Petitioners accuse Meralco of price manipulation

Posted at 01/21/14 7:43 PM

MANILA (UPDATE) - Petitioners in the anti-Meralco rate case before the Supreme Court (SC) have accused Meralco of price manipulation in the Wholesale Electricity Spot Market (WESM) that led to higher generation charge, and, subsequently, to the unprecedented P4.15 per kilowatt hour (kwh) power rate adjustment.

Bayan Muna Rep Neri Colmenares, one of the petitioners, accused Meralco of bidding the highest bid in the WESM, through its power supplier, Therma Mobile, at P62, twenty-five times.

Colmenares argued that this, in fact, raised the generation charge passed on to Meralco's power consumers during the shutdown of the Malampaya Natural Gas platform and other power plants since the highest price becomes the spot market's "clearing price," which "in turn becomes the price of the market."

Under Meralco's contract (Power Supply Agreement) with Therma Mobile, the former controlled the latter's pricing.

"Through its contracted energy with Therma Mobile, made P62 bids in the WESM, the highest possible bid, during the period of simultaneous shutdowns which... increased the price of electricity respondent Meralco itself bought in the WESM.

"Under the WESM rules the highest bid of electricity that was sold... becomes the proce of the entire marke, Meralco practically increased to P62 the price of electricity it will buy through the WESM as 'generation charge,'" Colmenares argued.

During Colmenares' interpellation, Senior Associate Justice Antonio Carpio pointed out that whether Meralco bought from Therma Mobile, it should have only passed on P8.65 to its consumers because this is its highest contract price with Therma Mobile.

"Meralco should only collect P8.65 from consumers as pass through charge because this is Meralco's actual cost with Therma Mobile," Carpio stressed.

Carpio also stressed that even if Meralco were not the buyer and seller of Therma Mobile at the same time, the latter's price offer still sets the market price higher within the bid hour.

Meralco had time and again stressed that the P4.15 per kwh spike in power rate is attributed to generation charge alone.

Meralco will have the chance to address this issue when it turn comes to present its arguments.


Petitioners also argued that the Energy Regulatory Commission's (ERC) clearance for Meralco to collect its unprecedented P4.15 per kwh rate adjustment deprived consumers the opportunity to examine the basis for the adjustment, and deprived consumers their right to challenge the rate hike.

Atty. Leonard De Vera, lawyer for petitioner National Association of Electricity Consumers for Reforms (Nasecore), urged the high court to strike down the automatic rate adjustments or increases to recover generation costs as unconstitutional for being violative of consumers' right to due process.

"The notice, the publication of adjustment of rates, cannot be dispensed with because that's the essense of due process," De Vera said.

One of the main arguments of petitioners in their separate petitions is that there was no due notice, hearing, and publication made by Meralco and the ERC for the proposed P4.15 per kwh rate increase, and that the increase not only shocked consumers but also deprived them the right and opportunity to question it.

De Vera cited a ruling handed down by the high court in 2006, in a petition also filed by Nasecore, that pointed out a violation of due process by Meralco when it "passed on to the consumers the adjustment in generation rate without publication."

"The Supreme Court said... the notice, the publication of adjustment of rate cannot be dispensed with because that is the essence of due process," De Vera argued.


Colmenares told the high court that that unprecedented rate increase was brought about not by an actual "substantial increase in the cost of producing electricity," but because generation companies (GenCos) "exploited the highly suspect simultaneous unscheduled and scheduled shutdown to make staggeringly high bids in the spot market called WESM."

"Respondent ERC committed grave abuse of discretion amounting to lack of jurisdiction when it hastily approved without a hearing and investigation, the P4.15 rate hike imposed by respondents Meralco and GenCos despite three highly irregular or unprecedented events which should have stayed its hands of approval as market abuse regulator," Colmenares said.

These events, according to Colmenares, are the following:

- the rate hike is the largest electricity rate increase ever in the country;
- the occurrence of simultaneous shutdowns of many plants, at least 6 scheduled shutdowns and 8 unscheduled shutdowns of plants; and
- Meralco, through its contract with Therma Mobile, also a respondent in the case, made P62 bids in the WESM, the highest possible bid, during these simultaneous shutdowns, thereby increasing the price of electricity Meralco bought in the WESM.

Colmenares said Meralco was guilty of price manipulation, to the detriment of its consumers.

"These acts... are antagonistic to the interest of Meralco's customers, and in violation of Meralco's duty under Sec. 4 of its franchise which provides that Meralco 'shall supply electricity to its captive market in the least cost manner,'" Colmenares said.

"Your Honors, if only for this, the ERC should have declared void the P4.15 increase," he added.


Colmenares also hit respondents' argument that "unless automatically passed through, the GenCos will lose substantial amount" which may even greatly impact energy supply.

"The substantial increase of P4.15 in December on top of the already unjust 1.07 increase in November, was not brought about by a substantial increase in production cost but was mainly brought about by the very high bids in the WESM by Meralco and GenCos intending to make a killing at the expense of the people.

"This simply means that the GenCos trading in the WESM produced the same amount of electricity at substantially the same production cost but at double the price," Colmenares argued.

Colmenares insisted that halting the rate hike will not result to bankruptcy on the part of GenCos, rather, will only deprive them of windfall profit.

"It does not threaten to deprive them of capital or reasonable profit, but only windfall profit," he said.

Colmenares said the ERC failed to perform its duty as market abuse regulator by "hastily" approving the rate adjustment in spite of this.

"The people will never understand respondent ERC's penchant to hastily and automatically approve rate hikes as if the energy sector will crumble if the same is not immediately granted, despite the fact that there are other methodologies of pass through processes in many countries that are not automatic but did not result in bankruptcy for the GenCos and [distribution utilities]," he said.


Bayan Muna Rep Carlos Zarate, also a petitioner in the case, urged the high court to strike down as unconstitutional Sec. 6 and 29 of the EPIRA Law, which declare that (a) power generation and supply are not public utilities; and (b) their charges are beyond regulation by the ERC.

Zarate said this is necessary in the resolution of the case because these deal with the ERC's regulatory authority.

"EPIRA's mandate, as contained in Sec 6 and 29, for the State to abandon its power to regulate the excessive impositions of power generators and suppliers, is clearly unconstitutional as the same will not be for the common good of the Filipinos, the consumers particularly.

"This is in fact the very crux of the matter. These problems that the millions of Meralco consumers are facing now is driven by the fact that prices imposed by generation companies and suppliers of electricity are not subject to regulation by the state, as these sectors are no longer considered public utilities," Zarate argued.

He also hit the "post-verification" authority by the ERC of power rate hikes, pointing out that this renders the agency and the state, in general, inutile in regulating rate hikes.