Power and nationalism

DIE HARD III

Herman Tiu Laurel

8/24/2012

Last Monday's column zeroed in on the "Meralco 'subsidy' spin." Besides showing that the Manila Electric Co. (Meralco) and, by extension, Philippine power rates are among the top five highest in the world, we were able to point out that this is not due to any government subsidy but because of a number of other reasons.

In fact, if any subsidy were being given, it is the consumers footing the bill--first, by advancing payments each year--for four year regulatory periods--to Meralco and other distribution utilities (DUs); then, via exorbitant Wholesale Electricity Spot Market (WESM) rates for selected independent power producers (IPPs); then, as payments to Meralco based on a 500-percent to 900-percent overprice of transformers, substations, electric poles, and other assets; plus, a P2.2-billion Meralco exaction for "regulatory liaison;" or even the power firm's carry-on of non-power-related real estate and other projects to its asset base; and the up to 17 percent Performance Based Regulation (PBR) scheme that supplanted the fixed 12 percent Return-on-Rate Base (RoRB) formula that was already upheld by the Supreme Court (SC) in 2003.

Jojo Borja of Iligan Light and Power Inc. (ILPI), being a third generation practitioner in the power generation and distribution business, called us to elaborate further on what he sees as the beauty of the RoRB system.

According to him, "there are even more important differences between the RoRB and the PBR aside from the simple of 12 percent versus 17 percent arithmetic. The 12 percent RoRB is a cap and not automatically granted; and DUs sometimes have to wait for up to three years... as the authorities would review every aspect, from exchange rate to cost of fuel and changes in cost of equipment, etc.; what is approved could be a lot lower than 12 percent. The 17 percent PBR is not only a 30 percent higher rate; it is also granted in advance for four years of a regulatory period and automatically every year until the reevaluation four years later (or the only time) when the rates are reviewed."

But here comes the clincher from Borja's own admission: "Despite the RoRB stringency, ILPI made money; but with the PBR, it's always a bonanza."

Butch Junia, the indefatigable investigator of Meralco foibles e-mailed us his additional observations after reading our last column: "Residential (consumers) contribute 71 percent of Meralco total revenue, the balance from non-residential; in other words, we pay double, not just 25 percent more."

He moreover contends that "PBR as implemented… differs from the way it should be implemented (because) the six objectives of PBR, according to Ingo Vogelsang of Boston University, in his paper 'Electricity transmission pricing and performance-based regulation,' are: efficient day-to-day operation; efficient investment; signaling locational advantages; cost recovery; simplicity and transparency; and political feasibility… (the last of which) means no class of customer is materially disadvantaged relative to another…"

Based on the aforementioned, Junia notes that the "PBR here will fall short on the objectives, particularly the last two."

"On the global price," he adds, "Wikipedia electricity pricing shows that the Philippines is fifth highest after Tonga (57 US cents), Denmark (40.38), Germany (36.48), and Brazil (34.18)... (where the) Philippines is at 30.46… but that was as of March 2010. Considering increases since then, and if Meralco's rate is (now) more than P14 per kilowatt-hour (KWh), then we could be the highest at around 58 US cents. But that is the highest residential rate for Meralco customers, not their average. Still, that is what those consuming more than 400 kWh are charged."

So while the rest of the country debates minor or, worse, irrelevant issues, our nation's power patriots are doggedly sticking their magnifying glasses on the fine print of the labyrinthian local and global experience, rules and processes, as well as actual power rates which a host of government bureaucrats are blind to.

Borja, for instance, has brought his Energy Regulatory Commission (ERC) exposés to Malacañang and to Commission on Audit (CoA) commissioner Heidi Mendoza--but to no avail. Yet, in spite of such setbacks, our crusaders continue to plod on.

The same is true for one other power patriot whom we should highlight this day, August 24th. A former SC Chief Justice (CJ) and the current Honorary Chairman of the Kilusan ng Makabansang Ekonomiya (Movement for a Nationalist Economy), former CJ Reynato Puno, whose Supreme Court affirmed in a landmark 2003 ruling the paramount importance of the 12 percent RoRB cap as the true system for basing Philippine power rates, now joins our increasingly growing ranks.

That landmark decision, which also ordered a CoA audit of three sample years of Meralco's books, later found P46-billion disallowances based on our most senior power consumer crusader Mang Naro Lualhati's computation of CoA's findings.

Unfortunately, those actions were insidiously subverted in the ERC boardroom in 2004 when the regulatory body's commissioners created the PBR and distorted the power rate setting mechanism to the great disadvantage of the Filipino people, while ringing the cash registers of Meralco with annual profit increases of close to 100 percent consecutively thereafter.

Justice Puno will be speaking today, 8:00 a.m. to 12 noon, in the KME-sponsored "Chief Justice Reynato Puno Lecture Series on Economic Justice" at the UP Bahay Alumni. He will also join me in my GNN (September 1, Saturday) "Politics Today" show to discuss the situation of economic justice, specifically how the Philippine power rate crisis is suppressing economic development and justice in this country today.

(Watch Talk News TV with HTL, Saturdays, 8 to 9 p.m., with replay at 11:15 p.m. and Sundays, on GNN Destiny Cable Channel 8, this week on "Politicization of the Judiciary" with Alan Paguia; visit http://newkatipunero.blogspot.com)