Meralco Stones Unturned. An Urgent Need for a COA Audit of Data “Black Boxes” (Part 4/4)
Part 4
David Celestra Tan, MSK
10 August 2020
Meralco’s numbers are giving us an idea on WHAT appears to be being done and WHY.
Now the question is HOW Meralco has been able to report in its financial statements and Annual Reports P66.173 Billion more in purchased power costs than actual?
Since SGV certified it, we can assume that Meralco’s reported purchased power cost of P241 billion in 2019 was supported by invoices and payments from their power generator suppliers and WESM.
a) The connected question is how the power generators invoices to Meralco can total P241 billion when Meralco only reported P179 billion in generating costs to the ERC? This is one black box.
b) It is possible that some of Meralco’s incomes from RES and other businesses are made part of its regulated sales? If so, it cannot be that big and unlikely to be as much as P66.173 billion more in 2019.
1. Other Meralco data “black box”
After following the trail of Meralco generation numbers, it seems we are coming back full circle to what seems to be one of Meralco’s “black boxes”.
a) In the search for the knowns and verifiables, one key data that can affect Meralco’s true income is its true energy sales breakdown among its customer classes. Each of those customer classes and subclasses are charged differently ranging from a low of P0.98 per kwh to a high of P2.98 per kwh in DSM rates. But it seems only Meralco knows the true numbers on their energy consumptions. Specifically, how many customers paid at P0.98 per kwh, how many paid P2.98 per kwh, and how many paid in between.
b) For 2019, Meralco bought only 33.565 Billion kwh of energy. But in its Annual report, it declared sales totaling 46.871 billion kwh broken down as follows:
Residential customers 14.589 Billion kwh, Commercial Customers 18.483 billion kwh, and 13.659 billion kwh to industrial customers. We are sorry we kept hammering at this because this is the mystery that we cannot just look the other way. Smoke that is too much to ignore.
It doesn’t appear however that either ERC nor SGV had verified these kwh numbers.
c) We established in Part 1 that Meralco charges these different customer groups different rates based on a rate distribution methodology approved by the ERC. This is called the DSM rates or Distribution, Supply, and Metering. This is the only income that is supposed to go to Meralco. The other charges to consumers are called passed on charge like Generation, Transmission, Systems loss, taxes, UC and etc.
Meralco’s current DSM rates we calculated are as follows:
(1) Small residential consumers up to 200kwh P1.00 to P1.88 per kwh
(2) Regular Residential up to 5,000 kwh P2.48 to P2.98 per kwh
(3) Commercial Customers 98 to 2.98 per kwh
(4) Industrial Customers 98 per kwh.
The overall average approved by the ERC is P1.38 per kwh.
d) Question, under what mathematical scenario then can Meralco make more money than the P1.38 per kwh average? And how can it be not detected by the ERC and the consuming public? Remember that we calculated that if we divide Meralco’s gross profit by the true generation supply volume, we would get Meralcos true average DSM income per kwh. For 2019, it computed to be P2.05 per kwh instead of P1.38 per kwh or 39% more.
e) To the first question, Meralco can make more money than the P1.38 per kwh average if it is actually selling more kwh energy to the higher rate customers and actually less to the lower rate customers. How about if Meralco’s energy sales to industrial customers, who is charged a low P0.98 per kwh DSM rate, is actually much less, and instead they are sold to the higher rate commercial and residential customers at P2.98 per kwh? Same reason their profits spiked during the ECQ months of April and May and should be continuing.
f) How about if the number of industrial customers are actually much less and the higher rate residential and commercial customers actually much more, than they declared to the ERC in 2013?
g) How about if, in the largest consumption group of the commercial sector, most of them actually pay P2.98 per kwh instead of the low P0.98 per kwh? Only Meralco knows.
h) How about if part of the higher revenue is resulting from higher energy sales than was projected in 2013 when they established the per P1.38 per kwh basic DSM rate?
2. Shake and Bake
This is not just idle speculation. Let us note that while Meralco’s residential customers had grown by 1,049,000 and its industrial suppliers only grew by 1,000 over 9 years, the proportion of energy sales reported by Meralco is the same since 2010. Residential still consuming about 30% and Industrial 30% of energy kwh sales. The largest group of commercial remains to be 39%. However, within the same customer class of commercial, there is a wide range of user level and their DSM rate will go from 0.98 per kwh to 2.98 per kwh.
