Prestidigitation

CROSSINGS
Butch Junia
6/20-26/2011



Prestidigitation is sleight of hand, or the technique used by a magician to manipulate objects and deceive or mislead his audience. In magic, this is enchanting amusement.

Applied to our power rates, it is a shocker.

Inevitably, that is the feeling I get as I read through the latest order of the Energy Regulatory Commission (ERC) approving Meralco’s Annual Revenue Requirement (ARR) and Performance Incentive Scheme (PIS) for Regulatory Years (RY) 2012 to 2015, which will actually start in two weeks for the first RY, from July 1, 2011 to June 30, 2012.

I have read this order several times ever since I got hold of it from Mang Naro Lualhati last Wednesday, and despite the fact that I more than less expected ERC to take the side of the utility, I did not expect the consumer rout to be as thorough and as devastating.

So designed
Not a single consumer/oppositor/intervenor concern was ruled favorably. Meralco got its way with ERC, and some.

In the opening gambits alone, the consumers were already at the short end. The ERC has devised rules that are so complicated and virtually impossible to comply with by even the most resolute consumers that I can safely say this is designed to wear down and deter all opposition.

To begin with, one has to be an “Intervenor” to interrogate, challenge, question and cross-examine Meralco and its witnesses. An “Oppositor”, in the ERC’s rules, can only listen, look and gnash his teeth because he can neither speak to nor confront the witnesses, or challenge their evidence and testimony.

What are the two requirements to qualify as intervenor? First is the Petition in Intervention, strictly in the form required by ERC, and second, it must be filed within the time prescribed under ERC’s rules.

What consumers pay for
Mind you, Meralco has a whole battery of lawyers we pay for, foreign consultants we pay for, utility experts we pay for, economists and engineers we pay for, and an army of other staff and gophers, we also pay for.

No wonder they can put together all the documents required for their application, and develop all those formulas and graphs and tables and charts, except of course for the specific information that consumers require.

Based on their present application, Meralco is charging us P58 Million for their so-called Regulatory Reset Expert for 2012, a foreigner. By 2015, this will be P70.1 Million. Meralco’s operating expense for 2012, a good part of it going to personal services is P13 Billion.

For the consumers, in addition to our contribution to Meralco’s rate reset kitty, we pay for everything we need from our pockets – photocopy, filings, transpo, parking, etc.

Intervenors excluded
In the same application, a total of P432,171,000 will be charged to us by Meralco for Regulatory Liaison during the four-year period.

What exactly is this Regulatory Liaison that will cost close to one-half billion pesos? We hope ERC, as the regulator, will clarify this.

Among those excluded from the intervenors was Uriel Borja, an expert in the electricity business as owner of a utility in Minadano, the Nagkakaisang Alyansa ng Pilipinong Makabayan, the Kilusang Makabayang Ekonomiya, and the Marginalized Pauper Residents of San Pedro, Laguna, supposedly for their failure to file their Petition on time.

In fact, they also tried to exclude Mang Naro Lualhati, but he already filed a Manifestation on July 1, 2010, or barely 12 days after Meralco’s application was filed, only it was not in the Petition form.

Without legal basis
Incidentally, I checked ERC’s order itself and plotted the timeline for the filing of intervention. The ERC, as it turns out, may have violated its own Order.

Meralco filed its application on June 18, 2010. On June 23, 2010, ERC issued an order for the application to be published in two successive weeks in two newspapers, provided the last publication shall not be less than 10 days before the first hearing.

The first hearing was set on July 14, 2010, and it was in fact in that hearing where Meralco moved, duly granted by ERC, to declare a general default, thus Borja et al were subsequently and consistently denied intervenor status.

If we plot this order by the calendar, the 2nd week from the June 23 order is July 7, 2010, and the 10th day from last publication is July 17, 2010, not July 14, the day at which ERC declared the rest of the world in default as far as the Meralco application is concerned.

When the order said two successive weeks, the entire 14-day period must be allowed to run, before we count the 10-day period to the hearing. This is material because the public has to be given ample time to know, assess and oppose the application.

