Meralco rate rip-off

CROSSINGS

Butch Junia

7/11-17/2011

Major newspapers and mainstream media were again bursting with news of Meralco’s lower rates next month.

I have come to welcome this surge of attention, even if focused on the adverse side of the power equation, because it makes the public aware that there is such a thing as the power rate.

Hard-pressed to meet my deadline and the issues already commented on in one or another of my past columns, I will just reprint what I have said so far on Meralco rates.

On January 10, 2011, we said in Crossings, Abolish PBR; abolish ERC: “Last week, two morning broadsheets had very similar headlines quoting a Meralco spokesman. “Meralco rates down this month,” said one. “Lower power bills seen for Meralco customers,” said the other.

A Joe Zaldarriaga, the Meralco spokesman, said rates would go down by 27 centavos per kilowatt hour (pkwh), better than the 20 centavos originally projected, because of lower costs in generation and transmission.

Half-Full Situation

Before we start jumping like chimpanzees, listen to the Manila Bulletin, the only paper that nailed the lead that should matter to us: “A slew of shocking news seems to be greeting consumers this start of the year with utility giant Meralco joining the fray Wednesday by announcing an increase in its power rates by P0.1547 pkwh to P1.6464 starting this January billing from last month’s average of P1.4917 pkwh,” wrote Bulletin’s Ms. Myrna Velasco.

Quite succinctly but appropriately, the story was captioned:”Meralco hikes rates.”It was a classic half-full/half-empty situation, but many missed the emptiness in Meralco’s claim to better rates.

The increase in Meralco’s distribution, supply and metering (DSM) charges by P0.1547 pkwh represents the last installment in the annual increases Meralco is guaranteed by the Energy Regulatory Commission (ERC) under Performance Based Regulation (PBR).

On November 29, 2010, we also said in Crossings, PBR & EPIRA cause of costly power:  “Performance Based Regulation (PBR) is the principal reason for the 80% surge in Meralco’s net income for the first nine months this year, from P5 Billion in 2009 to P9.28B. It is also the cause for our very expensive electricity.

A Boost in Meralco Revenue

This dazzling and outstanding financial performance of Meralco could only have come from the annual rate increases obtained through PBR.

Under Return on Rate Base (RORB) Meralco’s distribution charge was only P0.7057 pkwh.

Today under PBR, Meralco’s distribution rate is P1.4917 pkwh , set to increase furtherb to P1.6464 pkwh for July 2010 to June 2011, and up to P1.9036 pkwh by 2015.

According to Meralco Chief Finance Officer Betty Siy-Yap, billed customers during that period increased 3% and energy sales went up by 11%, but there is no way that level of market growth alone could have resulted in an 80% surge in Meralco’s net income.

Distribution rate adjustments approved by the Energy Regulatory Commission (ERC) i.e. rate increases, Ms. Siy-Yap said, boosted consolidated electricity revenues by as much as 32%, or up to P188.9B.

So there it was. The 32% boost in revenues from a customer base that only grew 3% and consumption that expanded only 11% could only have come from the series of rate increases Meralco and ERC quaintly describeas a “distribution rate adjustment,” as if not calling it an increase would lower the rates to captive customers or tame the rampant profits of utilities.

Highest in Asia

Former Meralco Chief Operating Officer Jesus Francisco, in an item in the Philippine Daily Inquirer, September 2, 2007, said: “The procedure (in PBR) is, once you have agreed on the operating expenses and capital expenditures, the ERC will already calculate the rate adjustments that will grant the utility its desired return. That is to be given to you (the utility) regularly or every year.”

True to the prophetic word of Mr. Francisco, Meralco’s distribution charges under PBR have been increasing yearly, to end up in 2015 at more than triple what it was under RORB.

On January 31, 2011, we again had occasion to say in Crossings, PBR: Parusa sa Bayan Rates – “In a world besieged by contractions in global finance, Meralco experienced anemic market expansion but posted exponential growth in earnings. Meralco’s captive customers, on the other hand, suffered one of the highest  rates in Asia and the world.”

