My first article

*Note: This is the article, published in The News Today in December 5, 2005 under my column, that elicited a reply from PECO.

Who’s to suffer from PECO-PPC inefficiency?

“One of the weaknesses of our age is our apparent inability
to distinguish our need from our greed.”
-Unknown

The answer to the question above ladies and gentlemen, if we ask PECO and PPC, are the electric consumers!

This duo has been milking the consumers dry for their inefficiency and questionable practices for several years already. Now that legal authorities corrected some of their abuses by lowering down the rate to its “proper” level, they both cry foul and threaten the public with blackouts.

PECO for its part sounded this blackout blackmail around the time the P2 reduction order became executory late September of this year. Days ago, Arman Lapus, VP of Mirant Global Philippines, which operates PPC, echoed the same veiled threat.

Lapus alleges that PECO presently owes PPC P250 million. “If this situation continues I'm afraid we would not be able to sustain our operations… If time comes that oil companies would not supply us anymore with fuel because of our outstanding debts with them everybody will be affected, our plants would shut down, there will be no more power,” he added.

What a convenient story line, indeed.

Now first question – How did Lapus come up with the P250 million figure? For only two billing cycles since the implementation of the P2 reduction, PECO has already failed to pay that much?

Historical sales of PECO show that its monthly kilowatt-hour sales since the year 2000 average at 24 to 25 million kWh. Now let us say that for two months that the reduction was implemented, the sales were at a high of 30 million kWh for a total of 60 million kWh. Now computing the foregone income of P2 per kilowatt-hour, we arrive at only P120 million.

Further the 2001 Annual Report of First Philippine Holdings Corp (FPHC), the previous owner of PPC, reveals that in 2001, PPC earned P767.4 million in revenues. In the next year, FPHC’s 2002 Annual Report discloses that PPC earned P749.23 million revenues. Data from FPHC also shows that PPC earned P369 million revenues in the first half of 2003, prior to divesting the company to Mirant. Thus, it is safe to say that PPC’s annual revenue will be around P750 million.

Now, what does Lapus mean to say, that for just two months after the reduction was implemented, almost 1/3 of its annual revenue were already lost because of PECO’s alleged non-payment?

Second question – What is the reason behind the failure of PECO to pay PPC? Is Lapus now saying that merely two months after the reduction was implemented, PECO is already on the verge of collapse?

From 2003, PECO on the average earns P180 million in monthly revenues as generation charge. Even if we deduct P50 million because of the rate reduction, there remains P130 million, that’s a total of P260 million in two months – an amount that is more than enough to pay the P250 million.

Clearly, all these is another ploy of PPC and PECO to scare the public and pressure the local government units to give in to their greed.

* * * * * * *

Let us go back to history and refresh ourselves about what really happened here.

In 1997 the Panay Electric Company (PECO) and Panay Power Corporation (PPC) signed a power supply agreement. There was actually no pressing need for the entry of PPC then since PECO was already getting low-priced electricity from NPC. But PPC, in order to get the “OK” of the DOE and ERC, highlighted that it will provide low-cost power that will be priced lower or equal to that of NPC – meaning it will not charge higher than the NPC rate. This is even stipulated in the supply agreement between PECO and PPC.

With the project’s approval, the diesel-powered PPC was constructed and by 1998 started its operations and generated electricity for PECO though the latter still gets the bulk of its power needs from NPC. In December 1998, PECO ceased to be connected to NPC. It was in 1999 that PPC started to supply the bulk of energy distributed by PECO to Iloilo City consumers.

In a short period from 1999 to 2003, PECO’s Generation Charge soared so high and so fast, which has never happened during the time that NPC provides for its electricity needs. From 1994 to 1998 the increase was only around 33% under NPC, but from 1999 to 2003, the increase was more than 80% under PPC. And we are all witness to the appalling monthly increases until recently when the P2 reduction order of ERC was implemented.

Needless to say, PPC (which partly owns PECO) with the cooperation of PECO (which partly owns of PPC too!) has reneged on its promise to the Ilonggo consumers that they will be charging less than or equal to what NPC is charging. For several years, they feasted on their gargantuan profits.

Now, during the hearings in the ERC from 2003 up to 2004 in relation to the unbundling of rates, these issues among others were articulated and debated by the counsels of PECO versus the representatives of the consumers headed by Atty. Roming Gerochi, the Freedom from Debt Coalition (FDC) and the consumers group ICAW.

Also raised by the consumers were PECO’s irrelevant assets that were used to pad the rate base including its inefficient pre-historic generation facilities and also a prime lot in Diversion Road that it presents as its stockyard of electric posts.

After the exhaustive series of hearings, a decision came out in 2004 that stipulate the reduction of PECO rates. But PECO used all the delaying tactics to hinder the implementation of the decision. But in late September this year an execution of the order was finally won.

For years we, consumers were bilked, suffering from exorbitant power rates. Now, after only two months of savoring justice -- not much but at least a breather – PECO and PPC want to dig deeper into our pockets once again.