Meralco warns of blackouts

Posted at 01/10/14 4:10 AM

MANILA, Philippines - Rotating blackouts loom in the summer months as a Supreme Court (SC) freeze order on the electricity rate hike is threatening to disrupt the overall power supply chain, the Manila Electric Co. (Meralco) warned Thursday.

Meralco, the country’s largest power distributor, voiced its warning in its 230-page “consolidated comment with counter-petition” on the temporary restraining order (TRO) issued by the SC on Dec. 23 on the firm’s record increase in December generation charges.

The high court’s issuance of the TRO was in response to consolidated petitions filed by militant groups and concerned individuals against Meralco’s planned rate adjustment.

“With the TRO in place, it will not be far-fetched to imagine that some generation companies might altogether refuse to sell electricity to Meralco or decide to sell to Meralco only such amount of electricity as is commensurate to the resulting rate of P5.6673 per kilowatt-hour (kwh),” Meralco said. “Either way, the insufficient power supply will result in rotating blackout, particularly during the summer months, which historically drive up the demand for electricity.”

The power distributor said the High Tribunal’s keeping the TRO without requiring generation and transmission companies to rein in their rates “would prejudice not only Meralco but the entire electricity supply chain, including ultimately the public as well.”

Meralco also raised the possibility of some unpaid power producers refusing to sell electricity to the company because of the TRO.

In its counter-petition, Meralco said it had received demand letters from National Grid Corp. of the Philippines (NGCP), the country’s transmission highway operator, and other power producers.

Citing the higher cost of power purchased from suppliers, Meralco announced late last year a P3.44 per kwh increase in generation charge to P9.10. The adjustment would have translated to P4.15 per kwh hike in electricity rates in December billings had the SC not issued the TRO. The original generation charge is P5.6673 per kwh. The generation charge is the cost of power purchased by Meralco for the previous month’s supply. It is the biggest component of electricity cost, accounting for 65 percent.

“As it stands, Meralco is enjoined from collecting from the public the increase in the generation charges amounting to P8.9 billion while the generation companies and NGCP may insist on collecting their full billings already,” it said. NGCP alone was demanding payment of more than P111 million from Meralco.

AES Masinloc wanted immediate payment of more than P436 million for power supplied to Meralco while San Miguel Energy Corp. and South Premiere Power Corp. were demanding P8 million and P856 million, respectively.

Meralco explained that it had to collect higher generation charges because it was compelled to source supply from the more expensive Wholesale Electricity Spot Market (WESM) due to the scheduled maintenance shutdown of the Malampaya natural gas plant and the forced shutdown of other plants.

“The spikes are isolated, non-recurring and primarily the result of an abnormal confluence of simultaneous and overlapping forced or unscheduled outages, including extended and scheduled shutdowns of major power plants leading to extraordinary high WESM prices,” Meralco said in its petition.

It noted that generation cost was relatively stable before November.

“There was adequate supply that was enough to keep prices at manageable levels. In fact, prior to the Malampaya and other power plants’ shutdowns, the October 2013 generation charge, covering the September 2013 supply month, cost went as low as P4.68 per kwh,” Meralco told the SC.

By not being able to bill the December 2013 increase in generation cost and other pass-through charges, Meralco said it was exposed to great financial risk.

“Moreover, because of Meralco’s constraints to pay the outstanding and succeeding bills beyond the P5.6673 per kwh price because of this Honorable Court’s TRO, Meralco will, in the succeeding months, effectively be unable to buy power if the result will cause the pass-through generation charge to exceed the P5.6673 per kwh,” it said.

“In the same manner, it is highly possible that the generation companies would no longer sell power to Meralco if the result will cause the pass-through generation charge to exceed P5.6673 per kwh rate as Meralco would be legally constrained to purchase power at market price.”

Oral arguments on the petitions against the rate hike are set on Jan. 21.

With the TRO in place, Meralco has instructed its 5.3 million customers to set aside its December 2013 billing and instead pay the amount equivalent to their November 2013 bill or whichever is lower.

The January generation charge, meanwhile, is pegged at P5.67 per kwh in deference to the TRO although actual generation charge has risen to P10.23 per kwh, according to officials.

“The preliminary billings from the power suppliers and WESM indicate the January 2014 generation charge translates to P10.23 per kwh,” Meralco said.

