Meralco Puts Onus on ERC for all its Billions of overcharging and high buying rates.

David Celestra Tan, MSK
3 April 2021

Meralco as the awardee of the franchise for distribution of electricity in the greater Manila area has a clear obligation to us the public to supply power in the least cost manner. They are also not supposed to engage in uncompetitive and monopolistic behavior.

Over the years your organization MSK had identified various deeply buried excessive charges of Meralco that are against the public interest and had filed petitions to the Energy Regulatory Commission.

1. P29 Billion overcharges from 2013 to 2018.

Your organization had detected an estimated P29 billion in overcharges due to an outdated distribution rate and higher than projected energy sales from 2013 to 2018.  It has been resulting to windfall profits for Meralco. It could be P39 billion now up to 2020. These are based on ERC and Meralco data. While Meralco is dismissing MSK’s claim as baseless, they have “voluntarily” offered to refund an initial P13.9 billion in “over recovery” for 2015 to 2020. The final amount of “over recovery” will be determined by the ERC.

This is the exact same overcharge that MSK is complaining about. Except they are calling it AWAT (what an apt name). Over recovery is a regulatory euphemism for overcharge.

Your organization also had detected a suspicious error in computing the P1.38 per kwh rate in 2013. They used an annual sales of 30.5 billion kwh when the sales in that period was already 34.084 billion kwh. As of 2011, Meralco sales was already 30.592 billion. Why would anyone use it in 2013 to determine the kwh rate? If it was computed correctly the Meralco distribution rate should have been P1.227 per kwh, an excess of P0.153 per kwh.   We asked the ERC to investigate how this error was made in 2013. For the record, the incorrect annual sales was represented as “FQ” value in the rate formula approved under ERC rate case 2013-056 RC.

MSK had accordingly prayed with the ERC to order a provisional reduction in Meralco’s rate by

P0.15 per kwh to P1.227 per kwh.

2. Quezon Power’s 50 TO 70% PREMIUM or P3.00 per kwh

Your organization also had asked ERC to investigate the excessive rate Meralco has been paying Quezon Power by as much as 70% over the average coal power price of all the other Meralco coal power suppliers.  Quezon Power had been the most expensive Meralco coal power supplier since 2000 with a premium of 10 to 20%. However, in 2020 that premium rose to 58% average and in fact, in February 2021 rose to 70%. Meralco paid QPL  P7.2987 per kwh compared to the average P4.30 per kwh of all other coal power suppliers. The P3.00 sweetheart premium per kwh to QPL amounted  P468.69 million on the 156.566 million kwh QPL supplied to Meralco last February.  For the 2 billion kwh that Meralco bought in 2020 from QPL and charged to us consumers, we estimate a minimum of P4 billion on excessive rate.

You would think it is obvious that paying P3 per kwh more or 70% is anomalous and certainly not least cost power,  Meralco as our franchised public service utility will show sensitivity to the public by looking into it and voluntarily looking for ways to mitigate the rate to the public to whom they have an obligation under their public service franchise.

We have clear evidence of the oppressiveness and abusiveness of the QPL rate, the P4 billion injury to the consumers, Meralco’s suspicious nonchalance on the matter, and Meralco’s evident neglect and violation of their franchise.  Still they say our claim has no basis because the rate was approved by the then ERC in 1995. Never mind that it is menacing consumers now.

3. Meralco’s Magical Mystery Tour in Energy Sales Reporting – A P66.17 Billion Unexplained Revenue in 2019 alone.

In Meralco’s annual report to its stockholders for 2019 its electrical energy sales in kilowatt-hours was 46.87 billion. Oddly, when we totaled Meralco’s purchases of power from all its power suppliers and reported to ERC for the year 2019, it totaled only 33.565 billion kwh. How can Meralco sell more power or pass on 13.3 billion more electricity in kwh to its customers than it bought from its generator suppliers?  One principle that is sacred in regulatory rules covering distribution utilities is power generation is only a pass on charge. Meaning Meralco is only allowed to charge or pass on to its customers the quantity and value of the power generation it purchased. Meralco the DU is not supposed to make money or put a mark up on power it purchases.

As far as we know, there is no technology and no distribution utility in the world who can sell more power than it bought. Yet, Meralco has been doing it since 2011 apparently.  Meralco under its founding family, the Lopezes, did not do it. In the 3 years annual reports we looked at, the Lopezes were reporting about the same kwh energy they purchased and sold.  The disparity was P66.17 billion in that year 2019 alone.

Meralco’s practice of reporting higher energy sales than what they really purchased apparently started in 2011, the first full year that the MVP group managed the giant utility. In that year, Meralco reported higher kwh sales by 2.419 Billion kwh. And the numbers have widened from there.

In 2014 it reached 5.6291 Billion kwh or 19.06% and finally rising to an astounding 13.305 billion kwh or 39.64% in 2019.

In terms of value, the disparity was worth P66.173 Billion for 2019, P66.203Billion in 2018, and P59.171 billion in 2017.  This is evidently part of a revenue and profit optimization strategy of the MVP group when they took over Meralco in 2010.

There is something seriously wrong in this picture and most likely something bad for the consumers. Is it a scheme to cover up higher revenues than legal? The only way to find out is to do an independent audit of Meralco’s books. We officially requested the ERC to conduct an investigation or order an audit of Meralco to determine why and what rules are being violated.  Let us give ERC the benefit of the doubt.  It has been swamped even more under the pandemic. But soon an audit would be necessary to protect the public interest.

4. Meralco’s eyebrow raising response?

 In the face of these tens of billions of evident overcharges, Meralco seems to have found a skirt behind which it can hide. And they have been doing so with bothersome overconfidence that someone else got their backs and they don’t really need to truly explain or disclose data.  On all these evident transgressions, Meralco with full confidence puts the onus on the Energy Regulatory Commission claiming that they are not overcharging and they are not doing anything wrong because whatever they are doing were approved by the ERC. Meralco has become increasingly non-transparent since 2011.

We don’t know if it is their deliberate intention to deflect the spotlight unto the ERC as long as it is not to them. That can mean many things. Legitimacy, propriety, confusion, tacit understanding,  condonation, or we hope not, a confirmation of regulatory capture. 

In the least consumers are entitled to the due process of being heard and concerns being investigated, especially in the face of evident unfair and excessive rates…in the tens of billions. 

Happy Easter everybody.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
david.mskorg@yahoo.com.ph
matuwid.org