Counterpoint to Meralco’s Rate Propaganda: The Issue is Affordability and Overcharging in Rates Not Statistical Mumbo-Jumbo
David Celestra Tan, MSK
22 August 2018
Meralco’s vaunted propaganda and hoodwinking machinery went to town a few days ago trumpeting that Meralco customers should be happy that its rate is 18% lower than two years ago in 2016. All the major media outlets carried it including TV and cable.
Citing its employed consultants, International Energy Consultants of Australia, it claimed that its average rate is now 7.77 per kwh, 18.2% lower compared to two years ago in January 2016. That Meralco now is only 24th highest rate compared to 16th. That its rate is 4% lower than the average of the 46 countries. That in the Asia Pacific it is now only the 6th highest compared to 4th before. IEC claimed the biggest contributor is the 4% drop in generation rate.
Then IEC’s senior consultant Mr. Morris, went out on a limb and made claims that belied the true intent of the Meralco media play. He is quoted to have said “all of the components of the regulated tariff of Meralco are fair and reasonable”. And that the government should facilitate the new power generation projects apparently referring to Meralco seven (7) midnight PSA’s.
Just like any deception and public media hoodwinking, IEC’s statements are half-true. It is the other half that we should be worried about.
There is no evidence in past reports that IEC’s study covered an evaluation of whether the 25% annual return on equity of Meralco as allowed by the ERC’s PBR methodology versus the 12% maximum return for public service utilities as ruled by the Supreme Court. Neither is there any apparent study by IEC on whether the 11% systems loss charge to Meralco’s captive customers is fair. Yet, Mr. Morris is telling the Filipinos that “all of the components of the Meralco tariff is fair and reasonable”. That is a stretch.
To Mr. Morris credit though he apparently knew he needed to cover himself so he is quoted to also have said that “the peso depreciation is the difference” after implying that the claimed rate improvement is mostly a result of the 4% drop in generation rate. He also said in peso terms the Meralco rate increased by 13%. He probably learned “double talk” from the Filipino obfuscation practitioners.
Let us remember that Mr. Morris himself says he is not responsible for the claims in his report. And that he cannot be sued as a result of the claims. Why are the consumers being made to pay for this study?
Let us go to the facts using Meralco’s own data comparing January 2016 and January 2018.
- The US$ to Philippine Peso exchange rate was 47.50 in 2016 and 51.36 in 2018. An 8% depreciation. In August 2018, rate is now 53.40. If we use these as divisor, Meralco’s rate will be statistically lower in US$ terms. Of course.
- For Meralco’s captive customers consuming 400kwh a month, its rate was P9.0315 in 2016 vs 9.3552 in 2018. Its generation rate was 3.9238 vs 4.0768. Systems loss was 10.6% in 2016 vs 9.76% in 2018.
- For Meralco captive customers consuming 1,000 kwh a month, its rate was P9.6165 in 2016 and P9.9402 in 2018. Generation and systems loss rates were the same as those consuming 400kwh a month.
How can these be 18.2% lower?
The real issue is Affordability and Overcharging
Meralco’s statistical mumbo-jumbo are evidently intended to obfuscate the real issue on the fair and reasonableness of its rates.
The aspiration for “fair and reasonableness” was clearly enunciated by the EPIRA Law of 2001 and something that the Energy Regulatory Commission should pursue as its sacred mandate. “Fair and Reasonableness” must be interpreted within the context as clearly spelled out by the law. It must be from the point of view of rates being in the public interest in the regulated sectors and a fully functioning competitive markets in all deregulated sectors specially generation. The EPIRA law also admonished against monopoly, anti-competitive behavior, cartelization. Fair and reasonableness should not be subject to the convenient, self-serving, and self-delusional interpretation of the distribution utilities and their consultants.
Affordability for Meralco consumers and Filipinos are critical in judging fair and reasonableness. The measure is not whether the Meralco consumers are paying the 6th lowest rate in Asia, but can we afford the Meralco rates compared to our per capita income?
Japans residential rate is US$0.2332 per kwh vs Meralco’s claimed US$0.1465. but Japans per capita income is $40,849 compared to the Filipinos $3,095. In other words, the Japanese pay for electricity at 160% of whatManilanspay but their income is 1,320% higher than us. Hong Kong reportedly pays US$0.1510 per kwh, 103% higher than us in Meralco but their income is 1,577% higher than us.
Nothing Fair and Reasonable in Overcharging
The improvement in Meralco’s rate over the years is more a reflection of how bad things were and have been statistical computations rather than real improvements.
Be that as it may, there is no excuse for overcharging.
- Distribution Rates
The excesses and injustice of Performance Based Rate making methodology (PBR) results to Meralco making money even for things they did not invest in and in charging the consumers in advance. It is resulting to an illegal 25% return on equity compared to the 12% Supreme Court ruling for public utility franchises.
We estimate this is about 0.50 to 0.60 per kwh or a total excess income of P12.60 billion a year on sales to the captive customers.
2. There is an injustice in them continuing to use monies that are supposed to be refunded to consumers and claiming income from them.
3. Sweetheart Generation Rates
There is abhorrent abuse and market violation of self-dealing negotiated power supply contracts instead of subjecting them to true CSP. Based on empirical evidence, the difference is P0.40 to 0.75 per kwh between bidding and negotiating PSA’s. Using an average sister company premium of 0.60 per kwh, the eight (8) PSA’s signed by Meralco with its sister company Meralco PowerGen will result to an annual overcharge of P15 billion or P300 billion in the next 20 years.
Meralco’s spin doctors claim that it “arduously” negotiated the power supply agreements with power generators even if everyone knows the seven midnight contracts totaling 3,551mw were all with project companies controlled by its sister company, Meralco PowerGen. They don’t even give Filipinos credit for sufficient level of intelligence. The only way Meralco can claim “fair and reasonableness” in its generation rate is to subject them to truly competitive bidding or CSP. Those seven coal contracts have published rates of 3.40 to 3.65 per kwh, but if we adjust them to the current prices of coal, they would be all over P5.00 to P5.50 per kwh, no better than the old rates. This means despite the publicity for new technologies of supercritical coal and large capacity for economy of scale, and Meralco claims for arduous negotiations to get competitive rates, the Meralco consumers will not get an improvement in the generation rates for the next 20 years except from the statistical international reports of Meralco’s paid consultants IEC.
4. We estimate a systems loss overcharge due to averaging of about P1 billion a year or more.
5. There is trickery when Meralco is allowed by ERC to keep the excess revenue from increase in energy sales than are assumed in calculating their approved kwh rate. Why are they looking the other way at the over recovery?
Through smokes and mirrors logic and media hoodwinking, we are being told Meralco’s rate is better and has improved. To them it is statistics…and of course money in the bank. To us consumers it is hard earned real money. Less money for food, education, and health for our families. To add insult to injury, we the Meralco consumers are the ones paying for the fat professional fees of Meralco’s regulatory consultants and lawyers and media operatives and rate study consultants. Courtesy of the ERC. In contrast, consumer advocacy groups and aggrieved consumers are expected to hire their own lawyers just to represent the interest of the consumers in the Commission.
The real issue is affordability of electric rates and the injustice of overcharging….and perhaps the sad lack of true safeguards for consumers by the ERC.
Help!
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
