Fw: [fdcsecretariat] BAD NEWS: ERC affirms Meralco 'overcharging', dismisses COA report

[Rich De Los Santos]

 

Rich de los Santos
Campaign Support Staff
Freedom from Debt Coalition (www.fdc.ph)

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Sent: Tuesday, July 5, 2011 12:17 PM
Subject: [fdcsecretariat] BAD NEWS: ERC affirms Meralco 'overcharging', dismisses COA report

 

BusinessWorld 05 July 2011, Banner Headline http://www.bworldonline.com/content.php?section=TopStory&title=Power-rate-hikes-affirmed&id=34200 Power rate hikes affirmed REGULATORS have affirmed the validity of Manila Electric Co. (Meralco) rate increases approved eight years ago, rejecting claims that the distribution utility had overcharged and thus needed to refund its customers. In a June 26 decision, the Energy Regulatory Commission (ERC) ruled that its 2003 decisions approving Meralco’s unbundled rates were final, dismissing Commission on Audit (CoA) findings that the firm had realized excess revenues. The case has its roots in a rate hike application filed by Meralco in 2000, which was consolidated with a petition for “unbundling” -- a detailed breakdown of charges -- filed when the Electric Power Industry Reform Act took effect in 2001. The ERC, in two orders issued in 2003, approved a 17-centavo per kilowatt-hour (kWh) increase, lower than the P1.12/kWh sought by Meralco in its unbundling plea. The firm and interveners sought a reconsideration and the case made its way to the Court of Appeals, which in 2004 struck down the ERC decisions. The appellate court, which also ruled that a CoA audit of Meralco was needed, the following year denied a subsequent Meralco and ERC appeal. The case was then raised to the Supreme Court, which in 2006 reversed the CA ruling but upheld the need for the CoA audit relative to the rate hike. The CoA, in a report released in February last year, said Meralco had overcharged customers by some P7 billion. Comments from concerned parties were then sought by the ERC. The National Association of Electricity Consumers for Reforms, Inc. (Nasecore) claimed that consumers were owed refunds totalling P15.4 billion, while Genaro Lualhati alleged that Meralco overcharged P31.52 billion from 2004 to 2007. In its ruling, the ERC said it believed that the CoA erred, in particular, by: • applying disallowances under Meralco’s performance based regulation (PBR) application to the firm’s return on rate base (RORB) petition to determine the fairness of rates; • calculating Meralco revenues using historical asset costs and a 12% RORB; and • calculating Meralco disallawances and revenues without regard to “incrementals” such as higher pension costs and kWh sales increases. On the PBR/RORB issue, the ERC said the CoA methodology “is not supported by established rules on rate-making. It is, in fact, a clear violation of the principle against retroactive-rate making, which prohibits the adjustment of rates previously fixed ... following a prescribed procedure.” The use of historical asset costs and the 12% RORB, meanwhile, was described as “contrary to existing law and jurisprudence” that allow the use of appraised values and a weighted average cost of capital (WACC), which in this case was set by the ERC at 15.5%. The argument against retroactive rate-making -- while allowable when conditions are “expressly and clearly stated” such as in an order granting provisional rates -- was reiterated and the regulator said this was necessary to “provide utilities with some incentive to operate efficiently.” ERC Executive Director Saturnino C. Juan told BusinessWorld in a telephone interview that the ruling meant “there is no impact on rates and there is no refund necessary...” Nasecore President Pete L. Ilagan said he had yet to receive a copy of the ERC decision but added that an appeal was likely. Mr. Lualhati and Meralco officials were not immediately available for comment. Shares of Meralco, which is now controlled by a group led by Philippine Long Distance Telephone Co. (PLDT), closed yesterday at P276.60, down slightly from P277 on Friday. Mediaquest Holdings, Inc., a subsidiary of the Beneficial Trust Fund of PLDT, has a minority stake in BusinessWorld.

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