ERC should use its regulatory power to lower electricity rates

This is a reaction to the article “Scrap 12% VAT on power rates, incoming Marcos admin asked” (5/20/22).

The proposal of ERC chair Agnes Devanadera to presumptive president Ferdinand R. Marcos Jr. to scrap the 12-percent value-added tax (VAT) on power rates will indeed bring long-overdue relief from the high cost of power in the country. Expensive and excessive power rates are unjust and unreasonable and contrary to the intentions of the Electric Power Industry Reform Act, which was passed in 2001.

But this proposal is not something new because even during the administration of former president Gloria Macapagal-Arroyo, the executive department initiated a review of this 12-percent VAT on electricity with the intention of bringing down the cost of electricity. During the administration of the late president Benigno Aquino III, the legislative department also initiated a review of the same, although the efforts faded along the way.

There are other ways, however, that could help lower electricity rates—and these Devanadera can do them herself. The power to scrap the VAT is legislative. The power to regulate is in the hands of the Energy Regulatory Commission (ERC).

Electricity prices can be made just and reasonable if the ERC will only exercise its regulatory powers diligently.

First, the ERC should make it a policy to conduct a periodic regulatory audit after the approval of a utility’s rate. A regulatory audit will subject all financial transactions of the power utilities like Meralco and National Grid Corporation of the Philippines to whether they have complied with the criteria set by the ERC that expenses must be “necessary, recurring, and redounding to the interest of the consumers” and directly related to the service of providing electricity. It is this kind of audit that made Meralco refund P30.2 billion as directed by the Supreme Court in 2003 based on the audit conducted by the Commission on Audit (COA). It was also this kind of audit by the same agency that revealed over-recoveries of Meralco in two regulatory years to the tune of P14 billion which, surprisingly, was contested by the ERC.

Second, the ERC should act on pending cases that will likely result in hundreds of billions of pesos in refunds to the consumers. For example, in 2020, for the first time in its history, Meralco motu proprio filed ERC Case No. 2020-043 RC, an application to refund P13.8 billion to its customers, a clear admission of its over-recoveries where Nasecore (National Association of Electricity Consumers for Reforms, Inc.) is an intervenor. As an intervenor, we argued that the refund should be in excess of P200 billion based on the diligent computation by a former ERC commissioner.

In G.R. No. 226443 promulgated in 2019, the Supreme Court voided Meralco’s use of the performance-based regulation methodology in determining its asset base, directing a return to the return on rate base methodology used by the COA. The Court also directed ERC to come up with “parameters” on whether the cost of maintaining facilities, not directly and entirely related to the operation of a distribution utility, should be passed on to the consumers; this includes the cost for the operation of the Meralco theater, a symphony orchestra, an in-house hospital, sports facilities, a firing range — for which the consumers have been footing the bill for decades. The ERC has not carried out this ruling, even though it is a reiteration of an earlier decision in Meralco v. Lualhati, promulgated in 2006.

Devanadera should actually do her own job before minding other people’s business, i.e., asking Congress to scrap the VAT, which can only backfire on the presumptive president.

May there be a genuine “pagbabago” that will lead to “babangon muli” under this incoming administration.

PETE L. ILAGAN
President
National Association of Electricity Consumers for Reforms, Inc.