Meralco can’t charge customers under onerous deal, says OSG

MANILA, Philippines - Government lawyers want regulators to void a P20-billion settlement that allows Lopez-owned Manila Electric Co. (Meralco) to charge customers the amount it is supposed to pay the government for failing to honor a 10-year power supply contract. In a motion for intervention filed before the Energy Regulatory Commission, the Office of the Solicitor General said the deal had not passed legal review. It also said the four-year-old settlement is disadvantageous to the government and unfair to consumers, adding to the anti-Meralco sentiment that has been haunting the utility for past week. No less than President Gloria Macapagal-Arroyo has hit the Lopez family for high power rates, a move seen by critics as political maneuvering. "It is incumbent upon [the Solicitor General] to present to the court what she considers shall legally uphold the best interest of the government although it may run counter to a client’s position," Solicitor General Agnes VST Devanadera said in a motion dated May 8. She said the settlement, which stemmed from Meralco’s revocation of its 10-year power supply contract with state-owned National Power Corp. (Napocor) a year earlier in 2003, is void since it had not passed through her office. Meralco terminated the contract since it could get the power from independent power producers at cheaper rates under a restructured power sector. Under the 2003 deal, Meralco will pay Napocor P27.515 billion for failing to buy the electricity supply of about 60,000 gigawatt-hours between 2002 and 2004. On the other hand, Napocor will pay Meralco P7.5 billion for its failure to adequately provide transmission lines to privately owned power plants that also supply electricity to the Lopez company. Once approved by the ERC, the state firm will have to pay the net amount of P20 billion over five to six years. The deal also allows Meralco to charge customers the amount. Ms. Devanadera said the Napocor charter mandates it to submit all pleadings and compromise agreements to the Solicitor General for review. Had it known about it, government attorneys would have struck down the provisions for being disadvantageous to both the government and consumers, she pointed out. "The required approvals were never sought by Napocor," the Solicitor General said, adding that when Napocor had settled the issue, it effectively amended the original contract for electricity supply. As a result, Napocor’s original claim against Meralco for the contracted but unconsumed energy was cut by around P7.465 billion, Ms. Devanadera said. The Lopez firm should pay the original contracted price, she added. She also noted that the deal allows Meralco to pass the P20 billion cost to its customers. Ms. Devanadera said the "pass-on" provision violates state policy. "The same should be struck down for being against public interest and public policy," she said. But a Meralco official hit the intervention for its timing and allegedly unfair judgment. In a teleconference on Friday night, Meralco Vice-President Ivanna G. de la Peña defended the settlement. She said Napocor had never waived its rights because "the [contracted but unused power] happened because of the Asian financial crisis. The capacities were also underutilized." During the 1997-1998 currency crisis, demand for power slid, and even Napocor could not generate power at the time, she pointed out. The settlement, she added, was a "recognition of what is fair and reasonable." She also likened the deal to a "take-or-pay" contract. Since the plants were already generating power, the contractor must pay for fixed costs, including the buildings and turbines. The costs will then have to be shouldered by consumers served by the contractor or distributor. Ms. de la Peña also claimed the P20 billion could be reduced to P14.3 billion since the actual volume purchased by Meralco from Napocor had been higher than the baseline quantities specified in the settlement. A Meralco source claimed the amount could go down further to around P8 billion because of excess purchases in the first few years of the supply contract. The source also questioned the timing of the Solicitor General’s intervention, an offshoot of the request made by the National Association of Electricity Consumers for Reforms, Inc. (Nasecore), a long-time detractor. The Solicitor General’s position followed a string of anti-Meralco sentiment started by the President and Winston Garcia, president and general manager of the Government Service Insurance System (GSIS). The GSIS, which owns a fourth of Meralco, has called for a management revamp to compel it to lower rates. Mr. Garcia has also threatened to file large-scale estafa charges against the firm’s management. — Ira P. Pedrasa, BusinessWorld