Overstatements

In Mang Naro’s own words, here is why the ERC should throw out the Meralco application (for a rate increase): “In compliance with the Notice dated 15 December 2010 the undersigned (Genaro Lualhati) respectfully submits this comment and prays to this Hon. (sic) Commission to desist from holding public consultations on its own DRAFT DETERMINATION (DRAFT) for the 3rd Regulatory Period from 2012-2015 and instead to DENY and DISMISS the instant application outright onthe following grounds – 1. The DRAFT is ILLEGAL and UNJUST, 2. The DRAFT finding of gross overcharges proves the application is filed in bad faith with DOCTORED (sic) OVERSTATEMENTS.”

“The DRAFT is illegal because like the application it is based in the illegal 15.50% Performance Based Rate (PBR) rate setting method that inflated the return by 29.16%....” xxxxxxxxxxxxxxxx

Mang Naro goes on to show Meralco’s alleged overcharges and the Commission’s revisions totaling P92.8 billion consisting of P43.072 billion for “ARR OVERCHARGE”, P34.921 billion for “RETURN OVERCHARGE”, and P14.859 billion for “OPEX OVERCHARGE”, all for the 4-year period.

“Additionally,” Mang Naro says further, “the DRAFT did  not consider the following anomalies reported during the hearings showing ERC bias in favor of Meralco to wit: 1. The Meralco assets are 50% utilized as declared in witness stand Mr. Emerton an AACI Expert; 2. Meralco power transformers are 73%-151% overpriced reported by Mr. Uriel G. Borja (Amendment of Manifestation with dated November 22, 2010);

“3.The unresolved PBR ERC CASE NO 2010-034 MC that illegally inflated return by 29.16%; 4. Meralco filed two (2) doctored RAB values – revised even higher by ERC to favor Meralco, shown below - original Meralco application P155.241 Billion, Meralco Supplementary P119.21 billion, DRAFT (revision) P125.989 billion.”

The ERC CAPEX is overstated, according to Mang Naro.

Rate Application

TODAY, I learned from Pete Ilagan of Nasecore that Meralco has filed under ERC Case No. 2011-088 RC an Application for a) Approval of its Maximum Average Price (MAP) for Regulatory Year (RY) 2012 and, b) Translation of MAP for RY 2012 into a Rate Structure for Meralco’s various customer classes with Prayer for Provisional Authority.

Teka muna! RY 2012 is the entry year for the 3rd Regulatory Period, which was discussed, not extensively nor thoroughly, let alone intelligently, under ERC Case No. 2010-069 RC.

After all the exertions, two Determinations were arrived at by ERC, one deceptively a Draft the other supposedly Final, but neither one discussing, answering, clarifying even acknowledging objections, computations, documentary evidence, position papers, manifestations, not even the testimonies and facts adduced in what were supposed to be public hearings, pretrial meetings, consultations on the application.

Lo and behold, when we come to the price and the discriminatory rate per customer class, the rate application reinvents itself and acquires a new ERC Case Number with a different title.

Sleight of Hand

Serious questions arise out of this new twist.

What will happen to the Intervenors of record in the original case – ERC Case 2010-069 RC? Do they have to re-qualify as intervenors in this latest application for an increase in rate based on the original case?

Mind you, this is not a minor issue under the present rules of ERC, where ERC effectively muzzled and shackled oppositors to Meralco’s PBR application. They did this to Uriel Borja and several others.

Alarming, too, is the prayer for Provisional Authority, which can be breezed thru if there is no intervenor, a distinct possibility with this latest prestidigitation – sleight of hand, remember – by the Honorable ERC.

Akala ko ba PBR is so efficient that it has rendered the provisional authority obsolete under PBR? May PA pa pala.

Abangan natin ang susunod dito. Abuse of discretion ba ito? Or abuse of our naivete?