In my column, “Something Cooking at the ERC?” last week, I said Meralco had to pay the National Power Corp. (Napocor) some P27 billion in damages for unilaterally revoking a 10-year supply-power contract it had with the latter for the period 1994 to 2004.

The gist of that column was simply that there’s a possibility the Energy Regulatory Commission (ERC) will finally allow Meralco to pass on that liability to its customers. The question has been pending at the ERC since 2003.

Elpi Cuna, Meralco vice president-spokesman, wrote to correct some factual errors in that column. He says the amount is only P20.05 billion, not P27 billion, and that the payment due Napocor is not for “damages” but “for the fixed cost component of the energy” that would have been bought from Napocor from 2002 to 2004 had it not revoked the supply contract.

Elpi also says it acknowledged its liability to Napocor not because of any Supreme Court decision, implying that it did so on its own volition.

A mistake is a mistake and I must humbly own up to it and offer my apologies. Indeed, Meralco’s huge debt (even at P20 billion) to Napocor, which remains unpaid to this day, is formally acknowledged in a highly questionable settlement agreement signed between the Napocor (as generation company) and Meralco (as power buyer and distributor). It was in this settlement that Meralco made a counterclaim for P7 billion for Napocor’s failure to deliver transmission services. That’s where the P7 billion went.

That settlement agreement was signed on July 15, 2003. On behalf of Meralco, the signatories were Jesus Franciso, president and CEO, and Christian S. Monsod, director. For Napocor, they were Rogelio Murga, then the president and CEO, and Edgardo M. del Fonso, then the president of Power Assets and Liabilities Management Corp.

That agreement would have been just fine, except for a provision that says the P20-billion liability of Meralco would be passed on to its customers!

Fortunately for Meralco subscribers, Meralco cannot simply pass on this liability to its customers without the express approval of the ERC. That’s why the settlement agreement was submitted by both parties to the ERC for ratification. This being a potentially explosive issue, the ERC has not acted on the agreement since it was signed in 2003.

As I said in the previous column, insiders have expressed concern that maneuverings for its approval may be currently going on before ERC chairman Rodolfo Albano Jr. formally retires in July (actually, his tenure will end on June 30, but insiders say he intends to take a terminal leave after May 31).

What is objectionable in the settlement is that if it gets ERC approval, Meralco’s 4.2 million customers will have to shoulder an additional 14 centavos to 16 centavos per kilowatt-hour (kWh)for 80 months. Yet, Cuna, Meralco spokesman, describes the agreement glowingly, thus:

“The beauty of the settlement agreement as attested by two mediators, former Justice secretary Sedfrey Ordonez, who mediated for [Napocor], and Mr. Antonio del Rosario, former World Energy Council chairman, who mediated for Meralco, lies in its being a fair and reasonable settlement between Napocor and Meralco, with the highest regard for the interest and protection of consumers. . . .”

Cuna also explains why Meralco drew up the 10-year supply contract in the first place, and how it came to unilaterally revoke it. “The contract was signed in November 1994 to address the concern of the World Bank that the Napocor did not have a contract with its biggest customer, Meralco. At that time Meralco had already signed commitments for capacities that are now supplied by its independent power producers [IPPs], Quezon Power, Sta. Rita and San Lorenzo [both owned by the Lopez family, which controls Meralco].

“There were bullish projections on the economy and electricity demand at that time and capacities were contracted to meet the projected demand. Due to the Asian crisis [of 1997], however, the economy slowed down, and with it the demand for power, resulting in a period of excess capacity. Had projections on the economy materialized, there would have been no problem meeting the contracted levels in the contract with Napocor.”

In short, Meralco is conveniently blaming the economy, which had been predicted by the Ramos administration to be on the upturn. Still, Cuna’s explanation is full of holes.

The Asian currency crisis happened in July 1997. Both Quezon Power’s 440-megawatt (MW) coal plant in Mauban and First Gas Power’s 1,000-MW plant had hardly broken ground. If Meralco were a responsible public service provider that has only its customers’ interest at heart, it should have reviewed all its contractual commitments to its own IPPs.

At that time, it was assured of 3,600 MW from Napocor until 2004, equivalent to 80 percent of its total requirement. It should have rescheduled the construction of its two IPPs and, at the very least, renegotiated the terms of its contract with Napocor. After all, the Asian currency crisis was a force majeure and such moves would have been logical and justifiable.

