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Warnings on Meralco rates warrant closer look

A party-list representative on Thursday warned that the ensuing electricity rate hike for Meralco customers that would result if the Energy Regulatory Commission (ERC) approved the company’s pending power supply agreements (PSAs) would be “deadly” for Filipino consumers.

Some members of Congress have a flair for the dramatic and it might be a bit over-the-top to characterize increased electricity rates as “deadly,” but the argument put forth by Rep. Carlos Zarate of the Bayan Muna party-list was, nevertheless, alarming. His warning definitely justifies the ERC and, perhaps, even the appropriate committees in the House and Senate, putting a hold on the PSA approval process for further review of the proposed agreements.

Rep. Zarate’s main point is that the cost for generating electricity detailed in the PSAs is grossly underestimated. Coal prices have doubled (from about $50 per metric ton to more than $100 per metric ton) since the PSAs were drafted, and the peso has depreciated from P46 to $1 at the time to about P52 to $1 now. As a result, the generation cost – the price paid by Meralco to its suppliers for the electricity – will not be P3.67 per kilowatt-hour as the PSAs say, but an average of P5.22 per kWh.

To be fair to Meralco, the company and its generation partners probably should not be blamed for this, because the ERC has moved at a snail’s pace to approve PSAs, something which Meralco has complained about repeatedly. At the time the PSAs were drafted, the numbers were valid. Knowing that they are not now, however, the ERC simply cannot let it pass.

The PSAs need to be updated to reflect present economic circumstances, and they need to be reviewed to see if the provisions for addressing future fuel price and currency exchange rate changes are fair to consumers. After all, even if the pending PSAs had been approved much sooner when the figures were accurate, the cost pressures described by Rep. Zarate would still be felt now, unless there is some way to cushion the impact on electricity customers.

The other point Rep. Zarate made, although only implicitly, was that the seven PSAs being questioned should be subjected to extra scrutiny, because they all involve suppliers in which Meralco has a significant ownership stake.

There is nothing inherently wrong with Meralco, the electricity distributor, sourcing its power to a generation company that also has Meralco as part of its name. Rep. Zarate did not insinuate that there was, but rather was calling the attention of the concerned entities – the ERC and Meralco – to an unavoidable bit of reality as far as public perception is concerned. There may be nothing wrong in an arrangement between Meralco and a subsidiary, but the public, whose default perspective toward the utility is suspicion, thanks to too many missteps by the electric company in the past, will immediately assume the worst. And no matter what the reputations of the companies involved, that sort of parent-subsidiary commercial arrangement does offer opportunities for misbehavior like rate-rigging.

While Meralco understandably wants to have its PSAs approved and get on with its businesses, it must understand that it cannot just push through outdated agreements, because the cost of sloppy work will fall on its customers’ shoulders. Likewise, the ERC should be reminded that, having been in the news in an uncomplimentary light for the second time in a week, it really ought to be sensitive to public concerns for a change, and take this chance to shore up its diminished reputation as a legitimate regulator.

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