that the US Agency for International Development (USAID) endorsed in its 2004 study that also included Meralco as one of the cases.

Affront to decent living

KLoad is part of the long-term plan of Meralco to install the so-called Advanced Metering Infrastructure (AMI) – an integrated system of intelligent meters – in its franchise area. The AMI will allow Meralco to, among others, remotely switch on and off the supply of electricity not only to prepaid customers but also those with regular connection.

Access to electricity is needed to achieve the minimum standard of decent living. Thus, it should not be contingent upon the ability of people to pay and must be a basic right guaranteed by the state. KLoad and Meralco’s remote and automatic disconnection system is a blatant affront to this right.

KLoad will set a worrisome precedent if not questioned and opposed. It is prepaid electricity today. Prepaid water soon? ###

Also read “Prepaid electricity, anyone?” and other articles on the Philippine power industry

Heartless, greedy Meralco thrives under privatized, deregulated regime

meralco ganid

With the country still reeling from the devastation wrought by Yolanda, the people are facing yet another disaster – the calamity of soaring prices. People ask: Are the oil companies and Meralco (Manila Electric Co.) that heartless and greedy?

Alas, this is the cruel reality of neoliberal economics, of deregulation and privatization. The market is regarded as greater than the people, and government allows the heartless and greedy to reign.

Price hikes

Starting December, oil firms implemented a record-high increase in LPG prices. Petron hiked its LPG price by P14.30 per kilogram (kg); Liquigaz, P13; and Solane, P11. These translate to an increase of P121 to P157 for an 11-kg LPG tank commonly used by households.

Then the oil companies jacked up the price of other petroleum products. Diesel rose by P1.35 per liter; kerosene, P1.20; and gasoline, P0.35. This week, oil firms implemented another round of oil price hikes with diesel rising by 30 centavos. Prior to the latest increases, the price of diesel has already jumped by P4.08 per liter this year and gasoline by P2.04, based on the Department of Energy’s (DOE) monitoring.

And of course, Meralco said that it will implement a hefty increase in power rates this month. The distribution utility said that the hike in its generation charge could reach P3.44 per kilowatt-hour (kWh) but it will be implemented in installments to mitigate the impact.

The Energy Regulatory Commissioned (ERC) allowed Meralco to collect the increase in three tranches. That would be P2 in December, P1 in February and P0.44 in March.

But generation is just one component of the electricity bill that will rise. Also increasing is the transmission charge, which will go up by P0.04 per kWh. Taxes (value-added tax and local franchise tax), system loss charge, lifeline rate subsidy and others, which are a percentage of generation and transmission costs, will also add another P0.67 per kWh in the Meralco bill.

Thus, the actual rate hike to be felt by consumers would be P2.41 per kWh in December, P1.21 in February and P0.54 in March.

However, while the sudden impact of a one-time huge rate hike will be mitigated, consumers will end up paying more. According to the ERC, Meralco may charge its customers an interest on the entire deferred amount or the so-called carrying cost.

And even at a staggered basis, the rate hike would still be tremendous. A 200-kWh household, for instance, will see its Meralco bill jump by P482 this month.

The increase in power bill creates a domino effect on the prices of other basic goods and commodities. Contrary to propaganda of government and big business, wages are not the main driver of price hikes but electricity cost. The Employers Confederation of the Philippines (Ecop) said that power accounts for as much as 40% of production cost.  With the big Meralco rate hike, Ecop also warned of higher prices.

‘What can we do?’

The official who is supposed to be in charge over the oil and power sectors – Energy Secretary Jericho Petilla – had this to say to the restless public: “Kung nagkasabay-sabay silang lahat, hindi yan pinlano, it just happened. What can we do…? Don’t buy, kung namamahalan kayo!”

Of course, Meralco’s customers could not choose not to buy electricity from Meralco. They have no choice. Petilla’s remarks sum up government’s indifference to the plight of consumers, which the Aquino administration has repeatedly displayed in its almost four years in power.

By themselves, the record increases in petroleum prices and electricity bills are already oppressive. But what makes them doubly onerous is that the country is still recovering from Yolanda’s onslaught. Government has not even fully accounted the total number of dead, which now stands at 5,796, according to the latest official count.

Note that this is not the first time that these same companies displayed total disregard of public interest and welfare. Last year, amid the torrential, Ondoy-like rains that poured over Metro Manila, oil companies and Meralco also increased prices.

Price control

Ironically, the country is supposed to be under a state of national calamity as declared by President Benigno Aquino III through Proclamation No. 682. But the string of record price hikes shows that big business can act with impunity.

The reason is that the price control aspect of the proclamation is limited by law and the overall deregulation policy of government. Under Republic Act (RA) 10623 (which amended RA 7581 or the Price Act), the price of LPG may be controlled under a state of calamity but only for 15 days. The price of LPG and other petroleum products is deregulated under RA 8479 or the Oil Deregulation Law.

Electricity rates are also not included among the basic necessities that government may control during a state of calamity. Through RA 9136 or the Electric Power Industry Reform Act (Epira), government deregulated the setting of the generation charge of Meralco and other distribution utilities. Epira also deregulated rate-setting through the wholesale electricity spot market (Wesm).

To pave the way for the deregulation of the oil and power industries, government privatized Petron Corp. and the National Power Corp. (Napocor).

The Oil Deregulation Law and Epira trump the Price Act and any proclamation of a state of calamity. Apparently for government, not even the strongest typhoon ever recorded could change that. Both policies were imposed on the country by foreign creditors led by the World Bank and the Asian Development Bank (ADB).