As it came to pass, the Malampaya natural gas was not available until the middle of 2001. Why were the Lopezes trying to finish the 1,000-MW plant as early as 1999 with the Asian crisis still raging?

The Lopezes had sued Siemens, its own turnkey contractor, for not finishing the Sta. Rita plant on time. Based on purchased power adjustment documents Meralco filed with the ERC, the first 500-MW block of the Sta. Rita plant began operating, but only partially, in July 2000 using expensive liquid condensate fuel to substitute for natural gas, thus jacking up First Gas Power’s generation cost to a shocking average of P7.412014 per kWh of the 116,622,000 kWh it actually produced for a three-month period.

Even Sen. Juan Ponce Enrile at the time, who was having a grand time exposing the shenanigans of the Meralco, suspected First Gas Power’s generation cost was “a scandalous” P5.88 per kWh. The records show it—the generation cost was P7.41 per kWh. I wonder what adjective he would have used if he had known it was much higher.

First Gas charges to Meralco in the initial months of the Sta. Rita plant were P6.8633 in September, P9.8649 in October and P17.9956 in November 2000. These are all on the record, in the archives of the ERC.

All these unbelievably high rates were casually passed on to its customers by Meralco as “part of the PPA amounting to P1.461 per kWh in July, P1.646 per kWh in August, P1.746 per kWh in September, P1.70 per kWh in Ocober and P1.80 per kWh in November. All on record.”

Meralco sure had an odd way of demonstrating what Cuna describes as its “highest regard for the interest and protection of the consumers.”

By the way, the same ERC records also show that Meralco’s other IPP, Quezon Power, billed Meralco in 2000 for its electricity at the rate of P6.0696 in July, P7.2577 in August, P9.083 in September, P11.64 in October and P8.5687 in November.

The Lopezes must have planned on operating the Sta. Rita plant for about two years using the very expensive liquid condensate. They claimed to have signed a long-term fuel-supply contract with Enron. So why did they build and operate the plant years before the Malampaya gas was deliverable knowing full well that, first, Meralco’s demand was slashed by the Asian crisis; second, Meralco was still contracted to Napocor for 3,400 MW until 2004; and third, the generation cost would be double the cost of procuring Napocor power?

It is hard to give Meralco the benefit of the doubt in this instance because the First Gas Power that is making all the revenue is owned by the same Lopez family that controls Meralco. If such an experience is not compelling enough for our legislators to amend the Electric Power Industry Reform Act, specifically on cross-ownership, I don’t know what is.

And where is the “beauty” in the settlement agreement, as asserted by Cuna, in asking the ERC to allow Meralco to pass on its P20-billion liability to Napocor to its customers? It clearly violated its contract with Napocor and even acknowledges it in the settlement agreement, but it wants the public to pay for its willful violation of a commercial contract?

The Lopezes handsomely profited from First Gas Power even with a partially completed Sta. Rita plant in its first 18 months of “operation.” It declared a cash dividend of P4.7 billion after that. That is the beauty of cross-ownership and sweetheart deals.  

Omerta_bdc@yahoo.com

BECAUSE so much has been written about climate change and the many other things that imperil the planet—not to mention that it’s better to listen to or watch the experts and act accordingly, than do the preaching—this Earth Day editorial will be short but sweet.

In a previous article in this column, lawyer Raoul R. Angangco gave a comprehensive description of the mechanics of the Kyoto Protocol, enumerating the tools found there to achieve its goals.

There is no denying that intellectual property rights (IPR) must be protected against those who violate them, but when the owners of these rights are the ones abusing such rights by pricing their products beyond the reach of the public, such rights must be tempered or, in the words of educator Romulo Neri, such greed must be moderated.

Outside the Box: Intellectual-property rights: Who cares?

Say, a friend of mine, owns a consulting agency and does work for some of the largest corporations. His expertise is providing research and then formulating marketing strategies. Companies enjoy millions of pesos of increased revenues from his effort.

Omerta: The beauty of cross-ownership

In my column, “Something Cooking at the ERC?” last week, I said Meralco had to pay the National Power Corp. (Napocor) some P27 billion in damages for unilaterally revoking a 10-year supply-power contract it had with the latter for the period 1994 to 2004.

Sen. Edgardo J. Angara: The World Bank’s ‘New Deal’

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