Power

I received a letter from our friend Elpi Cuna of Meralco clarifying a number of points raised in this column (“Failure”, July 8, 2008). Elpi takes up a number of points worthy of being reproduced here in the interest of fairness.

Given space constraints, I will try to condense the points raised by Elpi’s letter here — with effort to represent them as fairly as possible. Let me mention beforehand that the main concern of the July 8 column was the apparent lack of institutional capacity of the ERC to competently discharge its regulatory duties.

First, Elpi disagrees with my use of the phrase “regulatory capture” to describe the relationship between regulator ERC and regulated Meralco. The phrase, he says, “implies” that Meralco controls the ERC, where what the former wants “automatically gets approved” without much scrutiny. He reminds me that public hearings are required as a matter of procedure on the part of the ERC.

But “regulatory capture” does not necessarily imply, although it does not exclude, absolute and blatant control by the regulated. Regulatory capture can also happen, as the entire column suggests, that limitations on the institutional capacity of the regulatory agency enables the regulated to get its way most of the time.

Second, Elpi disputes the claim that Meralco charges P3 more than most other regional electricity distributors. He points out that Meralco’s distribution charges constitute only 12% of the total bill customers get. Those distribution charges are lesser for high load industrial users and greater for high consuming residential users. For households consuming about 200 kWh of power per month, Meralco’s average distribution charge of P1.37/kWh is among the lowest.

But given the volume and density of its service area, shouldn’t Meralco’s own distribution charges be substantially — and not just marginally — lower than Cebu, Davao or Cagayan de Oro? I suppose that is a question best calculated by competent utilities economists — which, precisely, the ERC lacks.

Third, Elpi clarifies that the 2003 refund of Meralco’s income taxes was due to new jurisprudence applied retroactively. Meaning, at the time Meralco passed on its income tax load to consumers, the practice was not illegal.

I concede that.

Fourth, Elpi clarifies that the refund on meter deposits was a consequence of the ERC reformulating its guidelines and not the result of a “consumer suit.”

I concede that too and apologize for the lapse — although I recall that the reformulation of the guidelines was sparked by consumer complaints. At any rate, those refunds have not yet been paid by Meralco and the ERC has been dragging its feet on the matter for years now. Elpi’s letter would make the front pages if it announced Meralco will be paying the refund promptly, including interest income from putting those funds on float.

Lastly, Elpi reminds us that Meralco has not been given an increase in its distribution charges since June 2003. The company thus makes a return on fixed assets of only 3% while the IPPs get 14.4% and Transco gets 12%. That, I suppose, is a matter that requires the expert opinion of qualified utilities economists — which the ERC lacks. My own layman’s first impression is that the return on fixed assets must be correlated with the rate of depreciation for those assets.

Those points notwithstanding, Meralco looms large in the public mind as a monopolistic Leviathan with little to restrain it from getting what it wants. That image of the powerful corporation has only recently been reinforced by that curious ruling of the Court of Appeals on the petition filed by Meralco against the SEC and the GSIS.

Here is what happened.

The Meralco petition was raffled off to the CA’s 9th division chaired by Justice Jose Sabio. The case was heard by that division.

Last week, the lawyers for the SEC and the GSIS were all surprised when the CA’s 8th division promulgated the decision on the case. None of them were informed that the case was transferred from the 9th to the 8th division. Justice Sabio, chair of the 9th division, was unceremoniously excluded from the promulgation which was penned by Justice Vicente Roxas.

This is all very strange. The GSIS lawyers are now bewailing the CA decision as a “patent nullity.”

While the case was being argued in the 9th division, lawyers for the GSIS had, precisely, asked for the inhibition of Justice Roxas on reports he conferred with Meralco lawyers on the day a temporary restraining order was issued barring the SEC, at Meralco’s instance, from taking jurisdiction over GSIS complaint against Meralco. The complaint, we will recall, refers to the validation of proxy votes used by the Lopez bloc in the last shareholders’ meeting of the distribution monopoly.

Meralco “won” the case at the Appeals Court. The decision penned by Justice Roxas says that the regular trial courts, and not the SEC, had jurisdiction over the GSIS petition against the Lopez bloc’s use of proxy votes in the shareholders meeting. That decision, according to the GSIS lawyers, runs directly counter to previous Supreme Court rulings on similar issues.

The Roxas decision was so generous to Meralco it even dismissed the case filed by GSIS before the SEC, a case that was not put under the CA’s jurisdiction and was not even prayed for by the lawyers of Meralco. This raises more issues than the case purportedly resolves.

Little wonder that so many perceive Meralco to be in the business of power. And we are not referring here to electricity alone.