Artificial tightness

The huge Meralco rate hike is a perfect example of how privatization, deregulation and lack of state control over key sectors burden the consumers. Had government not relinquished effective control over energy development to profit-oriented private business, the public would have been spared from the impending hefty increase in power rates.

The supposed tight energy supply is only artificial. It could have been prevented if the maintenance shutdown of the country’s energy sources and power plants were effectively controlled by government. But because it relies too heavily on private business, government has no handle in determining the maintenance schedule of power plants in a way that ensures energy security and public interest.

For instance, the maintenance shutdown of Malampaya started on Nov. 11, the same date that President Aquino put the country under a state of calamity. Energy officials already knew then that it will trigger a big spike in power rates. At that time, energy supply in Luzon was already tight due to a series of maintenance shutdowns of major power plants.

Plant shutdowns

Meralco, in fact, already implemented a large increase in power rates in November when it jacked up its rates by P1.24 per kWh. The utility giant said that the maintenance shutdown of several big power plants was the main factor behind the rate hike. These were Unit 2 of Malaya power plant in Rizal (Dec. 2012 to Oct.); Unit 2 of Pagbilao plant in Quezon (Aug. to Nov.); Unit 1 of Sual plant in Pangasinan (Sep. to Oct.); and Sta. Rita Module 20 (Oct. 23-28).

In addition, a number of power plants were also on forced outage. These were San Lorenzo Module 60 (May to Mar. 16, 2014); Unit 1 of Masinloc plant in Zambales (Sep. 25-28); Unit 2 of Calaca plant in Batangas (Sep. 29 to Oct. 1); Quezon Power (Oct. 5-6); and Unit 1 of Sual plant in Pangasinan (Oct. 22-26).

Monopoly and manipulation

But instead of ensuring that Malampaya will remain online, especially after Yolanda, government stood idly as the source of 40% of Luzon’s power needs was cut off. The shutdown of Malampaya and of the other power plants, said Meralco, forced its suppliers Sta. Rita and San Lorenzo power plants to use more expensive fuel.

The utility giant claimed that it was also compelled to buy more from the Wesm where electricity is being sold at a higher price. Meralco said that its exposure to Wesm will increase from less than 5% to 12% due to the Malampaya shutdown.

Note, however, that the private investors who control Meralco are the same investors that control the power plants as well as the traders in the Wesm. The 1,000-megawatt (MW) Sta. Rita and the 500-MW San Lorenzo plants are owned by the Lopez group, which also has a 3.9%-stake in Meralco. Power plants associated with the Lopez group also account for around 18% of the capacity registered at Wesm.

Illegitimacy of rate hikes

The concentration of ownership over power generation and distribution, and even over the spot market, raises a valid question on the legitimacy of the power rate hikes. The same thing can be said in the case of the oil industry wherein basically just four companies lord over more than 80% of the industry.

Thus, the move of the House of Representatives to investigate Meralco’s rate hike is a welcome development. Officials of the distribution utility, the power plants, and also the DOE should explain the circumstances behind the huge increase.

There is certainly a need to closely look at the shutdown of Malampaya and the power plants as well to determine if the big power investors are abusing the public through their unhampered control over the energy sector.

But more importantly, policy makers must reconsider government’s energy development program that is hinged on deregulation and privatization. Even without a super-calamity like Yolanda, neoliberal policies like Epira and the Oil Deregulation Law are already greatly oppressing the public. ###

Read more about Epira and the Philippine power industry here and Oil Deregulation Law here

 

Prepaid electricity, anyone?

Imagine yourself engrossed in your favorite teleserye one night. As a plot-twisting revelation was about to be told by one of the main characters, power was suddenly shut off. It wasn’t a brownout because all your neighbors still had their lights on and only your unfortunate household was engulfed in darkness. You reached for your cellphone and sent an SMS. Within seconds, you received a text message that read: “Your Meralco prepaid balance as of 1/18/13 20:45 is P0.00. Please reload soon to restore electricity services in your household.”

Using SMS

Welcome to the era of prepaid electricity.

The Manila Electric Co. (Meralco), the country’s largest power distributor, has started the first leg of its pilot tests to determine the viability of the prepaid electricity retail scheme in the residential sector. An initial 100 households in Rizal province are covered by the pilot tests, which will eventually expand to 2,000. If the scheme proved to be feasible, Meralco will put some 40,000 households in its franchise area under the prepaid mode of payment.

Meralco, however, is not the first distribution utility (DU) to implement the prepaid scheme. The Batangas I Electric Cooperative Inc. (Batelec I) already launched its prepaid system last Jan. 16 covering around 295 residents in Barangay Camastilisan, Calaca, Batangas. Batelec would later clarify that it’s not yet a commercial operation but only a pilot test. Another cooperative, the Bohol II Electric Cooperative Inc. (Boheco II), has also sought consent from the Energy Regulatory Commission (ERC) to employ the prepaid scheme.

Under the Batelec I system, which is also the same scheme favored by Meralco and Boheco, consumers will use the SMS network to load prepaid electricity credits and check their remaining balance. Consumers can buy prepaid cards denominated in ₱100, ₱200 and ₱300 and send an SMS to 2861 (for Globe users only) to load their prepaid electricity. If they want to check their remaining balance, they can send “kwbalance” also to 2861.

