Consumers of the Manila Electric Company (Meralco) were just handed a bitter pill to swallow this holiday season.
In a recent advisory, Meralco announced that its electricity rate in December increased month-on-month by P0.1048 per kilowatt hour (kWh) to P11.9617 per kWh, from P11.8569 per kWh in November.
This meant an additional P21 for electricity consumers with a monthly consumption of 200 kWh.
While P21 may sound like peanuts for a multi-billion company like Meralco, this meant a lot for ordinary consumers still coping with high costs of basic commodities.
Which begs the question: What is the Energy Regulatory Commission (ERC) doing to “regulate” giant power distributors like Meralco?
For long-time consumer advocate Romeo “Butch” Junia, the word “regulatory” is a laughable oxymoron, as what the ERC is actually doing is accommodating big business at the expense of consumers.
‘Somersault’
Recently, Junia has blasted the ERC anew for turning tail on its mandate to fairly regulate rates in order to accommodate the Manila Electric Company (Meralco).
Junia was reacting to the order of ERC dated October 30, 2024 but issued November 15, which granted Meralco’s motion to withdraw its rate reset application, after that motion was already denied by ERC on April 16 this year.
In a motion for ERC to rescind its reversal of the original denial order, Junia emphasized that “rate reset is the only time consumers and captive customers can verify and validate Meralco’s historical, projected and forecasted expenditures and confirm if they are necessary, reasonable, recurring and redounding to consumer benefit – in order to qualify as recoverable costs under the Supreme Court decision in LAMP, Lualhati vs Meralco.”
Rate reset
Meralco’s last rate reset was completed in June 2011 with that rate to be applicable only up to June 2015.
A reset happens just once in every 4-year regulatory cycle but up to now, nine years from 2016 when a reset Meralco rate should have been in place, no proper and timely rate review has been done because ERC did not issue the pertinent rules or having issued them, did not implement and enforce them properly.
The mega franchise, he said, has been collecting rates that were only recomputed, not reset.
The rate reset mess ERC has created is living proof of ERC’s gross incompetence for which ERC has not been held accountable, he said.
Lamentably, it is the public that suffers the burden of Meralco’s unverified and non-validated unjust rates, he added.
‘Anti-consumer’
This regulatory quagmire, according to Junia, goes back to the Supreme Court (SC) refund order in 2002 that disallowed corporate income tax (CIT) as recoverable cost, capped Meralco’s return on capital at 12 percent and set clear criteria for what can be charged to Meralco’s customers as operating cost.
In the wake of that landmark decision, ERC engineered a shift in rate setting methodology from Return on Rate Base (RORB) to Performance Based Regulation (PBR), the center piece of which is the rate reset.
ERC had said at that time that if the SC indeed disallows CIT as chargeable cost, “we will adopt PBR where the treatment of income tax may be different from RORB.”
Under the PBR, CIT is a revenue building block, rate of return is uncapped as Weighted Average Cost of Capital (WACC) at 14.7 percent and asset is valued at replacement cost, which is anti-consumer, according to a recent SC decision.
“[The] PBR has neutered the landmark, pro-consumer decision of the SC,” Junia charged.
“In the PBR regime, rate reset is the entry stage where the going-in rate for the regulatory period is set in a cost-of-service proceeding where the projected Annual Revenue Requirement (ARR) and forecasted energy sales plus an incentive scheme determine the Maximum Average Price (MAP) for the regulatory period,” he added.
The strict proviso that once set, questions on the approved MAP cannot be raised until the next reset made this stage critical and pivotal to the process and ERC’s failure to enforce it led to the total collapse of PBR as the touted internationally accepted rate setting methodology.
Consequently, the present rate of Meralco is merely an average of Meralco’s 3rd RP MAP because of ERC’s egregious and unexplained failure to issue the required rules for reset.
On March 16, 2022, Meralco filed its application for rate reset covering RYs 2023-2026, but in September 2023 Meralco moved to withdraw that application, citing ERC’s unexplained failure to conduct rate reset in a proper and timely manner.
Flip-flop
That motion was denied April 16, 2024 but on Meralco’s motion for partial reconsideration on May 27, 2024, ERC reversed its original order denying withdrawal and issued the October 30 order granting it, a somersault that dumps two more years to the so-called lapsed period and moves the 5th RP to RYs 2025-2028, under modified rules ERC is still to formulate.
The so-called Lapsed Years are covered in ERC Case No. 2020-043RC, the Confirmation and True Up case where there is a clear divergence of opinion between ERC chairperson Monalisa Dimalanta and Commissioner Catherine Maceda in their separate dissents, on the one hand, and the 3-vote majority, on the other.
That decision is on appeal to the SC and the Court of Appeals by consumer intervenors.
According to Junia, ERC “cannot dump two more RYs on a Lapsed Period thoroughly cut out of any legal leg to stand on by the chairperson’s disquisition on the legal infirmities and the lack of due process in the majority decision.”
“Commissioner Maceda’s sharing of facts, details, data and commission meeting insights and discussions provided context and clarification of PBR and rate reset decisions and actions of the Commission that were perplexing and inscrutable, until that point,” he added.
“As highlighted by the Commission in the 16 April order, ‘the resetting of Meralco’s rates has been long-overdue’ and allowing withdrawal and refiling will only exacerbate instead of alleviate the consumers’ plight in a rate regime that is deficient and in perpetual default on holding Meralco accountable for its unverified and non-validated rates,” Junia warned.
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