Our Complaint with the ERC for a P29 Billion in Overcharges from 2013 to 2018 (Part 1)

David Celestra Tan, MSK
25 February 2021

Part 1

A week ago, February 19, 2021, it was announced that the ERC had approved Meralco’s voluntary application last December 2020 to refund P13.9 Billion to consumers due to its over recoveries from 2015 to 2020.

In its petition, Meralco declared that their actual weighted average tariff or AWAT from 2015 to 2020 averaged P1.44 per kwh compared with its approved interim average rate or IAR of P1.38, resulting to a total over the recovery of P13.9 billion which will be refunded at an average rate of P0.15 per kwh.

In Meralco’s and ERC’s announcements of the refund, they only referred to the esoteric regulatory jargons of AWAT and IAR, and did not mention MSK’s petition for the 29B refund that basically referred to the same overcharges. While Meralco is only saying they overrecovered, MSK’s petition detailed the origins of the overcharges. In fact, the precise year and number when the arithmetical mumbo jumbo happened in 2013.

For the benefit of the consumers let us try to give you a background on these over recoveries (overcharges?)

Meralco’s average distribution system charge of P1.381 per kwh was actually determined and approved in 2013 for the 3^rd regulatory period of 2011 to June 2015. Except that Meralco was generously given by the then ERC a P25 billion “under-recovery” during the 2^nd regulatory period of 2007 to June 2011. To recover the under-recovery from the 2^nd regulatory period, Meralco was allowed to add P0.1755 per kwh for the years 2011 to June 2015, resulting to a total Distribution Charge under the ERC’s PBR scheme of P1.5562 per kwh.

In June 2015, it was announced that Meralco was voluntarily reducing its rate by P0.1755 or 14% per kwh and Meralco came out smelling like roses for being such good guys. Your organization MSK could not believe Meralco’s generosity so we registered as an intervenor to know what’s really behind this uncharacteristic Meralco rate reduction. It turned out, Meralco’s legal authority to charge that extra P0.1755 per kwh expired on June 25, 2015 and hence it would have been illegal for them to continue charging. Not really a magnanimous act of Meralco.

On that same decision in 2015, the old rate of P1.381 per kwh was adopted by Meralco and the ERC to be the “interim” rate for the 4^th regulatory reset which is to run July 2015 to June 2019. The new ERC was still not able to come up with a new PBR reset process so we assume that for the 5^th regulatory reset period of July 2019 to June 2023, the same rate was adopted. This is the reason the P1.381 per kwh is referred to as an interim rate.

As an intervenor in 2015, Your association discovered during its cross-examination of Meralco’s rate experts something that is even more bothersome for consumers. To MSK’s question on what Meralco does with the higher revenues resulting from much higher energy sales, the Meralco vice-president, answered without batting an eyelash, “we keep it”. “That is allowed under the ERC rules”, he continued.  We were surprised so we turned to the ERC hearing officer if it was true, she did not answer, appearing to have been caught off-guard by Meralco’s admission.

Meralco was not supposed to keep the excess revenues beyond what was computed based on the projection of sales. Otherwise, they will exceed their allowed annual revenue and allowance regulated profit.  It was this discovery that led your organization to analyze the basis for the P1.38 per kwh. That investigation of the Meralco energy sales from 2013 to 2018 was the basis of our discovery of the P29 billion over-recovery for the period in 2013 to 2018. We have not yet computed the excess for 2019 and 2020.

For those of you who are interested in understanding the issues on these Meralco over recovery and refunds and what we believe it should really be P29 billion (plus interests), we are publishing our complaint and petition to the ERC filed in early December 2019, a year before Meralco filed its “voluntary” refund last December.

CONSUMER COMPLAINT AND URGENT PETITION FOR REFUND

 STATEMENT OF FACTS

1. The 4^th regulatory reset was supposed to start in July 2015 and the 5^th regulatory reset in July 2019. Due to various reasons, the ERC had not been able to implement the reset processes. While we empathize with the reasons the ERC had not been able to come up with new methodologies for the 4^th and 5^th regulatory reset, the current Meralco DSM per kwh rates that are still in use are outdated and were approved in 2012, computed based on lower annual energy sales of Meralco. Actual sales of Meralco had soared from 32.771 Billion kwh then to 44.313 Billion kwh in 2018. Consequently, Meralco had been unduly benefiting at the expense of the consumers from the windfall revenues,  undeserved profits, and over-recovery every year due to the significant increases in actual energy sales of Meralco over the quantity projection used in computing the per kwh rate.

This is most unfair and tantamount to exploitation of the unsuspecting electric consumers. The undeserved profits and windfall revenues are compounding every year and has reached gargantuan proportions.  Meanwhile, Consumers are continuing to suffer from Meralco’s monopolistic rates that are being paid by the consumers from their hard earned income.

DISCUSSION

1. UNDER THE PBR RATE MAKING METHODOLOGY, THE ANNUAL REVENUE THAT IS ALLOWED MERALCO TO EARN AS A REGULATED PUBLIC SERVICE UTILITY IS TRANSLATED INTO KWH RATES BY DIVIDING IT BY A PROJECTION OF IT SALES IN KWH,

2. Based on its official annual reports, Meralco had been enjoying robust sales from 2010 with an annual average growth rate of 6.78%. In 2009 Meralco’s energy sales was only 27.518 Billion kwh. At the start of the 3^rd Regulatory reset in 2012, the energy sales of Meralco was still only 32.771 Billion kwh. Last year 2018 it had soared to 44.313 billion kwh and is expected to be 46.97 billion kwh in 2019.  Meralco’s energy sales in mwh and growth from 2009-2018 are as follows:

3. The current rate still in use is P1.38 per kwh that was for the 3^rd regulatory reset approved under ERC Case No. 2013-056 RC. The projected Meralco energy sales used to compute the 2013 per kwh rate to translate the ARR, was 30.316 billion kwh. This projection is referred to in the rate formula of the ERC approval as “FQ” value.  Amazingly under ERC Case 2012-054 RC, the FQ value for 2011 was already 30.3 billion kwh per attachment “E”. It is anomalous why the energy sales used for the 3^rd regulatory reset was the same as that used in the 2^nd regulatory reset resulting in the higher per kwh translation of the ARR. 

Meralco’s actual energy sales for 2013 was already 34.0 billion kwh, more than 10% more.  Had ERC used a higher divisor, a lower per kwh rate would have resulted.

4. The annual growth rate used for the 3^rd regulatory reset was only 3.5% resulting in windfall sales and revenue of 3.28% (6.78-3.5%) per year. Assuming that under PBR there are bona fide increases per year equivalent to 1.5% of quantity of sales, there is at least an excess recovery of 1.78% of energy sales per year. The annual energy sales data are based on Meralco’s annual reports from 2009 to 2018.

5. Based on Meralco’s annual report for 2013, their actual energy sales that year was 34.084 billion kwh, resulting to an over-recovery right from the start equivalent to 3.768 billion kwh in first year alone. Meralco energy sales was already 30.5 billion kwh in 2011, 2 years before.

6. In terms of peso value, the apparent over-recovery for that year alone was P5.864 Billion if we use P1.5562 per kwh as the DSM rate. If we use the rates in Meralco bill for those using 400kwh and more a month in December 2013, of P3.50 per kwh, the excess recovery amounted to P13.188 billion.

(to be continued)

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