The SMS system may be used too for registration, threshold warning, advice of disconnection and reconnection, and remote disconnection and reconnection. Meralco said that using the SMS system is more practical and viable than installing an in-home display (IHD), which will entail more costs on the utility firm and its customers. An IHD is a prepaid electric meter that loads the purchased energy, display real time information on load consumption and give a warning signal that the load is nearing zero.

Benefits?

The ERC first released the draft rules of the Prepaid Retail Electricity Services (PRES) in 2008. Initially, the PRES covers only residential customers but the coverage was expanded this year to include industrial and commercial establishments as well. Regulators also allowed the use of all available technologies (e.g., SMS, IHD) in the implementation of the prepaid system. When fully realized, the country will join South Africa, Indonesia, India, Australia and New Zealand which are already using prepaid electricity.

According to the ERC, it introduced the PRES so that consumers supposedly can have more power to control their electricity bills. Meralco, meanwhile, claimed that based on a survey it conducted with global conglomerate General Electric (GE) more consumers prefer the prepaid system. Meralco and GE last year signed an agreement on advanced metering infrastructure integrated solution project where the American giant will serve as system integrator.

A Meralco official explained: “Prepaid and buying tingi or sachet is ingrained in the Filipino lifestyle. Many wage earners receive daily or weekly pay, so they would prefer that their expenses from mobile to Internet and — yes — to electricity be also on a tingi basis. This enables them to bridge the timing of their cash outflows.” The utility giant also maintained that the prepaid system will make electricity more affordable for the poor: “If this (prepaid electricity) can be made possible, (consumers) will avoid the monthly experience of having to pay a one-time big amount. With the prepaid scheme, electricity, thus, becomes more abot kaya for some segments of our customers.”

Anti-consumer

These claims by the ERC and Meralco are hogwash; that consumers can really manage better their electricity bill and that the prepaid system will make electricity services more affordable are outright lies. Worse, the prepaid scheme would merely further expose poor households to marginalization while protecting the profits of DUs like Meralco.

Unlike in prepaid mobile phone credits wherein charges are fixed, electricity rates vary monthly (often upwards) because of deregulation under the Electric Power Industry Reform Act of 2001 (Epira). Under ERC rules, unconsumed credits in a given month will be charged with the prevailing rates in the following month. The fluctuating rates will make it difficult for a household to effectively monitor and regulate their consumption and accordingly plan their use of electricity based on prepaid credits. Furthermore, the increasing monthly power rates will offset efforts by a household to cut their electricity bill even if they shift to the prepaid system. No matter how much kilowatt-hour that a household tries to reduce in their monthly consumption, the end result is still an onerous electricity bill (the highest in Asia!) because of ever increasing rates due to automatic adjustments in the generation charge as well as other periodic adjustments allowed under Epira.

Indeed, the overall impact of a prepaid system is the further marginalization of the poor from accessing electricity as an essential service. When the provision of electricity is made prepaid, the cruel neoliberal principle of those who can’t pay can’t use fully comes into play. This creates a serious problem because while many can tolerate not loading their cellphones for a couple of days, not having electricity for running out of prepaid load affects a household’s quality of living. Poor households which rely on a very tight monthly budget that could hardly afford the basic necessities are especially vulnerable. It must be emphasized that depriving people of access to electricity because they have no money to afford it is inhuman, oppressive and exploitative.

But under the prepaid system, the lack of load means automatic disconnection of a household’s power supply. It violates the people’s basic human right to decent living. It also violates the rights of consumers against unfair disconnection of service such as those outlined in the Magna Carta for Residential Electricity Consumers. In the said Magna Carta, consumers have the right to due process prior to disconnection (Article 18); right to a notice prior to disconnection (Art. 19); right to suspension of disconnection (Art. 20); and right to tender payment at the point of disconnection (Art. 21). Under ERC rules, prepaid customers are supposed to be notified (e.g. through SMS) three days before the remaining load is estimated to run out. The warning shall be based on the average consumption of the household. But what if the household suddenly used more electricity than their average consumption and consumed the load in two days instead of three?

Clearly, the only party that will substantially benefit from the prepaid system is Meralco and the other DUs. Consumers, in particular the poor households which are the main target of the scheme, are obliged to pay in advance the DUs for electricity that they have yet to use. This effectively and easily eliminates “bad accounts” or users that could not pay on time and/or could not pay in full due to a limited household income. Furthermore, the system also allows the DUs to cut costs because they will no longer require additional workforce to read the monthly billing or perform the physical reconnection and disconnection of electricity services. Thus, the profits of Meralco and other DUs are firmly secured and guaranteed but at the great expense of poor consumers.

Political, too

Aside from economic gains, DUs and the government could also benefit politically as the social conflict or tension created by unpaid bills and the resulting disconnections are somehow eased by the prepaid system. This is achieved by eliminating the need for the consumers and the DU to transact physically or directly as payments, disconnections, reconnections, etc. are already done through SMS. In a prepaid system, Meralco no longer has to send its people to implement disconnection orders in a community and thus minimize the public visibility of a greedy and heartless corporation that takes away a household’s access to a vital service for failure to pay.

It will also take away the people’s option to use payment boycott as a form of protest against questionable and unjust electricity bills like what the late labor leader Crispin “Ka Bel” Beltran did against the purchased power adjustment (PPA) in 2002. In the book Electric capitalism: Recolonising Africa on the power grid, one of its writers Peter Van Heusden looked at the development of the prepaid electricity scheme in South Africa, which was the first to implement such system through prepaid meters. He noted that prepaid electricity was developed to counter the payment boycotts in the 1980s which was used in Soweto in Johannesburg, South Africa as a political weapon against local authorities and the apartheid regime.

