Marvin Sy
Philippine Star

In an effort to bring down electricity rates, President Arroyo has ordered the state-run National Power Corp. (Napocor) to cut by half its charges to the country’s biggest power distributor, the Manila Electric Co. (Meralco).

Speaking at a joint event of the Federation of Philippine Industries and the Federation of Filipino Chinese Chambers of Commerce and Industry, the President said that she and a number of her Cabinet members spent the entire night discussing ways to bring down Meralco’s rates.

“I have been wondering aloud why power cost in the Luzon Urban Beltway where many of you operate, should be so high when Luzon is reliant on imported oil for only one percent of its power,” the President said.

During the late night meeting, Mrs. Arroyo said that she ordered the Napocor to charge Meralco the same rate it charges the Luzon electric cooperatives which is at P4.11 per kilowatt-hour.

Energy Secretary Angelo Reyes said any rate-related matters should be decided by the Energy Regulatory Commission.

“ERC will have to go through that process,” Reyes said when asked about Malacañang’s newest directive.

A Napocor official, meantime, said they are not yet ready to comment on the order. “We cannot say anything until we see the order from Malacañang,” the official said.

Mrs. Arroyo pointed out previous statements by the Wholesale Electricity Spot Market (WESM) that Meralco has been purchasing electricity during peak hours when rates are higher.

This was one of the main reasons given by members of the power industry for the high rates charged by Meralco.

“We know there is room for improvement in the rates,” the President said.

According to Mrs. Arroyo, Napocor immediately agreed to her request and even gave more than what she asked for.

Instead of using the P4.11/kWh rate, the President said that Napocor would now charge Meralco the same preferential rate of P3.52/kWh it charges the high-load factor industrial customers that are accredited by the Philippine Economic Zone Authority.

For the month of January, Meralco sourced about 35 percent of its requirements from Napocor, nine percent from the WESM and the rest from independent power producers.

In its April billing period, Meralco’s rates went up by P0.6717/kWh or an increase of 8.95 percent, which it blamed on the higher prices at the WESM and the higher cost of procurement from its IPPs.

Meralco has sought for another rate increase from the ERC, this time equivalent to P19.38/kWh under the performance based rate mechanism.

Meralco said the adjustment, which will peg the rate at P1.3607/kWh from P1.1669 per kWh, took into consideration under-recoveries of the rates set on the regulatory period from July 1, 2007 to June 30, 2008 which remains pending for implementation until now.

“The maximum average price of P1.3607 per kWh carries a correction factor of 15.8 centavos per kWh as a result of delays in the implementation of the MAP of the first regulatory year, which resulted in under-recoveries,” Meralco said.

The President also followed up her instructions last February for the Department of Trade and Industry to file four petitions before the ERC in relation to the rates of Meralco.

The four petitions are as follows: to enjoin Meralco from buying electricity from the WESM during peak hours; to 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.

Mrs. Arroyo noted that the distribution charges of VECO, CEBECO and Davao Light, “along with all 140 utilities and cooperatives are all lower than Meralco.”

“We spent last night or maybe this dawn, (Executive Secretary) Ed Ermita and I and a couple of officials who are involved in the petition, talking about where the petitions are, what are the missing links, how can they fast-track. To make a long story short, the ERC will hear these petitions on Tuesday, May 6,” the President said.

The President urged the FPI to participate in the hearing of the ERC as one of the sectors heavily affected by the high electricity rates.

“Please be there with all your legal luminaries because this is going to be a tough legal fight and you will be the beneficiaries; your workers will be the beneficiaries, your consumers will be the beneficiaries, the Filipino people will be the beneficiaries. But you are the ones with the means and the articulateness to be able to make a good case before the ERC,” the President said.

Apart from the petitions, Mrs. Arroyo said that Congress is now in the process of amending the Electric Power Industry Act to remove the requirement of 70 percent power privatization for open access.

“Because open access will allow industrial consumers like you to enjoy the power of choice which will also mitigate the cost of electricity,” she said.

Apart from social responsibility, the government has an actual stake in Meralco equivalent to 33 percent, almost the same as the Lopez Group.

Heavy losses

Industry sources, on the other hand, said that President Arroyo’s order will result in heavy losses for Napocor.

“This will be similar to what Malacañang did during the passage of the EPIRA (Electric Power Industry Reform Act) when it mandated a 40-centavo rate cut which resulted to P100 billion losses for Napocor,” a source said.

“So what will happen next, the government will burden the public by another EVAT (expanded value-added tax),” the source said.

According to sources, at present, “the lowest cost for the consumers will be for Meralco to honor its contracts with its IPPs (independent power producers) and run at contracted levels of 83 percent.”

“Otherwise, it would be very expensive for Meralco to buy power from Napocor and its own IPPs,” the source said.

“Right now, Napocor’s finances are okay.  So what’s the use of Meralco getting its power from Napocor at off-peak hours at consumers’ expense?”

Expanding audit

Aside from electricity rates, the government is also bent on addressing the problem on the rising prices of petroleum products.

The Department of Energy (DOE) has taken the initial step by expanding its audit on oil companies’ profitability to see if they are charging reasonable prices to consumers.

In a press briefing in Bangui Bay, Ilocos Norte, Energy Secretary Reyes said they have asked the audit team, conducting a thorough review of oil firms’ books, to examine carefully the petroleum players’ return on equity.

“I asked SGV and the University of Asia and the Pacific to look deeper and get more details and data on the oil companies’ ROE,” Reyes said. “As you can see, you can adjust profitability by creative accounting.

“By looking at their ROEs, you can determine the reasonableness of their under-recoveries. The base (ROE) should be examined carefully to see the accurate value of the equity which includes devaluation and depreciation.  This way, we will be able to measure their profitability,” he said.

Oil firms have claimed that they need to recoup about P6 to P7 per liter under-recoveries due to the continuing rise of global crude prices.

The petroleum players said they would likely increase their prices by P1 per liter in the next weeks.

According to Reyes, SGV has increased the number of its examiners that are reviewing the books of oil firms.

The energy chief said if the review will be completely this week, they will be able to release the results of the audit anytime soon.

Reyes, meantime, said the DOE could not do anything about the weekly adjustment of oil prices.

“We are on a deregulated environment. We are prevented by the Oil Deregulation Law from doing such thing (announce price trends). It is the market that dictates the prices. This is why I’m telling consumers to conserve. It’s a global phenomenon, we have to learn to adjust to it,” he said.

Consumer and Oil Price Watch chairman Raul Concepcion had urged the government to convince the oil firms to be more transparent on their pricing.

“I told Mr. Concepcion that his request will be very difficult for us. The DOE is not allowed under the deregulated environment to announce oil price trends,” he said.

Besides, Reyes said it would create a chaotic impact on consumers if DOE will announce oil price movements.

“The reason the DOE doesn’t want to announce oil price trends is because we do not want it to result to undue panic for consumers. It may result to long queues in retail stations and hoarding of inventories,” he said. – With Donnabelle Gatdula