A lawmaker on Tuesday urged Congress to split the mega-franchise of the Manila Electric Company (Meralco) into three, accusing the utility of monopolistic behavior and failing to serve the interest of 7.6 million subscribers and overcharging them in the last nine years.
In response to the speech, Meralco on Wednesday said it complies with all government regulations and said Fernandez’s speech contained factual errors and was “riddled with inconsistencies.”
It also denied behaving as a monopoly.
In a privileged speech on Tuesday, Rep. Dan Fernandez of Sta. Rosa City in Laguna said since Meralco has grown too big and dominant in the power industry, it is timely to review its franchise to pave the way for splitting it into three.
“It’s high time we renew its franchise to pave the way for the split of the mega-franchise we granted Meralco,” said Fernandez in the speech.
“If possible, we can split it into three franchises since Meralco actually operates in three sectors in Luzon— NCR (National Capital Region), South Luzon (Calabarzon), and North Luzon sector of Pampanga and Bulacan,” he added.
In his speech, the Laguna lawmaker also said Meralco now controls at least 70 percent of Luzon’s electricity output, giving it the leverage to manipulate the operations of power producers and sellers.
“They control the whole of Metro Manila, NCR, they control the whole of Calabarzon, including my province, Laguna,” said Fernandez.
Because the franchise is too big, Fernandez said Meralco has already, in effect, divided it up to be able to manage it.
“They control Pampanga and Bulacan,” Fernandez said.
“They are so huge and enormous that they have subdivided the whole franchise. They have subdivided (it) into the central, southern, and northern sectors,” said the lawmaker.
The company can even operate the Bohol franchise in the Visayas if it wanted to, he said.
With 60 percent of the country’s gross domestic product coming from NCR, Fernandez said Meralco can manipulate the Philippines’ economic growth by having full control of electricity in Luzon.
“They are monopolistic,” said Fernandez, chair of the House committee on public order and safety.
He also cited reports that Metro Pacific Investment Corp. (MPIC), Meralco’s mother company, was acquiring the natural gas power plant in Ilijan town, Batangas province.
The plant has a 2,500-megawatt capacity and uses combined-cycle natural gas to operate.
“If you combine the assets of Meralco and Ilijan Power Plant, they will be creating a vertical integration system wherein they will be controlling fuel supply, imported fuel facilities, power supply, and distribution under one board of directors,” said Fernandez in a mix of Filipino and English.
Fernandez called this development a national security concern.
What is more frightening, said Fernandez, is that it was the House of Representatives that turned Meralco into the “monster” and “super franchise” that it is now through Republic Act 9513.
Fernandez said lawmakers can still correct the mistake since Congress has the power to “amend, revoke, suspend, and even subdivide their franchise.”
He said before Meralco buys the Ilijan power plant, which was estimated to cost $700 million, it must first refund the excess fees it collected from 7.6 million customers in Luzon.
He said in 2015 he had already raised the irregular manner by which Meralco computes its weighted average capital cost.
Until today, Fernandez said Meralco has fixed its weighted cost of capital at 14.97 percent, which the utility uses as a basis to compute its profits.
Fernandez said this defies Energy Regulatory Commission rules requiring power distribution utilities to review and recompute their weighted average capital costs regularly.
He said risk rates, interest net rates of banks, and regulatory asset base were high in 2015 because of the Asian financial crisis.
The Asian financial crisis has long been over yet Meralco continued to use the same weighted average capital cost to hide its excessive profits, Fernandez said.
“We no longer have a financial crisis and all the interest rate, the country’s risk rate, their financial requirements, the indicators are saying that weighted average cost of capital is so low,” said Fernandez in Filipino.
In response to Fernandez’s speech, Meralco said it complies with all government regulations.
“Records likewise show that Meralco… even outperformed the level of service required by the regulator. This is precisely the reason why some local government units are clamoring for Meralco to take over their service,” Meralco vice president and head of corporate communications Joe Zaldarriaga said.
He said Fernandez’s speech had “factual errors” and was “riddled with inconsistencies.”
Zaldarriaga said Meralco is the largest utility in the country yet has never committed and has no record of any anti-competitive behavior or abuse of market power.
“On the contrary, we have always managed to supply electricity to our customers in the most transparent and least cost manner, and is the only distribution utility that has complied with an ERC (Energy Regulatory Commission) directive to refund distribution charges by refunding more than P48 billion in 2023.”
“Meralco has always capitalized on economies of scale to ensure that it can get the lowest generation cost from its power suppliers,” Zaldarriaga said.
He also said Meralco does not control 70 percent of Luzon’s electricity” and in the Meralco area, 90 percent of industrial consumption and one-third of commercial consumption is supplied not by the distribution utility but by competitive retailers, such as the Aboitiz Group, First Gen Group, and others.
Zaldarriaga said Meralco does not serve “the whole of Calabarzon” contrary to Fernandez’s claim.
He said there are many other electric cooperatives (ECs) and distribution utilities (DUs) in Calabarzon, including FLECO (in the province of Laguna), BATELEC I, BATELEC II (biggest EC in the country), Ibaan Electric, First Bay, Quezelco I, Quezelco III, and others in Batangas and Quezon.
The executive said Meralco does not “control Pampanga” but serves only a handful of barangays. He said other ECs and DUs in the province include Angeles Electric, PELCO I, PELCO II, PELCO III, San Fernando Light.
Zaldarriaga said the gross domestic product (GDP) from the National Capital Region (NCR) is likewise not “60 percent.
He said data from the Philippine Statistics Authority shows that NCR’s GDP is about 32 percent of the total Philippine GDP.
Zaldarriaga also said that the Energy Regulatory Commission determines the weighted average cost of capital (WACC).
He said the rate of return mentioned by Fernandez is not determined by the distribution utilities but by the regulator.
“We have no power to determine the Weighted Average Cost of Capital (WACC) as this is a regulatory function,” Zaldarriaga said.