Prepaid electricity does not answer the problem of onerous power rates. It will simply further shift the burden to hapless consumers while making life much easier and more profitable for Meralco and other DUs and absolving government and its flawed neoliberal policies like Epira of accountability to the people. Without electricity because of inability to pay, it’s not only your favorite teleserye that you will miss but also your right to decent living. ###

Greed amid calamity

Bayan and its member groups and allies have launched efforts to generate relief goods for flood victims. See table below for a partial list of drop-off centers.

The country’s largest and most profitable firms are oblivious to the devastation being wrought by torrential rains on Metro Manila and various provinces in Luzon. Displaying barefaced greed, oil companies led by Petron Corp. hiked their pump prices, the fifth round in as many weeks since July. Then, the Manila Electric Co. (Meralco) announced a new increase in its generation charge this month. Also, the Business Process Outsourcing Association of the Philippines (BPAP) asked for an exemption from the work suspension order issued by Malacañang.

All these even as hundreds of thousands of mostly poor people are still struggling to survive the worst downpour since tropical storm Ondoy hit the country in 2009. According to the latest update (as of Aug.7, 5 p.m.) from the National Disaster Risk Reduction and Management Council (NDRRMC), the heavy rains spawned by the southwest monsoon have submerged 46 cities and municipalities in Metro Manila and Regions I, III and IV-A, affecting more than 541,000 people. Sixteen have been reported dead.

Such display of cold-blooded corporate greed amid a grave natural disaster is most unconscionable. We have yet to cope with this latest tragedy (and still reeling from the impact of typhoon Gener that preceded the heavy monsoon rains), and already we are being battered by increases in oil prices and electricity rates. Many families have yet to be rescued and still call center firms are requiring their employees to report for work.

But we must not forget that these profit-gluttonous companies have the temerity to do what they do because government allows them. They abuse and oppress the people with impunity because they know that government policies favor them, because they know that they are Aquino’s real bosses.

Petron, owned by presidential uncle Danding Cojuangco, and other oil firms increased their pump prices despite the calamity because the Oil Deregulation Law, which President Aquino has staunchly defended amid criticisms and allegations of overpricing, gives them the right to automatically hike their prices without a public hearing.

Meralco, also owned by Danding and known presidential allies Manny Pangilinan and the Lopez family, increased its generation charge despite the calamity because the Electric Power Industry Reform Act (Epira), whose full implementation is being pushed by Aquino despite strong opposition from Mindanao and other sectors, allows it to automatically increase its generation rates without a public hearing.

BPAP, meanwhile, knows that the BPO industry is one of the few supposedly growth areas prioritized by Aquino in his medium-term Philippine Development Plan (PDP) 2011-2016 for government promotion. I’m not sure if the administration has granted BPAP’s request. But Executive Secretary Jojo Ochoa said that call centers and other private firms that will require their employees to report for work should just “ensure personnel safety and give premium pay”. Para saan pa ang suspension order?

These intolerable acts of greed by the oil companies, Meralco and BPO firms bolster our argument for government to rethink and undo its current policies and programs. Especially during times of calamities, Aquino could not claim helplessness to stop oil price and power rate hikes because his predecessors, as dictated by foreign creditors, chose to deregulate the setting of pump prices and generation charge.

Government must revise its economic plan and stop relying on externally-driven growth sources like the BPO that is so detached from our own development needs, and in this particular case, from our domestic realities. BPO serves American and other foreign clients. Ano bang malay nila kung binabagyo na tayo at nalulunod na sa baha ang mga Pilipinong call center agents?

Unfortunately, Aquino has shown time and again that he is incapable and unwilling to implement the fundamental policy reforms we need.

For an in-depth discussion of these issues, click here (oil), here (power) and here (government’s development plan).

***

The Bagong Alyansang Makabayan (Bayan) and its member groups and allies have launched efforts to generate relief goods for flood victims. Please refer to the table below for a partial list of these initiatives and see which drop-off center for relief goods is nearest to you. Some of the groups have also provided bank accounts where you can deposit cash donations.

Mindanao power is more expensive than Asia’s major cities

Mindanao power is more expensive than electricity rates in major cities in Asia but Aquino wants the region to pay more to supposedly address its power crisis (Photo from manilastandardtoday.com)

Mindanao must pay more to end the rotating brownouts, the President declared in his Power Summit speech. The region, said Aquino, needs more power supply but “cheap” power rates are discouraging private investors from building new power plants to meet Mindanao’s growing energy needs.

Pay more

“But how can you entice anyone to invest—and this is the question—if their generating cost is more than their selling cost?” Aquino, in his speech, asked. “The simple truth is: we can have a lot more energy, but we have to provide the incentives for businesses to come here to put up those plants. Therefore, there will be a change in what we have to pay. We will have to pay, perhaps, a bit more… You have to pay more because this is the reality of economics… Everything has its price. We have to pay a real price for a real service. There are actually just only two choices: pay a little more for energy, or live with the lack of energy and the continuation of the rotating brownouts.”

Cheap rates?

Aquino must apologize to the people of Mindanao for blaming them for the power crisis and accusing them of being spoiled by “cheap” power rates. Aquino must apologize for being shamelessly insensitive to the plight of Mindanao where 36% of the country’s poorest families live (based on the latest official poverty statistics released by the National Statistical Coordination Board or NSCB).

