Absolute power

Business concerns of the Lopez group are not in any way threatened despite the recent commotion about its crown jewel ABS-CBN Corp. losing its franchise, as its power business is raking in income, likely as a result of favorable contracts obtained from past administrations.

For instance, Lopez unit First Gas, which operates four natural gas plants, Sta. Rita, San Lorenzo, Avion and San Gabriel, sells at a higher rate than that of the San Miguel Corp.-owned Ilijan combined cycle plant, which also has natural gas as fuel.

The First Gas plants never underwent any open bidding or competitive selection process (CSP), which was required by a landmark ruling of the Supreme Court. CSP ensures that consumers get the lowest cost of electricity.

If cooperatives are strictly required to undergo CSP to buy 10 megawatts (MW) of power, Lopez power plants mostly do not undergo the process.

The Lopezes were also former majority owner of the Manila Electric Co. (Meralco), which, sometime in the 1990s, the government encouraged to take up half of the output of the Camago-Malampaya natural gas field to help the country achieve energy security and develop an indigenous energy resource.

Why buy when the Lopezes can build the power plant themselves? They then sell the power generated to their own distribution company, Meralco, in a clear case of self-dealing. In contrast, the Ilijan plant’s output was bid out by state-owned National Power Corp. (Napocor).

Ilijan’s power purchase agreement ( PPA) provides that ownership of the power plant eventually goes back to the government, while in the case of First Gas, the plants stay with the Lopezes.

The Lopezes are also a big gainer from feed-in-tariff (FIT), or the premium rates given to renewable energy operators.

Lopez wind and solar plants also did not undergo CSP to become FIT eligible.

P PA with independent power producers ( IPP) are effective for 10 to 25 years, which were mostly sealed during the term of former President

Fidel Ramos as a solution to the power crisis that caused debilitating brownouts across the country.

The PPA, which are famous for their “take or pay” provisions, are the cause until now of high power prices.

These contracts enable power plants to charge consumers for electricity that is neither used nor generated. Moreover, if electricity is actually produced or dispatched, these contracts allow IPP to charge twice the regular cost for producing electricity.

Some contracts even feature a fuel cover. Besides requiring Napocor to provide power plants with fuel, the provision allows IPP to shield themselves from additional costs arising from the increase in the prices of energy, whether coal or bunker.

Such agreements are not uniform since some also include a foreign exchange cover, protecting power plant operators from currency volatility between the Philippine peso and the US dollar.

Every time the peso falls or the greenback appreciates, prices of fuel automatically cost more in pesos because they are pegged in dollars.

As a result, fuel users, such as power plants, pay more pesos for the same amount of energy they consume. However, additional fuel costs are borne by consumers, not power plants.

All these charges are shouldered and passed on to consumers through the PPA mechanism, which was imposed on top of the regular fees for consumers’ electricity consumption.

S om e agreements are so disadvantageous to the government and consumers that theoretically a PPA can be obtained by a shell company and still be paid for it even if it doesn’t own nor operate a power plant.

In late 2001, pressure from consumers forced the newly-installed Arroyo administration to create an IPP Review Committee.

The findings indicate that the financial mechanisms and formulas used by IPP including those of the Lopez plants were irregular.

The IPP ability to fulfill their end of the contract, which is to produce and dispatch electricity previously agreed upon, was also disputed.

Meanwhile, all the other contracts had questions s u r r o u nd i n g either legal, operational and financial aspects. Despite these findings, no case has been filed against any power plant operator.

Even though some have been renegotiated, these agreements remain disadvantageous to electricity consumers and are the lingering cause of electricity bills that are among the most expensive in the world.

“Even though some have been renegotiated, these agreements remain disadvantageous to electricity consumers.

“If cooperatives are strictly required to undergo CSP to buy 10 megawatts of power, Lopez power plants mostly do not undergo the process.