By LALA RIMANDO
abs-cbnNEWS.com/Newsbreak
      
(Last of two parts)

How does one solve a problem like high electricity prices?

The simple answer would be to introduce free market conditions in all the electricity sector's different components. Theory says efficiency and transparency in the different aspects of the sector would push prices down, in effect lowering electricity bills.

As a result, this will entice job-producing industries to invest here. On the domestic front, electricity bills will account for a lesser share in monthly household expenditures.
 
But, despite the seven-year old Electric Power Industry Reform Act (EPIRA), the country’s electricity prices remain high, even among the highest in Asia, next to Japan.

Privatization, deregulation, and restructuring of the generation and transmission components of the power sector have not yet been completed.

Thus, the EPIRA's end goal, to have a "retail open access," which is supposed to provide the end-users of electricity the freedom to decide which among the generating plants they would like to directly source from, remains a distant dream.

Industry observers say that the boardroom conflict in Meralco is a good time to attract public attention to the need to further implement the remaining aspects of EPIRA, such as the privatization of more generation assets of Napocor. This would make the concept of the retail open access more palatable and private investors don't have to compete with Napocor which is subsidized by government.
 
However, the danger of the controversy is that the players may send the wrong signal especially to private investors that they may not be allowed to recover fair returns on their investments.

‘Gatekeeper’

Currently, the distribution company that holds a franchise in a specific area exercises the choice of where to source its power.

In the case of Meralo, it is a "gatekeeper" between a captured market that accounts for 70 percent of total demand in Luzon, and the power plants that churn out electricity.

A source familiar with the industry said that as the one that holds the key to the most profitable distribution franchise in the country, Meralco is a sought-after partner by those who snap up the generation assets of Napocor up for privatization.

"If you get into the generation business, you would like to be assured that you have a ready buyer for your product. Meralco is your best bet," the source said.

Garcia’s tirades

Major shareholder representative Winston Garcia, president and general manager of Government Service and Insurance System (GSIS), which together with other government entities, collectively owns about 35 percent of Meralco already, has questioned the direct transactions between Meralco and its sister companies in the electricity generating business.
 
Garcia called these "self-dealing" transactions, implying that the Lopezes, who, through FPHC, own 33.4 percent of Meralco, have been using their control of the company to benefit another business, never mind if, as Garcia claimed, it resulted in higher cost to the consuming public.
 
But the Lopezes flatly deny Garcia's tirades.

Federico Lopez, president of FPHC that owns two Batangas-based natural gas power plants, explained in a briefing that the power that Meralco sources from its sister companies is less expensive than those sourced elsewhere.
 
Lower cost

In his presentation, he said power sourced from sister companies under First Gas Corporation, an FPHC subsidiary, costs only P3.91 per kilowatt hour, compared to P5.67 worth sourced from government-owned plants of the National Power Corporation (Napocor), the P7.85 average worth of those from the spot market, and the P3.56 from Quezon Power Phils Ltd (QPPL), another private company that Meralco has a supply contract with.
 
Electricity sourced from First Gas accounts for about 39 percent of Meralco's total supply, while Napocor, those bought from the spot market, and QPPL each has a share of 30, 19, and 12 percent, respectively.
 
A source also familiar with the industry said that as long as the generation assets of the Lopezes continue to have cross ownership with its distribution company, the conflicting interests would always be raised, whether by stockholders like GSIS's Garcia or someone else.
 
This was highlighted in the P15 billion 10-year supply contract between Napocor and Meralco starting 1994. When the 1997 financial crisis hit and electricity demand dipped, the Lopezes decided to renege on the bilateral supply contract with Napocor that specified a minimum electricity sale from Napocor to Meralco. Instead, the Lopezes pursued Meralco's existing bilateral supply contract with their natural gas power plants in Batangas.
 
In 2004, there was a settlement agreement between Napocor and Meralco but it has yet to be implemented. Meralco was seeking permission to charge it to their consumers.
 
Stalemate?
 
In the recent statement of Oscar Lopez, chairman of FPHC, he said he is "sick and tired" of Meralco being blamed for the high cost of electricity prices, and is ready to sell but not willing to sit down with Garcia.
 
While Garcia has been known to earn big for GSIS's investments from other companies, like Equitable PCI Bank and San Miguel Corporation, he claims he has no intention of buying out the Lopezes in Meralco and that he just wants fair return for GSIS's stake.

Garcia does not deny however that if the price is right, he can also opt to sell GSIS's stake in Meralco.
 
One industry analyst said that with a looming stalemate, the other option is for both government and the Lopezes to both exit from Meralco, get a premium for their combined 68 percent stake, and allow a less conflicted group to run the country's biggest electricity retailer.
 
How all these will play out will influence the cost of electricity in the country.