ERC junks Meralco overcharging report

MANILA, Philippines - The Energy Regulatory Commission (ERC) has dismissed the Commission on Audit (COA) report on the alleged overcharging of Manila Electric Co. (Meralco) but assured this will not result in a rate adjustment.

“There is no impact on Meralco’s rates. There will neither be an increase nor refund/reduction,” ERC executive director Francis Saturnino Juan said.

He said the ERC has studied the COA report and has considered it is maintaining an earlier ERC decision as regards Meralco’s unbundled rates.

“It’s like we rendered a final decision on the unbundling of rate application of Meralco and we have affirmed the earlier unbundled rates of Meralco,” Juan said.

He noted that the unbundled rates of Meralco has been implemented and was never stopped.

“It was not put on hold. In fact, the Supreme Court upheld also the decision of the ERC on the unbundling rates,” he said.

Meanwhile, Pete Ilagan, president of the National Association of Electricity Consumers for Reforms (Nasecore), said the decision of the ERC to dismiss a COA report on Meralco’s overcharges as ordered by the Supreme Court is another slur on the highest tribunal and an affront on the rights of the consumers to a just and reasonable rate.

“The audit of Meralco’s books of accounts was ordered by the High Court in connection with Meralco’s application for a rate increase in 2003, and therefore it should be for the Supreme Court to have the final say on the results of that audit,” Ilagan said.

ERC said it had dismissed all of COA’s adverse findings on Meralco’s rates to its captive customers, specifically the overcharges amounting to P7 billion.

“While EPIRA allows ERC to adopt an alternative rate setting methodology, it must result in a just and reasonable rate for consumers,” Ilagan said. Meralco’s distribution rate today is inarguably oppressive, he added, citing how it has soared from P0.76 per kilowatthour under the return on rate base to P1.6464 /kwh under performance-based regulation (PBR) which is now enforced by ERC.

Juan added that jurisprudence, likewise, is not on the side of ERC, as the SC decisions in 2002 and 2003 on Meralco’s rates dictate the rates “must not be so low as to be confiscatory, or too high as to be oppressive.” In that decision, net average investment method for valuation of assets was upheld over the appraisal method ERC now insists on using, the 12 percent cap on return was reiterated and corporate income tax, an expense item reinstated by ERC, was excluded by the Court.

 Moreover, there is nothing in EPIRA that allows ERC to authorize a return or earnings on capital and investment in excess of 12 percent. On the contrary, after allowing ERC the flexibility to adopt an alternative rate-setting methodology, the law specifically admonishes that “the rate-setting methodology so adopted and applied must ensure a reasonable price of electricity.”

 Since the adoption of PBR, Meralco’s distribution rates have more than doubled from P0.76/kwh to P1.6464/kwh, while the profitability of Meralco has increased four-fold, from P2.7 billion in 2008 to P12 billion in 2010.