Draconian FTC Measures Punish IPP Wrongdoing
United Daily News editorial (Taipei, Taiwan, ROC)
March 15, 2013
Summary: The Fair Trade Commission (FTC) has imposed Draconian punishments on nine Independent Power Producers (IPP) who sold electricity at high prices to Taipower. It charged these IPPs with colluding to fix the price of electrical power. Altogether, it imposed a harsh 6.32 billion NT in fines. Its action provided a sobering reminder to recalcitrant IPPs. It also provided Taipower with a shortcut by which to change the terms of its unequal contracts.
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The Fair Trade Commission (FTC) has imposed Draconian punishments on nine Independent Power Producers (IPP) who sold electricity at high prices to Taipower. It charged these IPPs with colluding to fix the price of electrical power. Altogether, it imposed a harsh 6.32 billion NT in fines. Its action provided a sobering reminder to recalcitrant IPPs. It also provided Taipower with a shortcut by which to change the terms of its unequal contracts.
Taipower has lost money in recent years, again and again. One reason is the sharp increase in Number Four Nuclear Power Plant (4NPP) construction costs. Another reason is unreasonable contracts. Taipower was compelled to pay high prices when purchasing electricity from IPPs. Meanwhile, the power plants Taipower invested in, were forced to remain idle. Over the past four years, Taipower's losses totalled 140 billion NT. IPPs on the other hand, could sell electricity at a guaranteed profit. They could easily earn six or seven hundred billion NT. Last year Taipower raised electricity rates. It passed its losses onto consumers. This led to massive public discontent. IPPs on the other hand, were unaffected. They refused to amend the terms of their unequal contracts.
These nine IPPs banded together to victimize a single public utility. Why could they get away with it? One reason was that the IPPs employed many retired Taipower senior officials. The relationship between parent companies and subsidiaries was complex and incestuous. Another reason was the passivity of the state-operated Taipower bureaucracy. It failed to seek redress consistent with the original terms of its contracts. It repeatedly insisted that it "could not win" any lawsuits. Its behavior was outrageous. It gave up without a fight. It had no intention of fighting.
This situation persisted until May of last year, when former chairman Chen Kui-ming was forced out and replaced by Vice Minister of Economic Affairs Huang Chung-chiu. Only then was Taipower's victimization reversed. Only then could Taipower counterattack. Huang Chung-chiu decided against a long, drawn-out lawsuit or arbitration. He chose instead to charge the nine IPPs with collusion. He demanded an FTC investigation. One could say he took a different path to the same destination. As a result, the FTC will be involved in the investigation. In less than half a year, he scored a victory.
According to the FTC report, these IPPs formed a so-called "Association for Advancement." Over a period of four years they met 27 times. They agreed to jointly resist Taipower's calls for adjustments in electricity prices. They agreed to keep each other informed about any correspondence between IPPs and Taipower. They shared intelligence and even tactics, including how to take advantage of delays in contract negotiations, how to cancel meetings, and how to deliberately complicate problems, leaving Taipower overwhelmed. The Association for Advancement was a united front by which IPPs victimized Taipower. Cooperation among them violates the Fair Trade Act prohibition against cartels. Such cartels influence the power generation market, and hurt the interests of consumers.
The FTC has imposed severe penalties. It is confident the IPPs engaged wrongdoing. It is punishing the IPPs for ignoring justice and thumbing its nose at the public. It is making a powerful statement. People have applauded its actions. IPPs were first established to compensate for the lack of diversification in generating capacity. But these IPPs have taken advantage of their licensed status to victimize Taipower. They undermined Taipower and impoverished the national treasury. They forced people to dig into their pockets to pay for their unjust enrichment. They refused to cease and desist. Hence the Draconian punishment. What else could highlight the absurdity and the injustice? These IPPs made 100 billion NT in profits per annum for years. A fine of six billion NT is a drop in the bucket.
Are the FTC fines a ploy to "bring about peace by declaring war?" How sad that the relationship between Taipower and the IPPs has come to this. It is time to return to the negotiating table. It is time for international energy prices to rise. Years ago IPPs asked Taipower to agree to fuel overhead rate increase. They knew that interest rates would change. Taipower requirements would lower fuel overhead rates. Yet the IPPs dragged their feet for five or six years and refused to negotiate. They seemed to forget that their relationship was supposed to be symbiotic. In fact, the state-owned enterprise goose laid golden eggs. Taipower profits turned into losses. It began purchasing electricity from IPPs. Once Taipower becomes unsustainable, whom will the IPPs take advantage of? Whom will they sell electricity to?
In recent years, Taipower has been under a black cloud of defeatism. It has muddled along without fighting spirit. Huang Chung-chiu's aggressiveness, and the FTC's iron fist have turned the tables. Strictly speaking the victory is not Taipower's. It is the peoples'. Taipower must complete this round of negotiations. Only then can it be counted as a victory. As for the IPPs that have enjoyed a windfall, they should appreciate their legal and social plight. They must not turn themselves into public enemies.
The FTC's Draconian measures have exposed the IPP's unscrupulous methods. But what the public really wants, is for the government to ferret out the policymakers responsible for the unequal contracts, i.e., those former Taipower officials within the IPPs. Only then can the price paid by Taipower all these years be accounted for.
2013.03.15 03:11 am