A classic case of robbing Juan to pay Pedro.
That was what advocacy groups call the inclusion of non-essential assets of the Manila Electric Company (Meralco) in the Regulatory Asset Base (RAB) valuation framework which will be set by the Energy Regulatory Commission.
As it reiterates its call for the ERC to use the actual historical cost incurred by electricity utility owners (not just Meralco) in the ERC's RAB valuation, the National Association of Electricity Consumers for Reforms (Nasecore) raised the alarm on the fact that consumers are actually the ones paying for Meralco assets and expenses that do not directly contribute to its mandate to provide electricity.
Idle assets
Nasecore officials made this point clear during a public consultation called by the ERC last June 13 on implementing a landmark Supreme Court case promulgated in 2019, which voided the use of "current/replacement cost" for the valuation of Meralco's RAB.
Under that case, which was led by Nasecore, the high court instructed the ERC to adopt a valuation methodology that "ensures electricity is delivered at the least achievable cost and allows a 'reasonable and fair' return on prudent investment."
During the hearing, Atty. Wilfredo Garrido, representing Nasecore, asserted that the use of cost-of-service approach (as urged by Meralco in its arguments during the consultation) undermines the least-cost electricity mandate provided under the Electric Power Industry Reform Act (EPIRA) Law.
"The use of replacement or reproduction cost methods distorts rate calculations, unfairly burdens consumers, and undermines the least-cost electricity mandate under EPIRA. Only expenditures that reflect real, prudently incurred outlays by the utility owners should be recognized for rate-setting purposes," Garrido quoted Pete Ilagan, Nasecore president, who wrote the group’s position paper on the issue.
The reason: Meralco has, the consumer advocate pointed out, passed on to consumers the financial burden of idle and non-essential assets that, in theory, the distributor should pay out of its pockets.
Gyms, basketball teams paid for by consumers
The list of these "non-essential assets," as set forth by Nasecore in its position paper, can come across as a surprise for ordinary consumers.
Aside from “idle, non-operational, and redundant” assets, Garrido pointed out that under the current RAB valuation, even “non-utility or unrelated” assets such as hospitals, gyms, and even corporate guest houses and a shooting range are included in the valuation.
Among these assets also include marketing, advertising, and public relations (PR) expenditures, as well as the sponsorship of a basketball team and donations and charitable contributions.
“Allowing the recovery of these costs contravenes regulatory standards of prudence and cost-effectiveness, effectively compelling consumers to subsidize private or discretionary corporate pursuits. This is a clear violation of public utility regulation principles and must be expressly prohibited,” Nasecore asserted.
Audit on assets
One way of ensuring that non-essential assets would not be shouldered by consumers, according to advocate Romeo "Butch" Junia, is for the Commission on Audit (COA) to conduct an independent audit on any asset or expenditure that will be included in a utility company's RAB.
In its position paper, Nasecore had said that such an audit is crucial in "eliminating misclassifications, detecting potential abuse, and maintaining public confidence in the regulatory process."
"Meralco [in particular] has not been compelled to provide documents, data and records, so I whole-heartedly support Nasecore's call for a COA audit," Junia said during the hearing.
The advocate argued that with the COA “coming in” to verify Meralco’s assets, some light could be shed on the data that consumer advocates did not receive on the prior cases filed by Nasecore before the ERC on Meralco’s RAB valuation.
Such data could reveal the extent of how the utility company has been passing off many of its operating expenses and assets to ordinary consumers who, it should be pointed out, also bear the brunt of high costs of basic goods and commodities that to an extent were also affected by high electricity costs.
Another point raised by Junia: in looking at determining the asset base, shouldn't the ERC look at how the RAB was built up in the first place?
The reason, he argued, is that the asset base can be built up not on the equity provided by the utility investors but on the rates that consumers pay – which is tantamount to a double charge to consumers.
"Why should we [consumers] be charged 40.97 percent weighted average cost of capital when we are the ones providing the funds for the asset or the capital that is being procured?" Junia stressed.
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