Meralco railroad

CROSSINGS
Butch Junia
6/27-7/3/2011



Meralco was Manila Electric Railroad and Light Co. at the time when it operated the tranvia in old Manila in 1904, and it may well be back in the railroad business today, unless stopped by Mang Naro Lualhati.

On June 6, 2011, the Energy Regulatory Commission (ERC) issued its Decision on Meralco’s application for annual rate increases over the next four years, a copy of which was received by Mang Naro on June 21, 2011. He gets those copies as Intervenor in that Meralco application.

While working on his action to junk ERC’s decision, he got Meralco’s Motion for Extension of Time dated June 13, 2011.

Way to Fleece Customers
Apparently, on the day ERC approved Meralco’s application, it also ordered Meralco to file its translation of the Maximum Average Price (MAP) into a Distribution Rate Structure.

Immediately, Mang Naro protested the railroading of Meralco’s rates, saying he would file a Motion for Reconsideration “especially because the correct MAP for 2012-2015 is P0.80 pkwh and not P1.5828 pkwh as approved by the Commission.”

For the benefit of those who may be hearing this ERC mumbo jumbo for the first time, these are all related to the so-called Performance Based Regulation (PBR) instituted by ERC to give the utilities like Meralco more ways to fleece their captive customers like us.

No Bearing
Under PBR, utilities file their Annual Revenue Requirement (ARR) and Performance Incentive Scheme (PIS) over four years under a so-called a Regulatory Period.

Projected sales, forecasted expenses and capital outlays, returns and depreciation are become the bases for the rate.

The process is initiated by the ERC putting out an issue paper that tells the utility what it needs to tell ERC to get an increase or change in its rates. This will be the basis for the ARR/PIS.

From the ARR/PIS, ERC comes up with a Draft Determination on the application, although ERC is quite emphatic in saying that that determination has no bearing on the rate. This is subjected to comment and public consultation.

Subsequently, ERC arrives at a Final Determination, which will be the basis for the Distribution Rate Structure that will now show how much higher the residential customers consuming more than 400 kwh per month will pay, probably in the range well over P3.00/kwh, compared to large customers who may be paying P0.39/kwh, or even less.

Entirely the Basis
What ERC issued on June 6 is a Final Determination, and what Meralco will just do is to file the rate translation, which in turn will be the basis for the annual rate reset.

With the order for Meralco to file the rate translation even before the intervenors could comment on the Final Determination, it looks like we have a run-away train. But they will not get away with it that easy with Mang Naro weighing in with his motion for reconsideration.

I know how he arrived at the P0.80/kwh MAP, and ERC will not be able to just brush him aside this time.

On the Capital Expense claims of Meralco alone, the numbers are already P35 Billion apart for the whole regulatory period, over P9.0 Billion for the first year only.

He is also questioning the Regulatory Asset Base which, according to the Meralco witness, is only half-utilized but which is entirely the basis for the P19 Billion return on capital.

Even the 14.49% Weighted Average Cost of Capital (WACC) is being challenged by Mang Naro, who says that should not be more than 12%.

Conflicts of Interest
Other than those questions from Mang Naro, I have also done my own read of the decision and determinations, and there are many things ERC will have to explain, like the valuation of assets and the failure of Meralco to sufficiently explain questioned items, yet these were allowed by ERC.

We also will want to know how ERC and/or Meralco picked their so-called rate reset experts and consultants.

Their costs must ruin into hundreds of millions, thus we must make sure that they have the credentials.

We also need look into possible conflicts of interest, because one or the other consultant or expert could have been working both sides of the track – with both the regulator and the regulated.

Shouldn’t we have any rules on this?

A Battle Royale
This promises to be a battle royale between Mang Naro, ERC and Meralco, and with more individuals and groups taking renewed interest in power issues, this is one fight to look forward to.

PBR has to be revisited and subjected to more rigorous review, and the Meralco 3rd Regulatory Period application is the perfect context for assessing what’s wrong with the industry and exploring the right remedies.

Mang Naro & the RH Bill
I yield the rest of this week’s Crossings to Mang Naro’s stand on the RH bill. I found out, to no surprise, that our stand on RH bill run along the same lines.

Here’s Mang Naro, who pointedly says: The RH Bill is Foolish.

“Economics does not agree with the proposition that overpopulation is the cause of poverty and that condoms and pills are the solution to hunger of the marginalized as propounded by the RH Bill.

Robert Malthus, an English Economist published in 1798 an Essay on the Principle of
Population also believed that “population constantly grows to outstrip the means of subsistence”- hence poverty would result from overpopulation.

Productivity, Education
But records of the wealthy nations led by the United States, France, England, Germany, China and Japan tell us that the poverty results not from overpopulation but underproductivity and the solution is not birth control and condoms and pills but mechanization or industrialization – in short, productivity.

Now we are certain of this because we saw that when these nations developed into capitalistic economies they push their productivities to yet unknown levels that even absorbed the idle hands in the farms, resulting in leveling of the distribution of wealth.

Even simple common sense shows us that poverty is not solved by condoms and pills but by increased productivity and better quality of life by education.

Yet, perhaps the strongest reason against the RH Bill to have the government to purchase the condoms and pills for distribution free to solve poverty is the undeniable truth that population grows at a geometric rate whereas birth control works at the much slower arithmetical rate. Hence, no amount of condom funding can ever solve poverty.

Geometric Growth
It is simply IMPOSSIBLE because population growth is GEOMETRIC and under-productivity is the cause of poverty and not overpopulation.

Illustration of birth control futility: geometric population growth – 1-2-4-8-16-32; arithmetical population growth – 1-2-3-4-5-6------

Thus, it is impossible to solve poverty with condoms/pills.

So why spend millions of pesos foolishly? Why throw money away and be the laughing stock of the world, distributing free condoms/pills instead of rice and jobs – and more? So, there you have Mang Naro, as passionate with RH as with Meralco.

Sorry. A couple of my lapses in last CROSSINGS: “several times over” came out several times “Ever”, somehow changing the tone of what I was saying. Uriel Borja is an “owner of a utility in Mindanao”, not Minadano.

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