PBR: best for utility, hardly good for consumers?

Who is going to regulate the regulator? The Energy Regulatory Commission (ERC) is mandated by the Electric Power Industry Reform Act (Epira) to set rates “to allow the (utility) recovery of just and reasonable costs and a reasonable return… and ensure (for consumers) a reasonable price of electricity. The rates prescribed shall be non-discriminatory.”

In Lualhati vs Meralco (2002), the Supreme Court crystallized this principle thus: “The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive.” As if instructing ERC, the Court said: “Rate regulation is the art of reaching a result that is good for the public utility and is best for the public.”

Shortly after that decision, the ERC started the shift from Return on Rate Base (RORB) to Performance Based Regulation (PBR) with the adoption of rate unbundling in 2003, and full PBR in 2007. Under RORB, the distribution, supply and metering charge of Meralco was P0.70/kwh; under rate unbundling it was P0.90/kwh. With PBR, it was P1.2227/kwh in 2009, P1.491 in 2010, P1.6464 in 2011, P1.60 in 2012, to go up to P1.633 in July 2012-June 2013.

Since the PBR was adopted, Meralco’s net earnings have soared year on year: P3.1 billion in 2008; P6.3 billion in 2009; P10.1 billion in 2010; P14.8 billion in 2011. For the year 2010, customer base grew 3 percent; sales increased 11 percent, but, earnings soared 67 percent—which obviously came from rate increases rather than market growth or operational efficiencies: best for the utility, hardly good for the public.

Some notable PBR innovations: the 12-percent cap on the rate of return under RORB was lifted and raised as high as 15 percent; asset base increased from P70 billion under RORB to P126 billion mostly from appraisal increase and Capex charges to customers; new costs came up like “Regulatory Liaison and Compliance” amounting to P2.2 billion for the third regulatory period. At the last ERC hearing, Meralco’s witness had no idea what this “liaison” is all about, and the ERC didn’t come up with an explanation.

There is so much in the PBR that needs to be explained, not the least of which is how it has driven Meralco’s rates beyond the roof and Meralco’s profits way over the moon in so short a time.

We appeal to Congress to review ERC’s exercise of its rule-making powers. The rules of procedure they have adopted are so complicated, their processes opaque, and their methods border on voodoo or pseudo-science that only they and their highly-paid consultants understand. Unfortunately, the residential customers like us bear 70 percent of the cost of these pseudo rates, with commercial and industrial customers contributing barely 30 percent, a clear challenge to the non-discriminatory clause in Epira.

Our electricity rates need not be the highest in Asia or among the highest in the world. We only need regulators and gatekeepers who will be mindful of what the Supreme Court said about rate setting: “the art of reaching a result that is good for the public utility and is best for the public.”

—ROMEO L. JUNIA, philconsumerforum

@gmail.com