The premise that Mindanao has been unjustifiably enjoying “cheap” power rates is totally wrong. True, Mindanao has lower power rates than Luzon and Visayas. Latest available comparative data show that the region has an effective residential rate of P6.69 per kilowatt-hour (kWh). Luzon has P9.84 while Visayas has P8.19. (Data from 18th EPIRA Implementation Status Report, which may be downloaded here)

Most expensive in Asia

Aquino, however, did not mention one very important fact. Mindanao power is “cheap” only because the country has the highest electricity rates in Asia. In a survey conducted by the Japan External Trade Organization (JETRO), Manila posted the most expensive residential rate (P10.16 per kWh), while Cebu (P8.39) is ranked third (Singapore ranked second with P8.83). JETRO conducted the survey in January 2011 to compare investment-related costs, including electricity, in 31 major cities in Asia and Oceania. (See the table at the end of this article for the complete list; Download the JETRO survey here)

While Aquino is blaming the power crisis on the people of Mindanao for being pampered by “cheap” power, Mindanao is actually paying much more than most major cities in Asia. Did you know that residential consumers in the Autonomous Region in Muslim Mindanao (ARMM), Cagayan de Oro City, Northern Mindanao, and the Davao and CARAGA regions are paying twice the electricity rates of residents in Seoul and Beijing? Except for CARAGA, all the Mindanao regions I mentioned also have more expensive residential power rates than Hong Kong. These areas in Mindanao, plus Cotabato City, Iligan City, SOCCKSARGEN, and the Zamboanga Peninsula all have higher residential rates than major Asian capitals like Taipei, Kuala Lumpur, Jakarta, New Delhi, Bangkok, and Shanghai, among others. All in all, Mindanao is paying an average of P1.82 per kWh more for electricity than the collective average residential rate of the 31 major cities in Asia and Oceania surveyed by JETRO.

I summarized these findings in the chart below, which culled data on residential rates from the JETRO survey and data on average residential rates of private distribution utilities (PDUs) and average systems rates of electric cooperatives (ECs) from the 18th EPIRA report. The red bars represent Mindanao regions and cities.

Poorest region

Note that Mindanao has an average official poverty incidence of 33.5% of families (the national average is 20.9%). The country’s three poorest regions are in Mindanao – CARAGA (39.8%), ARMM (38.1%), and Zamboanga Peninsula (36.6%). ARMM does not only have the most expensive power rates in Mindanao, it also has (consequently) the highest cost of living (more than P1,287 based on the family living wage released by the NSCB in July 2008) among all regions in the Philippines, while the minimum wage there is just P232 (or just 18% of the cost of living). Amid this condition, the people of Mindanao are being forced to pay for electricity that is way beyond the rates in Asia’s richest cities. Yet Aquino wants Mindanao to shell out more money to supposedly solve its power crisis.

Blame EPIRA

Mindanao has lower rates than Luzon and Visayas not only because it sources its energy supply from cheaper hydropower but also because the region has been relatively and temporarily spared from the privatization and deregulation drive under EPIRA. State-controlled/owned installed capacity in Mindanao is still about 82% of the total (as of 2010 data from the DOE), compared to 18% in Luzon and 36% in Visayas where most power plants have already been privatized and are now controlled by the country’s profit-seeking “power lords”. Furthermore, unlike Luzon and Visayas, Mindanao does not have an EPIRA-created wholesale electricity spot market (WESM), which has only become a venue for price manipulation and speculation by power monopolies, sparking off wild spikes in power rates.

But EPIRA is also to blame for Mindanao’s energy insecurity. While government retained control over most of the installed and dependable capacity in Mindanao, it did not invest in additional capacity to meet the growing power demand of the region. Government abandoned its strategic role to design and implement power development projects consistent with a long-term industrialization plan and instead focused on selling the assets of the National Power Corporation (NAPOCOR) to private investors as mandated under EPIRA.

Reverse privatization

To fully solve the energy insecurity of Mindanao and the rest of the country as well as the problem of expensive electricity, there is no other recourse but for the state to take over. Aquino could no longer use the excuse that doing so will just further bankrupt the government. Despite the EPIRA, NAPOCOR remains trapped in deep debt (read here). So instead of further wasting limited public resources on a flawed energy program – which only made electricity bills more exorbitant and power supply more insecure – government should start reversing the privatization and deregulation of the energy sector. #

Power lords

San Miguel Corporation cornered 41.3 percent of privatized generating plants and IPP contracts in terms of capacity (Photo from allvoices.com)

(Continued from Part 2)

The restructuring of the power industry under EPIRA facilitated the creation of new private monopolies that lord over not only the distribution but also the generation of electricity. The dominant position of these monopolies, controlled by billionaires in Forbes’ list of richest Filipinos and their foreign partners, is bound to further intensify under Aquino’s public-private partnership (PPP) program.

Privatized power plants and IPP contracts

Out of the 7,665.88 megawatts (MW) in capacity of privatized generating plants and IPP contracts, Danding Cojuangco’s San Miguel Corporation (SMC) cornered 41.3 percent while the Aboitiz group bagged 28.5 percent. Other major buyers include the Consunjis (7.8 percent) and the Lopezes (7.4 percent). American firm AES Corporation accounted for a significant 7.8 percent. South Korean companies SPC Power and K-Water have a combined 5.8 percent. (It includes the Angat hydropower plant that was put on-hold by the Supreme Court.) Five companies accounted for the remaining 1.4 percent.