Therefore, all actions and orders of ERC, especially in regard to the petitioners for intervention, were without legal basis being in violation of its own order.

Pati ba naman sa timeline na ito, magiging biktima pa tayo ng prestidigitation?

Unmitigated gall!
Last week, the ERC through a Director Saturnino Juan announced this new rate order dated June 6, 2 011, signed by Chairman Zenaida Cruz-Ducut and Commissioners Rauf Tan, Maria Teresa Castaneda and Jose Reyes, with Alejandro Barin on-leave.

Highlighted in Juan’s announcement is the lower rate approved by ERC at P1.58 pkwh, lower than what Meralco applied for (P1.70 pkwh) and the current rate (P1.6464 pkwh) charged by Meralco.

Without batting an eyelash, ERC’s Juan lectures us that we are now beginning to feel the initial benefits of efficiencies that come from Performance Based Regulation or PBR, the Parusa sa Bayan Rates.

My favorite editorial writer, FT Ocampo, would have the perfect retort to Juan, or at least the apt description of his heroic effort to make his ERC look good – “The unmitigated gall!”

I cannot think of any other way to regard this attempt to dress up PBR as efficiency-driven.

Exemplars of efficiency
In a group discussion I attended last week, one of the panelists noted that after PBR had driven our rates to the roof, by more than P1/kwh, we can hardly be impressed when ERC brings down that rate by six centavos, or P0.06. She went as far as to say that the PBR we adopted is not suited for us, and the so-called regulators may not fully understand what PBR is or should be.

But this is where sleight of hand comes in, and superior negotiating skills are even handier.

Sabi nga po ni Mang Naro, tinaasan nila ang hinihingi sa application, kunyari magkakaroon ng review, kaya lang ang ibibigay na rate, sobra pa sa pangangailangan ng Meralco.

Under the P1.58 pkwh Maximum Average Price, what has actually been granted to Meralco?

Meralco is given an Operating Expense of P13.9 B; Capital Expense, P10 B; Return on Capital, P19.1 B; Return of Capital, P4.7 B; Depreciation, P5.2 B.

Meralco is also credited with a Regulatory Asset Base of P126 B, which will be subject to recovery based on Weighted Average Cost of Capital of 14.97%, higher than the 12% rate used under Return on Rate Base for utilities like Meralco.

Just as noteworthy, in the same breath that ERC said rates should go down from P1.6464 pkwh to P1.58 pkwh as of July 1, 2011, it has given

Meralco P24.1 B in “under recoveries” for the 2nd regulatory period, and for the coming year, an initial P6.5 B will be recovered, the balance to be spread over the last three years of the 3rd regulatory period.

Let us remind Juan that under RORB, Meralco’s distribution rate was P0.76 pkwh; under rate unbundling, it was P0.90 pkwh. Under PBR, it soared to P1.27 pkwh, P1.46 pkwh, to P1.6464 pkwh.

Meralco’s profits: P2.7 B in 2008; P6 B in 2009; P12 B in 2010, to improve even further in 2011, according to Manuel Pangilinan.

Aren’t they exemplars of efficiency, ERC and Meralco?

Very damaging admission
Incidentally, in the ERC decision, there is reference in page 11 to Mang Naro’s interrogation of Michael Emmerton, Principal Consultant of PB Associates who assisted Asian Appraisal Co. Inc. in the valuation of Meralco’s assets. The decision said: “NASECORE, Mr. Lualhati, and FOVA cross-examined the said witness.”

I was in that particular hearing, and it is a matter of record that under questioning by Mang Naro, Emmerton confirmed that the P126 B asset base of Meralco is only 50% utilized.

That very damaging admission was obviously not taken into account by ERC in its final determination, in fact giving Meralco an additional P10 B capital expense, on top of and despite the P63 B assets that Meralco does not utilize.

Given the gauche and hamfisted way this order has been arrived at, I will reconsider my lead and title for this column. There is nothing clever at all in this attempt at misdirection, to make it a sleight of hand or prestidigitation.

Even magicians will not want to be in this kind of company.

• Email crsng_47@hotmail.com