“The reason for the increase is still the Malampaya shutdown which crossed two billing periods, coupled with the scheduled, extended and forced outages of generation plants in December,” said Larry Fernandez, Meralco head of utility economics.

He said the company would wait for instructions from the SC and the Energy Regulatory Commission (ERC) on how to collect the January generation charge in excess of P5.67 per kwh.

Gov’t told to answer charges

The government cannot avoid legal questions on the P4.15 per kwh increase on power rates that Meralco wanted to impose, the SC said yesterday.

In a five-page order, the high tribunal denied the plea of the Department of Energy (DOE) and ERC for them to be excused from answering petitions questioning the legality of the power rate hike.

The SC ordered the Office of the Solicitor General (OSG) to submit by personal service their comment on or before Jan. 17.

The OSG was also ordered to attend the preliminary conference of parties on Jan. 13, in preparation for the oral arguments on Jan. 21.

In a motion filed Wednesday, the OSG told the high tribunal that the DOE and ERC were not required to answer the petitions filed by the militant groups led by Bayan Muna party-list and consumer groups led by the National Association of Electricity Consumers for Reforms (Nasecore) as they were merely impleaded as nominal parties.

The SC rejected the OSG’s arguments and reiterated its earlier order requiring the energy regulators to explain their approval of the record-high power rate hike.

In the same order, the petitioners were directed to amend their petitions in order to include more respondents.

The high court wanted the Philippine Electricity Market Corp. (PEMC), operator of electricity trading floor WESM, and power suppliers SEM-Calaca Power Corp., Masinloc Power Partners Corp., Therma Luzon Inc., San Miguel Energy Corp., South Premier Power Corp. and Therma Mobile Inc. impleaded as parties in the case.

The SC said the petitioners failed to implead the PEMC when they alleged that “a very high ceiling price was revealed, at P62/kwh sold at WESM, while normally the price is way below this on the average in the spot market.”

It said the power producers were not impleaded when they had been accused of collusion with ERC “in their profiteering activities.”

Records show that the power producers supplied Meralco in November last year when the generation costs increased.

Meralco filed its answer to the petition on Wednesday.

In a 129-page comment, Meralco asked the high court to lift the temporary restraining order it issued last month stopping the implementation of the power rate hike for 60 days.

It also sought the inclusion of PEMC and the power suppliers as respondents in the case – a prayer already granted by the court yesterday.

Meralco said it did not violate the people’s rights to due process as alleged by the petitioners.

“Contrary to petitioners’ contentions, the automatic adjustment scheme as implemented by the AGRA (Automatic Adjustment of Generation Rate) rules and EPIRA IRR (Electric Power Industry Reform Act implementing rules and regulations) amendment comply with the requirement of due process,” it stressed.

It said the Agra rules and the EPIRA IRR amendment provide that automatic adjustments are always subject to post-verification process by the ERC.

The ERC, which apparently filed its comment also on Wednesday, expressed disagreement with the OSG’s claims that it did not need to answer the petition.

ERC chair Zenaida Ducut said the issues raised in the petition are constitutional in nature and delved on the adjustment mechanism utilized by the commission in approving generation cost.

ERC has denied it committed abuse of discretion when it approved Meralco’s request for power rate hike, as it claimed it had the legal basis to do so.

Petitioners alleged that their right to due process was violated when the ERC approved the price adjustment without public hearings.

They questioned the ERC’s approval of the power rate hike on Dec. 9, or just four days after Meralco submitted its proposal.

Nasecore urged the high court to order the creation of a committee to be headed by the Commission on Audit as head, that would conduct an automatic audit on electricity rate adjustments imposed by Meralco since 2004.

The committee, Nasecore said, should determine the amount that Meralco should refund consumers for the alleged illegal rate increases.

Meanwhile, Bayan Muna said it would ask the high tribunal to include power producers in the TRO it issued against Meralco.

“They are the real culprits behind all these increases,” Rep. Neri Colmenares said, adding Bayan Muna welcomes the SC decision requiring DOE and ERC to explain why they allowed the rate adjustments, and dismissing the request of the OSG to exclude the two state agencies from the case. – Edu Punay, Jess Diaz, Christina Mendez