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Wednesday, November 29, 2023

Has Meralco grown too big for its own good?

Meralco has grown too big that it is empowered to commit abuses with impunity

In a privilege speech last Nov. 7, Laguna Rep. Dan Fernandez accused power distribution giant Manila Electric Company (Meralco) of carrying out “monopolistic” practices because of its “mega-franchise.”

He also insisted Meralco had been overcharging its 7.6 million customers for the past nine years.

The monopolistic behavior of Meralco, the Laguna solon pointed out, is well in evidence in its control of at least 70 percent of Luzon’s electricity output: “They control the whole of Metro Manila, the whole of Calabarzon, including my province, Laguna…They control Pampanga and Bulacan…They are so huge and enormous that they have subdivided the whole franchise.”

Since the Meralco’s franchise had grown so huge, he said, the company can even operate the Bohol franchise in the Visayas if it wanted to.

With 60 percent of the country’s gross domestic product coming from NCR, Fernandez added, Meralco can manipulate the Philippines’ economic growth by having full control of electricity in Luzon.

Monopoly behavior, the lawmaker said, is also indicated by reports that Metro Pacific Investment Corp., Meralco’s mother company, has been trying to acquire the natural gas power plant in Ilijan town, Batangas province.

The $700-million plant has a 2,500-megawatt capacity.

“If you combine the assets of Meralco and Ilijan Power Plant, they will be creating a vertical integration system wherein they will be able to control fuel supply, imported fuel facilities, power supply and distribution under one board of directors,” Fernandez added.

The solon also called out the irregular manner by which Meralco computed its weighted average capital cost back in 2015, when the company was supposed to recompute.

He said Meralco fixed its weighted cost of capital at 14.97 percent, which the utility uses as basis to compute its profits up to the present.

But the Asian financial crisis at the time has long been over, yet Meralco continues to use the same weighted average capital cost to hide its excessive profits, Fernandez said.

Reacting to the Fernandez privilege speech, Meralco pointed out “factual errors” in the lawmaker’s presentation.

It clarified it does not control ‘70 percent of Luzon’s electricity,’ since 90 percent of industrial consumption and 1/3 of commercial consumption is supplied not by the distribution utility but by competitive retailers like Aboitiz and First Gen.

Meralco also said it does not serve “the whole of Calabarzon” as claimed by the lawmaker as there are other electric cooperatives and distribution utilities in Calabarzon. It does not “control Pampanga” but serves only a handful of barangays.

“Meralco is fully compliant with all government regulations and even outperformed the level of service required by the regulator…While Meralco is the largest utility in the country, it has never committed and has no record of any anti competitive behavior or abuse of market power.”

The core issue that Meralco did not address, however, is whether it is actually engaged in monopsony, or a situation in which the entire market demand for a product or service consists of only one buyer.

Meralco is not only a power distribution utility but also a buyer of electricity.

What seems to be amiss here is that utilities distributing electricity are prohibited from sourcing this electricity from power plants they also own.

It’s plain and simple conflict of interest.

If a giant corporation can control both the distribution and supply of electricity, there’s no way you can stop it from also dictating prices.

But here’s the thing.

Meralco is allowed by the Electric Power Industry Reform Act or Epira to become both power distributor and supplier which also, technically, allowed it to become a monopoly.

Since it was Congress that granted Meralco its mega-franchise through Epira, the chamber, Fernandez said, it can still correct this since it has the power to “amend, revoke, suspend, and even subdivide their franchise.”

Fernandez, chairman of the House Committee on Public Order and Safety, proposed they should pass a bill that would pave the way for the split of the mega-franchise granted to Meralco.

“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.”

As the lawmaker put it bluntly in his speech, Meralco has grown too big that it is empowered to commit abuses with impunity.

Will his fellow lawmakers listen?

And will Meralco customers also say enough is enough? Let’s wait and see.


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