ERC’s omission cause of overcharges in power rates

The news item “Electricity rates to decline in October—Meralco” (News, 10/6/16) apparently quoted this straight out of a Meralco press statement: “Meralco’s distribution, supply and metering (DSM) charges, meanwhile, have remained unchanged for 15 months after the registered reduction in July 2015.”

The clever juxtaposition of a 15-month run of no-rate-change and a supposed rate reduction with the volatilities of generation/transmission charges makes up Meralco as an efficient and benevolent distribution utility. This is disingenuous and misleading.

Under the performance-based regulation (PBR) rate-setting method enforced by the Energy Regulatory Commission (ERC), Meralco’s DSM is set once every four years in a process called “rate reset.” That rate is applied over a four-year regulatory period (RP), the third of which (3RP) ended June 30, 2015. PBR led to unprecedented annual profits for Meralco—P19 billion at its highest from P3.7 billion in RORB (return on rate base), the old rate regime, PBR’s forerunner) and to DSM rates oppressive to captive customers (from P.076 pkwh in RORB to P1.6464 pkwh in PBR).

The rate reset process for 4RP should have started in January 2014 and should have been completed before June 30, 2015, the end of 3RP. In rate reset for 4RP, Meralco has to account for the P226 billion it charged us in 3RP; in case of excess collections—and there are many—we must be refunded. But the rate reset was aborted because of ERC’s failure to issue the rate reset order. Minsanan na nga lang sa apat na taon, na-unsyami pa, salamat sa ERC.

Here are the 3RP DSM accounts (P226 billion) Meralco must account for: supervision and engineering (P6.889 billion); contractor services (P6.9 billion); employee pension and benefits, (P8.034 billion); meter reading and records (P12.048 billion); water and electricity (P2.323 billion); miscellaneous (P3.3 billion); advertising (P1.485 billion); regulatory liaison and compliance fees (P1.859 billion); capital expense (P37.1 billion); return on capital (P103.225 billion); under recovery (P24.1 billion).

The interim average rate Meralco charges now is the average of the smoothed maximum average price in 3RP; there was no review or audit of that rate. Meralco’s present DSM rate has not changed from July 2015 because there was no annual rate translation, the ERC-ordained process for setting varying rates for various customer classes, which do not allow any questions on the rate itself. There is nothing to translate now because the present rates are mere restatements of previously approved but already expired 3RP rates.

The reduction Meralco claims is the underrecovery of P24.1 billion for Meralco’s supposed revenue shortfalls in 2RP, revenues that the ERC did not review or audit despite the earnest entreaties of consumers like Nasecore. Of course, not even the captive ERC would dare to continue any collection of this account.

An ERC letter to me (June 6, 2016), declared that “the Commission, on 12 April 2016 issued its draft ‘Position Paper’ embodying its resolution of the issues…” in 4RP. This is a key step to rate reset but more than two years late and hundreds of billions of pesos overdue. This gross negligence of ERC allows Meralco to escape accountability for past collections and continue to charge us unverified and unaudited rates.

ROMEO L. JUNIA, [email protected]