Meralco ‘monopsony’ put under scrutiny

Since Congress created the problem of a behemoth in the energy sector, some members of the House of Representatives believe that a law is needed to break up electricity distributor Manila Electric Co. or Meralco into smaller several companies.

The move to review the Meralco mega franchise has gained ground in the larger chamber as it was identified as the cause for the power firm having grown too big.

Legislators are looking at the so-called monopsony character of the firm in the power  business.

Monopsony is a market structure in which there is only one producer for a particular product.

It is the counterpart of a monopoly, where there is only one seller or producer in a market.

In a monopsonistic market, the single buyer has significant market power and can influence the terms and conditions of trade, including prices.

The law, as Laguna Rep. Dan Fernandez pointed out in a privilege speech, was tweaked in a way to allow the giant utility firm to pour in money to obtain shares in power generation companies.

Technically, Meralco would not own generation companies but it actually has dominant shares in those.

Fernandez sought the start of a review of the mega-franchise and divide it into three as its sheer bigness is already leading to poor service and alleged abuses.

In a manifestation that followed Fernandez's speech last 7 November, Laguna Rep. Ann Matibag said perennial high power rates are among the reasons that the country failed to achieve its potential in attracting investors.

"We are all aware that our country has very high electricity rates and in fact, one of the highest electricity rates not only in Asia but in the whole world," Matibag said.

"We are also aware that our country could not effectively attract foreign investors despite efforts of the government, even by the President himself, to encourage investors from other countries to come and put their businesses here," she said.

Added to high costs is the failure to assure a stable supply of power that is turning off potential investors, Matibag added.

She said the problems were mainly the offshoot of the emergence of Meralco, largely because of the Electric Power Industry Reform Act, or Epira, of 2001 which allowed the utility to continue its monopolistic practices.

"Meralco is also a monopsony in the Philippine electricity market being the biggest distribution utility in the country having electricity demand that is more than half the demand of the entire country," Matibag said.

"As a monopsony, Meralco could have been instrumental in reducing power rates of the country," she added.

"We can either divide Meralco as what Congressman Fernandez proposed or Meralco must give up entirely its interest in the supply of electricity," she added.

Meralco now controls at least 70 percent of Luzon's electricity output and that it is able to also manipulate the operations of power producers and sellers. Meralco had denied this, saying it was not factual.

With 60 percent of the country's gross domestic product coming from the National Capital Region, which Meralco controls in terms of power supply, Fernandez pointed out that Meralco can manipulate the Philippines' economic growth by having full control of electricity in Luzon.

Meralco is not only a power distribution utility and, as official records will show, is also a buyer of electricity which could be considered as its natural function being a distributor of power supply.