Despite virtual monopoly, price-fixing, Meralco paints self as ‘not the bad guy’ in rate hike

In this week’s hearing, Meralco is ostensibly just following rules, and WESM rules have inability to prevent manipulation while the regulator failed to ensure rules do not prejudice Meralco costumers.

Read also: Opposition to Meralco rate hike persists despite 13-cent slash in rates


MANILA – The Manila Electric Company (Meralco), the country’s largest distributor of electicity, defended its unprecedented rate hike Tuesday at the Supreme Court and tried to present itself as an underdog in the power hike mess, saying not a single centavo from pass-on charges will go to them. The company said it is just a distribution utility earning distribution charges which are regulated under the Electric Power Industry Reform Act (Epira).

Meralco counsel Victor Lazatin said the petitioners should have exhausted all administrative remedies and gone first to the Energy Regulatory Commission before filing a petition for a temporary restraining order (TRO) on Meralco’s rate hike. ERC is the government regulator accused by petitioners from Makabayan lawmakers to have abdicated its duty as it hastily approved Meralco’s rate hike without probing into reported price manipulations.

The way Lazatin answered the questions of SC justices this Tuesday, he portrayed Meralco as a company that minds their customers, hence their passing on of higher costs in staggered basis. Based on Lazatin’s statement, Meralco can only bow to generation companies and the decisions of the ERC. Lazatin said generation companies are not regulated as a public utility but as a business.

But amid all these, Meralco’s Lazatin issued what critics consider as blackmail. Lazatin told SC “a TRO or injunction will stop delivery of fuel to generation companies (GENCOs) and the unpaid GENCOs will likely stop delivering power.” In a statement, Bayan Muna Rep. Neri Colmenares, one of the petitioners against the hike, noted Meralco is “resorting once again to blackmailing consumers with this threat as their price manipulation practices are exposed.” Colmenares said that if Meralco continued with this, then the government can take over Meralco.

In last Tuesday’s oral arguments, Meralco’s counsel agreed with Justice Leonen that it is alright for companies to profit under Philippine’s state of affairs.

Meralco powerless?

The unprecedented rate hike has repeatedly been justified by Meralco as due to higher generation cost, or higher price of power it purchased and distributed. As allowed by Epira and as specifically approved by the ERC late last year, Meralco hiked their rate to pass on the cost of generation to consumers. But this passing on of generation cost and the amount involved are being questioned in court and on street rallies.

Protesters assail Meralco for its "greed." (Bulatlat File Photo, 2014)
Protesters assail Meralco for its “greed.” (Bulatlat File Photo, 2014)

Asked in Supreme Court why the December billing went up, Lazatin cited the higher source of fuel they bought following the shutdown of some plants. He broke down the cost of increased rate as follows: 4.15 peso increase in rate is composed of P1.03 natural gas and P2.42 for WESM [Wholesale Electiricty Spot Market] purchases plus taxes. The P4.15 is just the first tranche of Meralco’s rate hike. According to Lazatin, for the benefit of the consumers, they staggered the prices.

Under questioning by SC justices, it was revealed that Meralco instructed Therma Mobile, their supplier, to bid the highest price of P62 ($1.37) in WESM, although Lazatin clarified it is “for off-peak hours.” He said Meralco is just a “price-taker” in generation cost. But given the must-offer rule, Meralco and its supplier seemed to have come to an agreed bid price. As Judge Carpio asked, “If that is to happen in stockmarket, that is price manipulation. If that happens in WESM, that’s price-fixing?”

WESM was established with the passage of Epira purportedly to promote competition in the energy sector. It is a trading platform for electricity where power distributors buy supplies not covered by their bilateral contracts at market prices.

Passing the buck to ERC

Justice Jose Perez noted that based on the discussion, “the root of the problem is really the WESM rules and the inability of these rules to prevent manipulation.” He asked if the ERC can look into the manipulation of the WESM rules even before the implementation of the increase. But Tuesday’s hearing mostly gave the floor to Meralco and not yet to ERC.

Why was there a spike in prices of power, again? As Lazatin told Justice Presbiterio Velasco Jr., it is because there is a bilateral contract and also because of purchases in the WESM. Lazatin blamed the violation of WESM rules as main culprit in the rate spike. In turn, the blame is shifted later to the regulator, as Chief Justice Ma. Lourdes Sereno said “It is the failure of the regulator who is mandated by the EPIRA to ensure that the rules do not prejudice the costumers of Meralco.”

To Meralco’s seeming weakness at contracting the least costly generated power, based on the statements of its lawyer, Sereno said that “a virtual monopoly like Meralco have such legal muscle, market muscle, that it can get a contract that is favorable to its consumers. Otherwise, there is a failure of regulation.”

Sereno said that ‘In a situation where you have market power, you could actually negotiate a power supply arrangement which says any change in the fuel cost shall not be passed on as charge to consumers.’

As of now, according to Justice Marvic Leonen, Meralco has done the automatic pass on in the December billing, and also in the January billing. The Court’s TRO covers only the P4.15 or the first tranche of the rate hike.

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