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Friday, July 19, 2024

Total control of power sector in the horizon?

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“Consumer and energy watchdog groups are saying the quicker the (franchise renewal) process is finished, the better for the giant utility and its franchise to escape public scrutiny”

WHEN the Electric Power Industry Reform Act (Epira) came into effect in 2001, it was anchored on two noble objectives: to ensure transparent and reasonable prices of electricity in a regime of free and fair competition and to protect the public interest.

But what happened more than two decades later appears to be the complete opposite as it has allowed major players to dominate the industry, particularly electric supply distribution.

Loopholes in Epira, among them the provision allowing cross-ownership and contracts with so-called associated firms, have allowed a key industry player, Manila Electric Company, to gain full control of both power generation and distribution.

Here we have what appears to be a conflict-of-interest situation that Epira wanted to prevent the dominance of a single market player in the energy sector.

What this means is a power supply distributor cannot generate either the electricity it distributes.

But legislators watered down that prohibition to introduce loopholes with the names “cross-ownership” and “associated firms.”

Cross-ownership means putting up companies in which distributing utilities, in this case Meralco, have shares in, while associated firms are power generating companies with close ties to it.  Records will show tens of billions of pesos worth of power supply contracts given to cross-owned and associated companies in what’s called a competitive selection process through which Meralco gets its electricity supply.

Today, legislators are pushing for the quick renewal of the Meralco franchise.

But this would deprive the people, or at least those who will be affected, of the chance to have their voices heard.

As to why the franchise renewal is being fast-tracked, consumer and energy watchdog groups are saying the quicker the process is finished, the better for the giant utility and its franchise to escape public scrutiny.

Indeed, if the process is allowed to take its natural course, it would take a long time for the giant utility to clear the air on many questions that have yet to be fully answered.

First, ownership.

Does the Lopez clan still own and control the utility?

It appears the Marcos Sr. administration allowed the use of GSIS funds to purchase Meralco for the ownership of the utility’s subscribers.

But when Corazon Aquino took over as president in 1986, the utility was returned to the Lopez clan at no cost.

Under the Arroyo administration, the GSIS tried to regain control of Meralco which led to a legal battle at the SEC.

But while the case is pending, the Lopez family sold its equity to Metro Pacific Investments Corp. (MPIC). The deal, made through stock swap, kept the Lopez clan’s stake in the giant utility.

Second, the authority to set power rates.

Power rates have taken an upward trajectory since Meralco set its weighted average capital cost (WACC) at 14.97 percent.

This is the profit margin the utility company is allowed, and this is what it has followed over the years.

Meralco has announced profits of more than P20 billion in the four quarters of 2023 and more than P10 billion nearing the first half of 2024.

Third, there’s apparently no compliance with the provisions of the law that granted Meralco its franchise.

Foremost is the requirement to report any and all changes in ownership of the franchise holder.

Since Meralco’s well-publicized sale from the Lopez family to the Metro Pacific Group, the House has not received a formal report about the change of ownership of the giant utility. 

And fourth, reporting duties.

The power distributor’s franchise has been clearly defined in the law that granted it.

But Meralco now operates outside the National Capital Region which was not officially reported to Congress, a requirement of the law.

It’s the second reporting mandate that has been unfulfilled.

Must Meralco be penalized for the glaring violation?

There is no record at all of any penalty so the next question emerges: Is Meralco above the law, the one that granted its franchise to be precise?

Should the fast-tracking of Meralco’s franchise slow down, perhaps even stop, to give way to answers which are not only crucial, but life-changing for millions of electricity consumers throughout its franchise area?

Hmmm. (Email: ernhil@yahoo.com)

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