The costs of these transactions total $6.69 billion. SMC accounted for 35.9 percent of the said amount; Aboitiz, 30.2 percent; AES Corp., 13.9 percent; K-Water, 6.6 percent; Lopez, 5.7 percent; Consunji, 5.4 percent; and others, 2.3 percent. (See Table 1)

In terms of overall generating capacity, the restructured Philippine power sector is now dominated by just three companies – San Miguel Power Corporation (20 percent), Lopez-owned First Gen Corporation (17 percent), and the Aboitiz group (15 percent).

Government through NAPOCOR and PSALM has 30 percent. (See Chart 4) SMC’s rise as a major player in the power industry is truly phenomenal considering that it has only started venturing in the industry in 2008.

These are the same groups that also control the biggest distribution utilities (DUs) in the country. SMC and the Lopez group, for example, control MERALCO with 27 percent and 6.6 percent, respectively. (Manny Pangilinan’s Metro Pacific controls 45 percent.) MERALCO is the largest DU in the Philippines with a franchise area covering 24.7 million (about 25% of the national population) in 31 cities and 80 municipalities. It serves Metro Manila, Bulacan, Rizal, and Cavite as well as parts of Laguna, Quezon, Batangas, and Pampanga.

The Aboitiz group, on the other hand, controls the second and third largest DUs – the Visayan Electric Company (VECO) and Davao Light and Power Company. VECO serves Metro Cebu covering four cities and four municipalities. Meanwhile, Davao Light serves Davao City and Panabo City as well as three municipalities in Davao del Norte. Aside from these DUs, the Aboitiz group also controls Cotabato Light and Power Company, San Fernando Electric Light and Power Company, and the DUs serving the Subic Freeport zone, Mactan export processing zone, and the West Cebu industrial park.

SM tycoon Henry Sy has taken advantage of the EPIRA as well. His One Taipan Holdings (30 percent), State Grid of China (40 percent), and Calaca High Power Corporation (30 percent) control the National Grid Corporation of the Philippines (NGCP). NGCP holds a 25-year concession agreement (CA) with government to operate the country’s transmission system beginning in January 2009.

No transparency or competition

Cross-ownership in distribution and generation, which EPIRA allows, makes claims by advocates of neoliberal power restructuring about transparency and competition in pricing an outright lie. EPIRA’s unbundling of rates, for example, is practically meaningless even if a consumer can see in his or her monthly bill how much he is paying for generation and distribution. Market abuse is not prevented even if rates are unbundled due to cross-ownership. This has been clearly illustrated in the operation of the EPIRA-created Wholesale Electricity Spot Market (WESM).

The WESM, which has been operating in Luzon since 2006, is meant to among others “provide and maintain a fair and level playing field for suppliers and buyers of electricity”. But cross-ownership negates whatever benefits that the WESM is supposed to offer. The intention of the WESM is to make rates more competitive by offering prices other than those set in the bilateral contracts. EPIRA even capped at 50 percent the power requirements that DUs can source from their own generators and the rest they must get from other IPPs and the WESM.

However, the WESM itself is dominated by the same generators that are related with the DUs. IPPs connected with MERALCO, for instance, account for 42.6 percent (SMC with 24.8 percent and Lopez, including Quezon Power, 17.8 percent) of the 11,652-MW capacity registered at the WESM. The Aboitiz group, meanwhile, comprises 13.1 percent. The huge shares of these groups to the WESM-registered capacity make the spot market vulnerable to manipulation and speculation. Case in point was early last year when the price of electricity at the WESM reached an unbelievable P68 per kWh at one point during the height of the El Niño.

The high WESM prices have been blamed by MERALCO for the monthly increases in its generation charge last year. The latest adjustment in MERALCO’s generation charge worth 51 centavos per kWh, announced last Tuesday, is again being blamed at the high increases in the WESM, where rates jumped by P1.89 per kWh. MERALCO IPPs, on the other hand, increased their rates by a smaller 16.2 centavos per kWh.

Energy insecurity

Finally, the country’s energy security has remained precarious under EPIRA. The rotating brownouts experienced in different parts of the country last year is a tell-tale sign that the power crisis has not been resolved by privatization. In Mindanao, for example, the power shortage reached as high as 700 MW in March 2010 that led to rotating brownouts of as long as 8 hours daily. Government quickly blamed the El Nño because Mindanao gets more than half of its power supply from hydroelectric plants.

But apparently, the deeper issue is not drought but government neglect. During the Aquino administration, for instance, Mindanao’s power mix was 75 percent hydro while peak demand was 800 MW, according to a former NAPOCOR president. In 2010, DOE data show that hydro accounted for a relatively smaller 51.8 percent of installed capacity in Mindanao while peak demand was 1,288 MW. Thus, the El Niño could not be solely blamed for the shortage since no significant additional capacity has been put in the region. This should have been the job of government but because of EPIRA, it focused on selling the assets of NAPOCOR instead of installing additional capacity.

Even Luzon was not spared from rotating brownouts during last year’s El Niño. Aggravating the low levels in Luzon’s major dams were the uncoordinated shutdowns implemented by privately controlled power plants. They include SMC generation plants Sual and Limay as well as the Lopez plants that use natural gas from Malampaya. The power supply shortfall reached 641 MW, which could have been easily offset by Luzon’s excess capacity and thus avoid the rotating brownouts. But because EPIRA has dissolved government’s role in ensuring power supply, there is no mechanism in place to fill the gap resulting from plant shutdowns.