Only Meralco knows the exact breakdown of the true consumption and rates actually being paid by its customers.
This oddity may have become obvious during this pandemic when a significant number of large industrial and commercial customers shutdown and the billions of kwh they were consuming were instead consumed by the locked down residential customers. This enabled Meralco to charge a full P2.98 per kwh residential rate for the power that was allocated to the industrial customers at P0.98 per kwh. We had filed a petition at the ERC and we hope they will look into it.
i) To the 2nd question, how can the over recovery on per kwh basis not raise red flags at the ERC and the consumers? To reduce the average revenue per kwh to a defensible level, the total volume of kwh sold need to be higher. This could be the reason for the evidently calibrated increases in the declared energy sales.
Based on the numbers, there is a high probability that the higher declared kwh sold in 2019 of 46.871 Billion kwh and the higher similar numbers in the previous years, had intended results of reducing the average revenue of Meralco per kwh to somewhere near the P1.38 per kwh approved average.
In Meralco’s case, they have been announcing robust yearly growths of their profits and income due to growth in their kwh energy sales of 6.5% per year. This is contrary to the actual growth of only 2.31% in their generation purchases.
If we are faithful to the need to really assure that Filipino consumers are only charged fair and reasonable rates, especially those approved by the ERC, we cannot look the other way on these tantalizing disparities in Meralco’s sales and purchase declarations. These indicate serious overcharging to consumers and a clear violation of the regulatory rule that power generation should only be a pass on charge. Actual costs and actual charges.
The ERC had engaged the assistance of the COA for various purposes like audit of refunds and assets and even compliance with rate unbundling. It doesn’t appear though that ERC had asked COA in the past to specifically validate the energy kwh figures that are critical to rate setting computations. Neither has there been an audit reconciliation of the quantity and value of power purchased by Meralco with the quantity and sales of their various power generation suppliers. There is probable cause to look into those numbers and dig deeper into the discrepancy.
The following are the stones unturned on Meralco that deserve an urgent Audit in the public interest:
The purpose of the audit would be to determine if Meralco is complying with the regulatory rule that power generation is only a pass on charge in costs and quantities to the consumers. Tens of Billions in charges to consumers are involved per year.
1. Black Box 1.
What is the true sales in kwh of Meralco to each consumer group, further subdivided into low consumption and high consumption?
What was the billing revenue of Meralco to each consumer group?
The updated kwh sales can be used to re-compute the new DSM per kwh rate per customer class.
2. Black Box 2.
Reconcile Meralco’s generation cost volume of 33.585 Billion kwh in 2019 vs its declared sales of 46.871 Billion kwh? Reconcile and confirm the power invoices of each IPP and WESM to Meralco that should total to 46.871 billion valued at P241 billion for 2019?
If Meralco only bought 33.585 billion kwh from all its power sources, determine how it is able to show sales of 46.871 billion kwh?
Audit the billings and meter readings of each of the IPP supplier to Meralco including WESM, especially those owned by sister companies and partners. Cross check with the power metering data of national grid operator NGCP.
We may have identified another compelling reason why there should not be uncontrolled cross ownership between Meralco and its power generation suppliers.
The Analyses of Meralco’s regulatory and financial data revealed very bothersome schemes that are not supposed to happen. It is leading to higher charges to consumers by tens of billions a year. This is some serious smoke which is one explanation for us continuing to have one of the highest electricity rates in Asia. We have accepted the high rates because many of those in a position to do something about it are lost in the complexity of power rate setting methodologies. The complexity maybe by design by those who will benefit from it and that is causing the perpetuation of the system. Unfortunately, it is at the expense of the consumers and of the global business competitiveness of the country.
We hope our analyses have identified serious problem areas that deserve the attention of the DOE, ERC, the Joint Congressional Power Committee, and maybe the Office of the President. This could mean overcharges to consumers in the billions per year. In the public interest, we cannot leave stones unturned.
Let us hope they can start by agreeing to an Audit by the COA. It could be a major step towards “matuwid na singil sa kuryente”.
Doble ingat under ECQ. Doble Ingat sa pag gamit ng kuryente!
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
