Meralco’s P0.18 Distribution Rate Reduction is a Fruit of the Poisoned PBR Tree

David Celestra Tan, MSK

5 December 2015

Meralco’s Rate reduction of P0.18 per kwh is a fruit of a poisoned tree which is why MSK wants to scrutinize it as an intervenor.

Meralco petitioned the ERC in June this year for an urgent 10.17% reduction in its distribution charge equivalent to 0.18 per kwh. It did not submit any supporting calculations but ERC approved and MSK endorsed the interim reduction since it will benefit the consumers.

The mystery is why was Meralco so uncharacteristically generous given that their track record of padding its rate base and hence overcharging the consumers is legendary? P0.18 per kwh is not peanuts. It translates to approximately P5 to 6 billion a year!

Consumers can bet that Meralco’s rate making group did their calculations for the Fourth Regulatory Reset and their numbers kept showing that Meralco had been making too much money. And an interim P0.18 per kwh is a safe number to easily give up for the consumers.

Meralco for its part is probably betting that by gratuitously offering that reduction (urgently!) the consumers will be satisfied and keep quiet in gratitude, while they are making the excess charges and still trying to figure out how to justify it. (Sorry we have grown cynical of Meralco and it’s not our fault.)

MSK as an intervenor is still waiting for Meralco to submit their detailed calculations for its PBR rates for the Fourth Regulatory Reset. The Third regulatory reset was for the period June 2011 to June 2015.

In the 2nd Regulatory Reset the ERC hired Parsons Brinckerhoff Associates (PB Associates) a giant USA engineering and consulting firm. They discovered significant abuses of Meralco in excessive capital cost and expense claims. For the 3rd Regulatory Reset the ERC hired Sinclair Knight Merz (SKM) of Australia. We are still securing a copy of their audit report as cited in the ERC approval. SKM is reported to have been sanctioned in 2013 by the World Bank for corrupt practices within its organization. We don’t know yet who ERC hired as its Regulatory Reset Expert for the 4th Regulatory Reset.

Note also that the 2rd regulatory reset happened under the old ownership of Meralco. The 3rd regulatory reset was undertaken by the new ownership of Metro Pacific Group who took over in May 2010.

The contributions of independent foreign experts to the regulatory review saved billions a year of charges to the consumers. These point to the benefits of having an independent Third Party in protecting consumers from abuse that can run into billions a year. Similarly, Billions in generation pass on charges are at stake in the mandatory CSP process which is a compelling argument for the engagement of Third Party consultants to oversee and administer the CSP process. The ERC only needs to look at the results of independent audits in the 2nd and 3rd regulatory resets to see the wisdom and worthwhile costs of engaging a Third Party consultant.

MSK estimates that it would cost only P0.01 to 0.02 per kwh to engage a foreign Third Party which is a cost the consumers would be willing to pay compared to the savings of P0.40 to P1.20 per kwh price differential of negotiated sister company rates.

There is a lot to look into in Meralco’s P0.18 per kwh gratuitous interim reduction. In MSK’s point of view PBR is a poisoned tree and its fruits will be poison even if it is implemented with elaborate analyses.

Let us see the details when Meralco submits them.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.