Can Meralco Sell More Power than It is Buying? Meralco’s Conflicting Declarations (Part 2)

Part 2

David Celestra Tan, MSK
10 July 2020

Meralco’s energy sales according to their Annual Report 2019

Meralco’s purchases of power that it passes on to its customers as the generation charge are reported monthly to the consumers and ERC to support their charges. Additionally as a Corporation and publicly listed company,  they make an Annual report to their stockholders and to the investing public on its financial performance showing its sales and purchased power. So one report is to the regulators to show compliance with regulatory rules and the other one is to its stockholders to show how much money they really made.

We should think the quantity of sales of electricity (its main product) should be the same quantity of electricity purchased. In fact the peso value of both purchases and sales of energy should also be the same because Meralco is not supposed to make a mark-up on the power. It is a pass on charge.

Let’s look at the numbers

We looked at the years 2018 to 2015 after noticing a disparity in 2019 and the disparities have been similarly significant.

For 2018, they declared sales of 44.313 Billion kwh compared to purchases of 32.5 Billion kwh. For 2017, 42.102B vs 32.803B. For 2016, 40.142B vs 33.49B. For 2015, 37.124Billion kwh vs purchases of only 30.772 billion.

At a nominal generation cost value of P5.00 per kwh, the value of the discrepancies are in the mindboggling tens of billions a year. The 11.81 billion kwh for 2018 is a higher revenue of P59 Billion. For 2017 the 9.299 Billion kwh is worth P46.49 Billion pesos. For 2016, the 6.65 Billion kwh means P33.26 Billion and for 2015 the 6.35 Billion kwh equates to P31.76 Billion in higher revenue. Every year the difference between energy sales and energy purchased grew from 6.35 Billion kwh in 2015 to 13.3 Billion in 2019.

In terms of annual growth, their reported energy sales in the Annual Report grew 26% in the five year period but the purchases in terms of volume of kwh only grew 9%.

I know what you in the trading and distribution businesses must be thinking. That is some damn nice business!  You buy 1,000 kwh worth of electricity and distribute it to your system and what comes out as your sales is 36% more. Yes you are not allowed to mark-up it up but you get to bill more quantity!

And this despite a supposed technical distribution systems loss.

Disparity Between the Cost of Power

The above numbers were quantities of energies in kwh.  We also compared the cost of energies purchased by Meralco as declared in their  Annual Report compared with their monthly generation cost report.

For 2019, their Annual Report declared “purchased power cost” as P241.032 billion. The cost of generation they bought for 2019 based on their monthly generation cost report is P174.859 Billion. For 2018, it was P232.102B vs P165.899. For 2017, P214.558B vs P150.202. For 2016, P189.853B vs P130.682. and for 2015, P192.117 vs P138.117.  These are differences of 27% to 31%.

We are baffled.

More curiosities in Meralco’s numbers.

Let us remember that generation, transmission, systems loss, and etc are passed on charges. Their income should only come from their DSM charges (distribution, supply, and metering).

In their 2019 Annual Report, their sales declared was P310.098 Billion with Purchased Power Cost of P241.032 Billion and “Gross Profit” of P69.066 billion. This Gross profit should be representing the DSM charges of Meralco.  If this Gross Profit is divided by their declared kwh sales of 46.871 billion kwh, you will get an average net revenue of P1.4735 per kwh, a little over their supposed approved average DSM rate of P1.38 per kwh.

And the nice symmetry of this average Gross Profit per kwh with Meralco’s approved DSM rate is uncannily even for each of the years studied 2015 to 2019. They are all reasonably in line with their approved rate of P1.38 per kwh.

What accounts for the discrepancy?

a. What do we make of these? Is it possible that Meralco’s declared kwh sales in its Annual Report is calibrated to insure that their average revenue per kwh is in line with their ERC approved rate of P1.38 per kwh? 

b. If Meralco’s annual quantity of energy sales have been growing at a 6% clip every year, how do we explain Meralco’s generation purchases of less than 1.5% growth? Is it possible that Meralco power distribution grid is so efficient that instead of a systems loss, it is actually creating a systems gain?

(If they can, it must be one hell of a productivity paradigm unheard of in the power distribution utility industry worldwide.)

c. What part of Meralco’s energy sales are actually “systems loss recoveries” that Meralco was able to collect on receivables from delinquent customers that they had actually already written off as bad debt and in fact charged to systems loss. Remember the anti-pilferage act? These recoveries we heard are converted into the equivalent energy and declared as sales instead of returning them to the consumers? This could be contributory to the disparity in energy, by how much we don’t know.It can’t be by 30%.

d. Could this mean their pronouncements of significant growth, is not really supported by the iractual energy sales? Remember, Meralco’s own purchased generation cost had grown less than 2% a year compared to their sales growth of 6%.

e. Is it also possible that Meralco’s revenue sales included non electricity sales but they don’t not want the consumers and regulators questioning why they are making more than their approved P1.38 per kwh rate?

f. Is it possible that Meralco’s average P1.38 per kwh that was set in 2013 based on their kwh sales then, is now so outdated that it is giving Meralco so much profit that their per kwh DSM revenue will be closer to P2.00 per kwh average instead of P1.38 per kwh?

g. Do these explain the shocking energy charges of Meralco during these COVID-19 pandemic months?

One thing for sure though. Meralco did not deliver us more electric energy than what they purchased including WESM. There is just no electromagnetic or thermodynamic phenomenon that occurs in Meralco distribution system that will multiply the electrons hat was fed As it travels through the distribution  grid. No such technology yet.

Why does it matter to us consumers and to ERC?

Well, Meralco is by law a regulated public service utility. Their income and return on investment is supposed to be regulated. A higher income can be achieved by charging higher rates or charging more quantities of energy. Or both. From these seriously disconcerting discrepancies, the per kwh rate implied in Meralco’s Annual Report is within range of the supposed average rate of P1.38 per kwh. (Gross Profit divided by declared energy sales)  However, the quantity of energy sales that they are billing their customers is way more than their energy purchases as declared in their monthly regulatory report. 

We are perplexed by this as you are. And it is the same for the previous five years from 2015 to 2019.

In other words, what these Meralco numbers seem to say is it is not overcharging us by a higher average rate.  It is overcharging us in higher quantities of energy. The net benefit to them would be the same. Higher profit than it is supposed to make as a regulated entity.

And we as consumers are being charged more as a group maybe not by the regulatory average rate of P1.38 per kwh, but by the violation of the regulatory rule that generation cost is a pass on charge. Meaning they only charge us for the cost AND quantity of power they buy.

Hoping for a believable Meralco explanation

We will try to secure explanations from Meralco. Lets hope they would come clean.Or maybe this is something that would deserve Congressional investigation. It would not only be a Regulatory violation but also a franchise violation.  Don’t be surprised though if Meralco says their books are audited by a top Philippine Auditing firm. And their rates are approved by the ERC. Classic deflection.

Don’t cry for us Meralco. Kindly just explain these conflicting revenue numbers in your official declarations.

Our suffering people cannot afford paying monthly overcharges. Let us hope the DOE and ERC will help.

Meanwhile, keep safe everyone. And don’t get carried away with your electric consumption!

Take pictures of your electric meter reading every week!

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