Consumers caught in franchise dispute

THE PANAY Electric Co. (PECO) asked us on Sept. 26 for space to explain its predicament – that it stood to lose, unfairly, its power distribution franchise over Iloilo City to a newcomer, potentially leaving consumers caught in the dispute literally in the dark by 2019.

We listened, but did not oblige – partly because we did not have the total picture, especially the side of the consumers and of the rival firm. Now, we are able to squeeze into our space PECO’s recap of its position, followed by that of the competitor. PECO said:

1. For the past 95 years, PECO has been distributing power to Iloilo City under a franchise that expires in January 2019. They applied for renewal (HB 6023 filed by Rep. Jesus Romualdo) as early as 2017, but the House committee on legislative franchises sat on the application.

2. In August 2018, Rep. Gus Tambunting filed HB 8132 denying the renewal of the franchise and instead giving it to More Minerals Corp. headed by businessman Enrique Razon Jr. In just one month, the committee endorsed MORE’s application for plenary approval.

3. MORE is not a power firm but a mining company with no facilities in Iloilo to handle electric power distribution. SEC records show that it recently increased its paid-up capital to P10 million, but this is short of the P10 billion that MORE would need to build a facility and infrastructure in Iloilo to distribute power.

4. MORE cannot put up parallel power distribution by January 2019 unless it buys PECO’s facilities, but the company is not selling. A worst-case scenario is the forcible takeover by the government using eminent domain in favor of a private beneficiary, a throwback to the Martial Rule era when businesses were taken at will. If an impasse ensues, Iloilo could have power blackouts by 2019.

5. PECO has just a few months to figure out what to do for its employees, many of whom are long-standing workers and residents of the region. They would lose their jobs if PECO ceases operations.

6. Why was PECO not granted a renewal when it has complied with all terms and conditions of its franchise and reliably distributed power in Iloilo for nearly a century? Why did the committee sit on its application for a year then rushed to approve the application of a mining company with no experience in power distribution and no facilities in place?

• Rival power firm MORE gives side

In the PECO-MORE battle for a franchise, who is looking after the interests of the most important party – the CONSUMERS – caught in the crossfire?

The proper agencies, including the Senate (now holding public hearings), the House of Representatives (which has approved the franchise bill), and the Energy Regulatory Commission, should factor consumers into their inquiry and recommendations.

In this tight summary, we lend the rest of our limited space to More Minerals Corp., which points out that:

• PECO has insufficient capital expenditure (CaPex) investment for improving its distribution facilities. Its distribution charge appears low because it has not submitted any new CaPex programs for approval and recovery via its distribution charge.

• This has resulted in the very poor condition of the facilities (undersized and crowded feeders, leaning poles, disorganized service drops, unsafe clearances of lines and substations from vegetation, unsafe clearances of lines from structures, leaking substations and transformers).

• Maintenance is not up to the standards for private distribution utilities. PECO has extremely poor reliability indices: Its SAIFI (31.15) is 1400 percent above the Philippine average (2.18). Its SAIDI (1,612) is 3000 percent above the Philippine average (54).

• PECO declared dividends instead of reinvesting profits into needed CaPex to improve facilities. Based on its 2015, 2016 and 2017 disclosures, the Cacho family which owns 70 percent of PECO would have received P95.67 million, P100 million and P119 million as dividends. It gave priority to erecting a P65-million office building with a private elevator.

• Its systems loss in 2017 was 9.93 percent, the highest among private utilities, indicating poor management. (Meralco’s systems loss is 5.91 percent.) Systems loss above the 6.5 percent allowed by the ERC is passed on to consumers. 

• Generation charge of PECO is highest among all urban areas in the main grids, about P2.50/kwh higher than Manila, Cebu or Davao. Its power supply comes from three generators (two coal, one diesel) and does not use cheaper electricity from the WESM or from renewable energy sources.

• PECO has been paying for a contract with a diesel power plant even if it has not been sourcing power from such plant.

• There are almost 1800 pending complaints from PECO consumers for poor services and overcharging of electricity bills, some more than 1000 percent.

As franchise-holder, MORE said its goals would be to minimize franchise-wide outages, improve the distribution system’s reliability and customer satisfaction. It added that modernizing and improving the reliability of the system in Iloilo would help prepare for and foster growth in the area.

It said it would immediately infuse investments for the most critical CaPex requirements, and institutionalize professional management of distribution using state-of-the-art technology for an integrated and automated system. Professional management lowers systems loss to below the ERC maximum cap.

MORE said it would source power supply from new plants generating cheaper electricity for the WESM and from renewable sources in the Visayas Grid, so as to lower the generation charge and improve reliability.

It said these steps would improve the reliability indices of the distribution system and raise the ranking of the system in Iloilo City to one of the best in the Philippines.

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