Ten years is enough

Its proponents argue that EPIRA must be given a chance to work because once fully implemented, the country will surely reap its promised benefits. They cite the impending implementation of the so-called open access and retail competition. Under this system, power consumers will have the opportunity to choose their suppliers. But then again, the industry has already been monopolized by a few players making the supposed option to choose an illusion.

For its part, the Aquino administration and its allies in Congress have worked for the amendment of EPIRA to extend the so-called lifeline subsidy. But it still does not address the exorbitant and rising electricity rates that Filipino consumers are forced to shoulder. Besides, the subsidy is being paid for by other consumers and does not come from the pocket of MERALCO or government.

Ten years of EPIRA is enough. Its defects could not be corrected by simple cosmetic amendments. It is fundamentally wrong to allow the narrow profit agenda of private companies and banks to take over a sector as strategic as the power industry.

EPIRA has resulted in the doubling of power rates and intensification of private monopolies. At the same time, it failed to address the financial problems of NAPOCOR and the country’s energy security. Only NAPOCOR’s creditors and private local and foreign companies have benefitted from power restructuring. For these reasons, there is a clear and urgent need for our policy makers to seriously rethink the law and work for its repeal. (END)

Read Part 1 – 10 years of EPIRA: what went wrong? and Part 2 – The curious case of NAPOCOR debts

Also read The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform

The curious case of NAPOCOR debts

The deep indebtedness of NAPOCOR was one of the strongest arguments used to justify the EPIRA (Photo from Kevin Collins on flickr.com)

Continued from Part 1

Proponents of EPIRA made us believe that privatization will solve the financial woes of state-owned NAPOCOR. In fact, the deep indebtedness of NAPOCOR was one of the strongest arguments used to justify the EPIRA. If state coffers are being bled dry by the debts of NAPOCOR, then why not just sell its assets to wipe out its obligations? Obviously, the public was deceived by this simple line of reasoning.

Drain in public resources

Such argument by the then Arroyo administration sounded persuasive for some because government was facing a swelling budget deficit and debt. In 2001, the budget shortfall was P147.02 billion. Including the deficit of other government units, the consolidated public sector deficit was P174.27 billion. Meanwhile, the outstanding national government debt during the period was P2.38 trillion. NAPOCOR represented the biggest drain in public resources. Its 2001 debt of $16.39 billion or some P834.29 billion (at P50.99 per US dollar) accounted for 34.9 percent of government’s outstanding debt. With the EPIRA, the Arroyo administration promised to reverse the situation.

Fast forward to 2011. According to the PSALM Corp., the remaining debt of NAPOCOR as of 2010 is $15.82 billion. Thus, after 10 years, only $570 million have been shaved from the state power firm’s 2001 debt of $16.39 billion. At $15.82 billion or P713.64 billion (at P45.11 per US dollar), the debt of NAPOCOR comprised a still a significant 15 percent of government’s outstanding debt. Meanwhile, the budget deficit ballooned to P314.5 billion in 2010, a new high in absolute terms.

While its IPP obligations have been reduced by $1.63 billion between 2001 and 2010, NAPOCOR’s debt also increased by $1.02 billion during the same period. This implies that IPP obligations have been mainly financed by new debts. (See Chart 3)

Worse, PSALM has already shelled out $18 billion to settle the obligations of NAPOCOR from 2001 to 2010. Of the said amount, $6.7 billion went to principal amortization; $4.3 billion for interest payments; and $7 billion for obligations to independent power producers (IPPs). (See Chart 4) But if government spent $18 billion in the past 10 years, why then did the debt of NAPOCOR was reduced by a mere $570 million?

New debts

PSALM itself provided the explanation. According to it, NAPOCOR contracted new debts in the past 10 years. From 2001 to 2010, NAPOCOR accumulated new debts of $12 billion, on top of its $16.39-billion pre-EPIRA debt. Of the $12 billion, 73 percent represented operational losses while the commissioning of new IPP plants accounted for the remaining 27 percent. PSALM noted that the commissioning of new IPP plants bloated the total financial obligations of NAPOCOR to $22.35 billion by 2003.

The question now is why did officials tasked to privatize NAPOCOR have to resort to more borrowings? Doesn’t it defeat the purpose of power sector reform which is to free up government from its debilitating financial woes?

Under the EPIRA, eliminating NAPOCOR’s debts primarily involves using the proceeds from the privatization of the state power firm’s generation and transmission assets and liabilities. Apparently, this has not happened because earnings from power privatization were not enough to compensate the huge financial obligations of NAPOCOR.

According to the PSALM, government has earned $10.65 billion as of October 2010 from the sale of its generation plants, transmission assets, and IPP contracts. Of the said amount, the largest, $3.95 billion, came from the privatization of the National Transmission Corporation (TRANSCO). The sale of generating plants, on the other hand, yielded $3.47 billion. Finally, the transfer of NAPOCOR’s IPP contracts to IPP Administrators (IPPAs) accounted for the remaining $3.23 billion.

Privatization debacle

However, of the $10.65 billion in total privatization proceeds, only $4.85 billion was actually collected and used to pay for NAPOCOR’s debt. PSALM reasoned that earnings from the privatization of TRANSCO and the IPP contracts will be fully collected in a number of years through a staggered collection scheme. “But in any year when maturing debts exceed privatization collections, PSALM will have no recourse but to raise funds through new loans to pay for maturing obligations,” PSALM said. This explains the $12 billion in new debts incurred by NAPOCOR in the past 10 years.

