The 60-centavo rate reduction is over and above the 85-centavo PPA cut-down directed by President Arroyo.
Meralco issued this statement as it justified before the Senate energy committee the utility’s decision to revoke its 10-year power purchase agreement with Napocor and buy its electricity directly from its IPPs. In year 2001, 90 percent of Meralco’s supply came from Napocor, and only 10 percent from its two IPPs, namely, Quezon Power Ltd. and First Gas Power Corp.
Under its power purchase contracts with the two IPPs, Meralco is buying power from Quezon Power at P3.30 per kilowatthour and from First Gas at P3.80 per kilowatthour compared to Napocor’s selling rate of P4.40 per kilowatthour.
"It was ultimately a matter of what will be cheaper for the consumers, of what will lighten their burden," Meralco vice president and treasurer Rafael Andrada told the committee, assuring the public that Meralco sees to it that its IPP contracts can stand close public scrutiny.
Andrada said that unlike other distribution utilities, Meralco, the biggest customer of Napocor, does not enjoy any discount from the state-owned firm which, in fact, sells to other distribution utilities at lower rates. Instead, under existing policy, Meralco subsidizes by 40 centavos per kilowatthour electric consumers outside its franchise area, not only in Luzon but also in the Visayas and Mindanao.
Earlier, Meralco informed the committee that its IPP plants are not allowed by Transco to fully dispatch their production because of transmission constraints. At the moment, they are on the average operating at 70-percent capacity level only, Andrada said. Transco is a Napocor spin-off company created by the Electric Power Industry Restructuring Act (EPIRA).
Andrada said there is enough legal ground for Meralco’s decision to terminate the contract, saying it had been superseded by the EPIRA which mandates Napocor to enter into transitional supply contracts with its clients.
"We sent them a letter early September last year saying that we’re ready, we have a team. Unfortunately, we didn’t even get a courtesy of a response. Instead, in January they sent us a notice imposing penalty charges," Andrada said.
The Meralco executive also claimed that the agreement lost its enforceability after critical provisions thereof had been violated. Andrada cited as an example the failure of Napocor to return to Meralco, as provided for in the 10-year contract, some 32 big customers directly connected and serviced by Napocor.
"In effect, Napocor continues to compete with Meralco in its franchise area despite the agreement," Andrada said.