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P500-million electric bill of Meralco passed on to consumers

P52-billion Meralco-Napocor sweetheart deal ordered junked

By Angie M. Rosales

05/13/2008

Lawmakers went on a virtual fastbreak in ordering the Energy Regulatory Commission (ERC) to reject an alleged sweetheart deal between Manila Electric Co. (Meralco) and the National Power Corp. (Napocor) on their P52 billion cross-settlement debts.

At the same time, an admission from Meralco officials that some P500 million worth of electric power used by Meralco for its offices in every service area, has been passed on to the consumers, including these Meralco offices’ bill on systems losses, was elicited during the hearing yesterday from Meralco officials by Sen. Juan Ponce-Enrile.

Administration Sen. Miriam Defensor-Santiago, co-chairman of the Joint Congressional Power Commission (JCPC) yesterday moved to have the ERC junk

the Meralco-Napocor deal, saying the public should not be made to bear the brunt of whatever debts incurred by the state-owned power firm and the Lopez-owned Meralco.

Amid exchanges of accusations between Meralco and Napocor officials on which office is overcharging the consuming public, Santiago directed ERC Commissioner and officer-in-charge Alejandro Barin to dismiss the petition that which is being questioned now by the Office of the Solicitor General.

“We have ordered the ERC which supervises Meralco, Transco (National Transmission Corp.) and Napocor, not to grant the petition…because it is they who incurred the debts and the public does not have any role in it. We were not even consulted when they made those loans. We should follow the principle that when the consumers are not made part of the decision-making, they should not be exacted any fees. That’s called the ‘just and reasonable principle’,” she said in an interview in the middle of the lengthy proceedings.

“Under that principle, we have ordered the ERC to dismiss the petition of Meralco supported by the Napocor to pass on the costs of their mutual debts to the consumer,” she added.

The OSG, in blocking the cross-settlement agreement of debts, said it was “grossly disadvan-tageous and prejudicial” to the government because the deal would reduce Meralco’s standing debts with the Napocor. The said deal contained a “pass-on” provision that would further burden the consumers with additional fees.

When the possibility of lifting the value-added tax (VAT) imbedded in the various rates – generation, transmission, distribution, subsidies and even metering and system losses – was being toyed by panel member, Rep. Monico Puentevella with Barin as a probable solution in bringing down the high cost of electricity in the country, Santiago inquired about the authenticity of reports on the said pending petition, to which the ERC said were true.

“We have the (oversight powers) to issue you a guideline. Your guideline is ‘do not pass on the cost to the consumers. They (Meralco and Napocor) incurred the debt, why should we be made to assume the payment?” she further commented.

The ERC official, in between interrogation by Santiago and Puentevella, confessed that even the controversial system losses are imbedded with a 12 percent VAT.

“We impose VAT in the generation, transmission and the distribution supply metering including the systems loss. Believe it or not, we impose VAT on systems loss. We could include the local franchise taxes,” he said.

“Is that VAT for each? Separate?” inquired Sen. Panfilo Lacson.

“Yes Mr. senator. The VAT is uniformly applied. Every transaction, even systems losses, they’re paying taxes,” Barin replied.

In the same proceedings, Meralco officials led by its president Jesus Francisco, found themselves trading barbs not only with some lawmakers, Napocor president Cyril del Callar and Government Service Insurance System (GSIS) president Winston Garcia on who is overcharging whom.

Francisco initially defended Meralco on the allegations that it deliberately acquires power supply from Wholesale Electricity Spot Market (Wesm) at the high price during peak periods, pointing out that these allegations being hurled as “abuse of market power”, pertain to “periods during when there is a scarcity of reasonably-priced power.”

“Meralco as a distribution utility acknowledges its obligation to secure power at the least cost possible to benefit the consumer. It must be explained that in the Wesm, we have to declare our requirements 24 hours ahead. So by noon of the previous day, we’re supposed to already take the steps to identify where power would come from.

“It is partly correct only that we favor our IPPs (independent power producers). We can show that on an ordinary Wesm day, our first source of power that we identify are the special rates that NPC has furnished us, for specific customers.

The records will also show that it is not true that we’re buying from Wesm only during the peak periods. There’s an allocation for Wesm over 24 hours and majority of our purchases are during the off peak periods, Francisco claimed.

The Meralco executive saod that most of their supply come from certain IPPs, three of which – Sta. Rita, San Lorenzo and Quezon power – are also Lopez-owned, but that their rates are much lower compared to Napocor.