It appears that the supposed benefits of privatization in terms of addressing NAPOCOR’s financial bleeding will not be felt anytime soon. PSALM said that the debt of NAPOCOR will be significantly reduced only by 2026, with a projected residual debt of $3.78 billion. The amount is exclusively based on privatization proceeds as of 2010 and maturing financial obligations. Depending on future privatization proceeds and earnings from the universal charge, PSALM claimed that it may even liquidate the $3.78 billion before its corporate life ends in 2026.

But it doesn’t mean that NAPOCOR will be debt-free by the time PSALM expires 15 years from now. This will depend on how much government can earn from the privatization of its remaining assets and IPP contracts. If the experience of the past 10 years is to serve as indicator, it seems that there is nothing much to hope in EPIRA even in just mitigating the public sector’s fiscal burden. Why is this so?

NAPOCOR’s financial bleeding

Even prior to the EPIRA, there were already initial efforts by government to privatize the power industry. But even then, officials already knew that power privatization can only be successful if government could package it in the most attractive way for businesses to take notice. One factor going against efforts to privatize the power sector was the small energy market of the Philippines. Being a pre-industrial, backward economy, Philippine energy consumption is not as huge as those of other countries even compared to our neighbors in Southeast Asia.

To remedy the concern over a small market, government had to offer incentives and other benefits that will guarantee the profits of private investors. IPPs, for instance, were offered a guaranteed market that was much larger than the actual electricity consumption of the country through take-or-pay contracts, on top of other benefits. These guarantees and perks were the underlying reasons for NAPOCOR’s financial hemorrhage.

Legitimizing onerous contracts & debts

Alas, EPIRA even legitimized these burdensome and unjust contracts and debts. To entice investors, Section 32 of the law mandated the government (and ultimately, the taxpayers) to automatically assume P200 billion in financial obligations of NAPOCOR.

Section 68 of EPIRA did mandate the “thorough review” all IPP contracts by an inter-agency committee headed by the Department of Finance (DOF). It also tasked the committee to take necessary actions in cases where contracts are found to be grossly disadvantageous or onerous to the government. Implementing this provision, then President Arroyo ordered a review of 35 IPP contracts. In 2002, the DOF-led review committee said that a total of 27 contracts have financial issues. A financial issue pertained to an instance when the government agency that entered into the contract agreed to shoulder financial obligations “beyond what is necessary”.

But instead of rescinding these financially onerous IPP contracts, government opted to simply renegotiate them. PSALM claimed that the renegotiations have resulted in some $1.03 billion in savings for the government Such savings, however, were not the result of striking out the take-or-pay provisions in the contracts, which remained even after the renegotiations. The reported savings mostly came from IPPs reducing their nominated capacity, or the capacity that government agreed to pay for whether electricity is actually produced or not. The renegotiations were done not to substantially rewrite the contracts. On the contrary, discussions were carried out by PSALM officials with the IPPs within the parameters set by the contracts.

Consumers’ burden

Even worse, EPIRA mandated that all the costs resulting from these contracts be borne by the hapless consumers. Section 34 of the law states that “a universal charge to be determined, fixed, and approved by the ERC shall be imposed on all electricity end-users”. The universal charge shall be collected for, among others, the recovery of so-called stranded debt and stranded contract costs of NAPOCOR.

Section 4 of EPIRA defines stranded debts as any unpaid financial obligations of NAPOCOR which have not been liquidated by the proceeds from the sales and privatization of its assets. On the other hand, stranded contract costs refer to the excess of contracted cost of electricity under eligible contracts (i.e. those approved by the ERC as of December 2000) over the actual selling price of the contracted energy output of such contracts in the market. Stranded contract costs are basically the take-or-pay capacity payments that will not be offset by the privatization of the IPP contracts and thus will still be shouldered by NAPOCOR.

In June 2009, PSALM had filed petitions before the ERC to recover almost P470.87 billion in NAPOCOR stranded debts and almost P22.26 billion in stranded contract costs for the Luzon grid. The recovery of stranded debts translates to a rate hike of 30.49 centavos per kilowatt-hour (kWh) based on a recovery period of 17 years. Meanwhile, the petition to recover the stranded contract costs in five years will translate to a rate hike of 9.20 centavos per kWh. PSALM filed another set of petitions in June 2010 to recover stranded debts for 2010 (projected at almost P54.90 billion), equivalent to almost 86.77 centavos per kWh. It also proposed to recover in three years stranded contract costs for 2009 estimated at almost P26.69 billion, equivalent to 18.79 centavos per kWh.

Fortunately, the ERC dismissed these petitions last November 15, 2010. The dismissal, however, was not because they had no basis (EPIRA allows such recoveries through the universal charge) but due to PSALM’s failure to submit supporting documents and information. In fact, the ERC decision clearly stated that the dismissal was “without prejudice to the re-filing of the same after conforming to the pertinent ERC regulations”. The relief for consumers is indeed just temporary. On or before June 30 this year, PSALM is expected to file another set of petitions to recover NAPOCOR’s stranded debts and stranded contract costs. Reportedly, PSALM is filing for 12 to 15 centavos per kWh-hike in the universal charge. (To be concluded)

Also read The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform