Pass-on charge on power supply from sister IPPs

Last updated 04:12am (Mla time) 07/31/2007

This is in reaction to Manila Electric Co. (Meralco) spokesperson Elpi Cuna’s letter “Meralco is one with consumers.” (Inquirer, 7/16/07)


It is generally true that the generation charge is merely a pass-on charge, meaning not a single centavo of it goes to distribution utilities like Meralco. But Cuna should explain the implication of Meralco’s 9 percent equity and Philippine First Holding Corp.’s (FPHC’s) 51 percent equity (both Lopez-controlled companies) in First Gas Power Corp., which manages the Sta. Rita and San Lorenzo power plants.


It is this cross-ownership between the Lopez-controlled Meralco and the Lopez-controlled First Gas that distorts the true meaning of these pass-on charges. Cross-ownership has allowed Meralco and PFHC to feast on the “take or pay” provision in their supply contracts with their own independent power producers (IPPs), by forcing consumers to pay for electricity they did not use.


This was aggravated further by the Meralco IPPs, which posted rates higher than those of state-owned National Power Corp. (Napocor) — from March 2003 to December 2005 as per records of the Energy Regulatory Commission (ERC). In the first month alone of the implementation of Meralco’s unbundled rates (March 2003), the generation charge passed on to consumers averaged P3.40 per kilowatt-hour (kWh), with the Meralco IPPs charging P4.21/kWh, while the ERC-approved rate for Napocor was only P2.46/kWh. Yet, distribution utilities are obligated to source the cheapest power supply. Meralco’s July 2006 generation charge was P5.21/kWh when Napocor’s ERC-approved rate was only P4.93/kWh.


This went on until Meralco decided on its own to source almost 50 percent of its power demand from the Wholesale Electricity Spot Market (WESM). But this raised new problems for consumers because even the power rate of the “non-IPP” WESM, which shot up to P10/kWh in February this year, is being passed on by Meralco to its captive customer.


Thanks to a Supreme Court decision (in August 2006) that nullified the automatic recovery of these charges, the ERC was compelled to conduct public hearings on rate adjustments, thus allowing consumers to come in as intervenors/opposers to these petitions.


However, with the amendment of Sec. 4 (e), Rule 3 of the implementing rules and regulations of the Electric Power Industry Reform Act, which effectively removed due process, we are back to the automatic recovery of power purchase adjustments (PPA). Thanks to Meralco pushing the automatic cost adjustments, our July generation charge is now up at P5.67/kWh from P4.42/kWh.


This issue boils down to rates that consumers pay through the restored automatic generation rate adjustment mechanism. So, let the facts speak for themselves. From the time Meralco implemented its ERC-approved unbundled rates in March 2003, the power rates have been consistently moving up.


Cuna’s response can hide the interests of the Lopez-controlled Meralco in the generation business, but he can’t hide them forever from the general public.


PETE L. ILAGAN, president, National Association of Electricity Consumers for Reforms, 680 Quirino Ave., Tambo, Parañaque City


6 Responses to “Pass-on charge on power supply from sister IPPs”

  1. robbie tan Says:

    This issue boils down to rates that consumers pay through the restored automatic generation rate adjustment mechanism. So, let the facts speak for themselves. From the time Meralco implemented its ERC-approved unbundled rates in March 2003, the power rates have been consistently moving up.

    this glaring statement from nasecore underscores the naivete (or should I say, selective knowledge) of the power industry in particular, and world economics as a whole.

    why should power rates not go up since 2003? did oil prices become lower? has coal become cheaper? has napocor lowered prices? has transco lowered prices?

    the supreme court decison on the automatic rate adjustment backfired when napocor refused to file lowered rates due to prevailing lower currency. I did not hear from nasecore then. so this automatic mechanism was not totally evil after all, notwithstanding nasecore’s statements.

    in the end, there are two sides of everything. listen to one side only, and you get half the facts. there are many other questionable ‘facts’ from the story but i will end here. for the moment.

  2. Rev. Fr. Jessie Somosierra, Jr. Says:

    Robbie Tan,
    Thank you for your response on this matter. Please do not hesitate to expand more on your opinions concerning the posts in this blog. There is no limit in explaining everything for a better understanding of the issue. It would be healthy if both sides could be expounded and all subjects or facts be scrutinized.

  3. Pete Ilagan Says:

    Dear Robbie,

    Please understand that the Lopez-controlled IPPs are both Natgas and, unlike diesel plants, do not really require that much oil for its plants to operate.

    While NPC’s rate did not lower down from 2003-2006, it’s rates were always lower than Meralco’s IPPs on the dates cited.
    Lastly, Sec. 23 of the EPIRA says, a distribution utility shall be obligated to supply electricity at the least cost manner to its captive market subject to the collection of retail rate duly approved by ERC.

  4. Rev. Fr. Jessie Somosierra, Jr. Says:

    Robbie and Pete,
    It would be simplier to understand if both of you position is being expained in figures (of which I do not know, if you have) to see really the point of which you hold. Just as how much the NPC is charging to the Meralco and how much the Meralso is charging the consumers every Kilowatt.

  5. Giselle Mauhay Says:

    Good evening Fr. Jessie,

    I am Giselle Mauhay, a researcher for GMA News and Public Affairs. We are currently doing a segment on EPIRA for Reporter’s Notebook, a Public Affairs program of GMA. In relation to this, I would like to ask if you know how I can get in touch with Mr. Peter Ilagan? I’ve searched everywhere for an office number of Nasecore but still can’t find it. We would like to interview Mr. Ilagan regarding the said matter. You’re help will be truly appreciated. This segment will be shown already this coming Tuesday.

    Due to time constraints, we do apologize for the short notice. Rest assured this request is being made in good faith and for a public service to truly stand out.

    Aside from my email ad, you may also contact me at 9284924 or 0921-733-33-61.

    Thank you very much and God Bless.

    At your disposal,

    Giselle Mauhay
    Researcher, GMA News & Public Affairs

  6. mai Says:

    Dear Giselle

    For your info, Mr. Pete Ilagan contact nos are 8530732/31, Email Add is

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