Del Callar tried to dispute this, telling lawmakers that at one point, government-owned power firm, Masinloc which is similar to Quezon power, averaged lower sometime last May, only to be embarrassed when Francisco noted to Sen. Edgardo Angara that IPPs pegged cheaper rates.

“The actual numbers your honor…I’m relying…I’m quite confused your honor because of the advertisements…,” Del Callar, apparently referring to the controversial “tong-pats” advertisements that came out over the weekend in various broadsheets said. Angara then berated Del Callar, reminding the Napocor president to be ready with his facts especially those concerning the central point of controversy, which is the cost of power generation.

“Meralco is making the case that its cost of generation is lower than your cost of generation. You are saying the contrary…The cost of generation is 58 percent of Juan dela Cruz’ electric bill so it’s a very large component of his electricity bill,” Angara said in lambasting Del Callar.

The proceedings also saw the face-off between Francisco and Garcia, the latter, in laying down the issues he has been raising against Meralco, told Lacson that the government or the GSIS in particular, is not out to take over the management of the giant power distributing firm.

Asked by Lacson on the courses of action Garcia is recommending to address the charges he hurled against Meralco, the GSIS chief reiterated his call for a management change and proposed the possibility of distributing the power firm’s franchise to as much as four other industry players.

Garcia claimed that the inefficiency of the management is proving to be contributory to the high cost of electricity.

“We can break up the franchise into two, three, four parts so it can be in a more economical franchise areas, more transparency in pricing mechanism, each would be comparing notes with each other on how much each franchise area is charging and there will be competition when it comes to supply of generation power. These are what we are thinking about to lower the prices,” he said.

Garcia reiterated that GSIS is not interested in taking over and has no intention of doing this and only wants to do away with a bloated bureaucracy. A case in point, he said is the fact that Meralco appears to have more supervisors than rank and file out of its 7,000 workforce.

Francisco, when it was his turn to rebut Garcia’s charges, claimed that the GSIS president may have been misled on this matter. “Our employee categories have largely two groups – one we call rank and file and supervisory. Supervisory employees of Meralco includes professionals – accountants, engineers, lawyers - who do not really supervise people. So if we only include specific positions of the company of supervisors versus who their supervise, I think the ratio will not be as bad as what Director Garcia has cited,” Francisco said.

Santiago said the bicameral oversight panel is far from arriving at a conclusion at the moment as both Napocor and Meralco appear to have committed management abuses.

Santiago also noted that ERC contributed to the mess as it seemed to be lacking teeth in the enforcement and in the supervision of the increase in electric bills.

The Senate’s energy committee chairman also immediately ruled out the proposal of bringing down the cost by lifting the VAT on various fees, saying that it’s not feasible since the government is in dire need of revenues aside from the fact that various sectors might ask for the same privilege.

As to Garcia’s proposition on splitting Meralco’s franchise, Santiago said the government can duplicate the case of the MWSS.

But after more than eight hours of proceedings, solution, as far as lawmakers sitting in the JCPC are concerned, is still nowhere in sight.

Meralco also admitted yesterday that it is charging its customers nearly half a billion pesos for electricity which Meralco itself uses each year.

GSIS spokesman Estrellita Elamparo said that the admission by Meralco, elicited through the intense queries of Senator Enrile, confirmed what the GSIS exposed in a statement over the weekend.

Enrile found from Meralco officials that all 72 million kilowatt hour of electricity used by Meralco as Meralco each year are added on to the bills of Meralco customers.

Meralco said that to arrive at the pass-on cost of the 72 million kWh, the figure should be multiplied with P5.7 for a total of cost of P427.5 million added to the bills of Meralco customers each year.

Garcia said that the cost of the 72 million kWh should be shouldered by Meralco as a cost of doing business and that it should be higher since the 72 million kHh should be multiplied at the commercial rate of eight pesos per kilowatt hour.

Enrile said Meralco is passing on to consumers every cost of its operations.

“From Meralco’s admission, we see Meralco not only not paying for 72 million kWh it uses as Meralco, but profiting from those 72 million kWh by charging the cost of the same to its customers,” said Elamparo.

Over the weekend, Elamparo revealed reports that Meralco offices, branches and facilities are being exempted from paying their own power consumption worth several billions of pesos through the years.

The GSIS, which holds four of 11 seats in the Meralco board, has also questioned Meralco’s passing on of its systems loss charges from pilferage and inefficiency to its customers.