PBR: dark days for consumers

THIS REFERS to the letter of Rafael dela Torre. (Inquirer, 3/5/11) He defends the so-called Performance Based Regulation (PBR) as “our insurance against going back to the ‘days of darkness’.”

May I invite the attention of Dela Torre, who has “vowed to fight for” the interests of residential power users, to the following facts:

1) Since PBR was instituted, Meralco’s per kilowatthour (pkwh) distribution rates have gone up—from P0.9657 in 2003 under rate unbundling, to P1.2227 in May 2009, to P1.4917 in May 2010, to P1.6464 this year, and to P1.9036 by 2015. That rate was P0.7957 pkwh in 2003 under the Return On Rate Base (RORB).

2. Meralco’s net earnings: P2.7 billion in 2008; P6 billion in 2009; and P12 billion in 2010. In 2010, thanks to PBR, Meralco posted an 80 percent surge in profits on a 3-percent growth in customer base, and 11-percent increase in sales volume (gwh).

3. “PBR,” according to Dela Torre, “allows DUs to look forward and make investments.” That is the curse of PBR. Instead of the law-ordained cost recovery mechanism, PBR is a revenue-setting platform where all projected costs over a four-year period are set in advance, investments approved, profits allocated; the corresponding retail rate is set based on those projections. We are now entering the third regulatory period, yet we have not yet seen an audit of the first and second. Do you still wonder why Meralco’s distribution rates are on a perpetual up-spiral, and its profits, even more?!

4. Meralco’s annual revenue requirements from years 2012 to 2015 under PBR: P52 billion, P54.9 billion, P58 billion and P60 billion, respectively. Of that amount, the operating expenses for the same periods are P16.5 billion, P18 billion, P19.6 billion and P21.4 billion, respectively. The provision for dividends, interest and return on capital for the same period: P23.8 billion, P24.6 billion, P25.2 billion and P25.8 billion; cost of dividends and returns is P7 billion higher than the operating expense, every year, thanks to PBR.

5. Under PBR, Meralco claims a capital expense of P45 billion. Energy Regulatory Commission reduced this to P34 billion. But Gene Lualhati, a consumer-oppositor to PBR, says it should only be P1.09 billion, given that Meralco’s projected sales growth is only 450 gwh per year over four years. Even if Meralco will sell an additional 1 billion kwh per year from its present level of 28 to 29 billion kwh, the investment we are being asked to pay—P11 billion to P12 billion annually or P45 billion over four years—is an imprudent investment, where we will be spending P11 to P12 pkwh to produce the additional power that Meralco will sell at P1.90 pkwh, computed at the highest distribution rate for 2015.

6. PBR has restored the corporate income tax of Meralco as a recoverable cost, in clear defiance of a Supreme Court order in 2003 and 2004 that disallowed this in strong and categorical terms. How can PBR alter and modify that decision?  Dela Torre should join our cause for the captive customers of Meralco, whom he has vowed to fight for.

—ROMEO L. JUNIA,

[email protected]