Regulatory Complications of Meralco’s Attempts at Billions In Windfall Profits During This Covid-19 Pandemic
David Celestra Tan, MSK
28 June 2020
Meralco’s Profit Stockpile
Meralco consumers, locked in their homes due to the ongoing Covid-19 pandemic, were shocked by another pandemic, Meralco’s dumbfounding April and May bill that were double or quadruple what they used to pay with Meralco only offering installment payments to control your convulsions.
We consumers feel the excruciating pain, in our guts that had been emaciated by the loss of our income. But all we can do is scream. Even our legislators, regulators, and policymakers cannot do much more than ask Meralco to explain. That, Meralco can do because they are experts in “explaining” things to the public. To them it is an art form. Just part of the job.
Part of “explaining” however is making you accept certain things as facts of life. Like, you are a residential customer and you consumed so much electricity so you have to pay the residential rate multiplied by what you consumed. These per kwh rates are approved by the ERC. As simple as that. Checkmate.
You accept your fate, even regretful that you should not have used so much electricity and instead quarantined at home in your dark and hot room.
People are taking Meralco to task for estimating and averaging the electricity consumption. Their meter reading practices are being questioned. Those two they can explain away. You consume more power in the summer than in the cooler months of Dec to Feb. They could not do meter reading because of the pandemic. You come away even thankful because they, in the goodness of their hearts, will make it less painful by letting you pay in installments.
To Meralco, so what if they collect their windfall over six months. It is still billions in windfall profits before Christmas. Their bank accounts will be the fattest, their dividends the juiciest. Their buildings will be the most lit and joyful, their employees enjoying four (4) months bonus, and their executives making tens of millions in bonuses for “a job well done”. Well done alright because they are doing a job on the consumers.
But enough of consumer laments.
ERC as Main Guardian of Public Interest
Who can help us? Meralco certainly will not do it on their own. Technically they are charging the residential consumers the “residential rate” as approved by the ERC. They know of course that it will result to an MAR over-recovery that should the ERC do their job eventually they will be found out and asked to refund. But who cares. They can ring around refunds. Maybe the ERC will not know because they are all new. Same way that Meralco has been making windfall profits since 2013 and ERC, immersed in their own challenges, has not been aware.
The Legislators can ask questions and make noise “in aid of legislation”. But it is really the Energy Regulatory Commission that has the current power to intervene but they themselves may not be clear as to what they can do. After all Meralco is charging residential and commercial consumers the per kwh rate that had been approved by the ERC. This case unprecedented and never faced by an ERC before.
The Regulatory complications of Meralco’s Windfall Profits in Covid-19.
From our perch, there are really three (3) regulatory complications that must be considered by the Honorable Commissioners at the ERC and perhaps by the Department of Energy and the Office of the President.
1.The Breaching of Meralco’s “Maximum Approved Revenue” that was meant to make Meralco comply with the profit limits for a regulated public service provider.
2. The Imminent and excessive “over recovery” that will complicate future “refunds” process
3. ERC’s motuproprio performance of its mandate to protect the public interest, as defined in the EPIRA Law of 2001 that created the ERC. (Both a legal and moral obligation during these difficult times)
Meralco’s MAR (Maximum Approved Revenue) and it’s Per kwh Rates In Layman’s Language
What is the real issue? Why is it regulatorily wrong for Meralco to be allowed to charge full residential rate for the Covid-19 pandemic consumption?
If you try to read the ERC rules and Meralco’s rate approval, you will be lost in its esoteric language and methodology jargon. So let us try to put it in layman’s language for purposes of this discussion.
A. Starting with the Basics
1) Meralco is a regulated entity as a power distribution utility. That means its income from regulated businesses are limited within a certain level. The Supreme Court had ruled that this is 12% return on investment.
2) To enforce that, the ERC determines the Total revenue that Meralco can charge the consumers by considering the value of the assets used in providing the services, the operating costs of providing those services, then the profit level they will be allowed. They arrive at what is called Maximum Approved Revenue or MAR, or the total annual revenue it is allowed to make to stay within the regulatory level of profit.
3) Meralco’s MAR will be charged to the public through a DSM charge (Distribution, Supply, and Metering) and determined by dividing it by a projected total kwh sales volume. In 2013 that came out to be P1.3810 per kwh broken down as follows: Distribution charge of P1.0114, Supply charge of P0.2251, and metering charge of P0.1444 per kwh. That was based on an energy sales of 30.61 billion for 2013.
4) Meralco however does not charge us this uniform rate and was allowed by the ERC to charge different rates to each customer group depending on “the cost of delivering service” and their mandate to provide subsidized power to lifeline customers.
5) The MAR is then further translated into per kwh rates for each group of customers. In general, (a) low income residential, (b) higher consumption residential and (c) commercial, and large industrial and commercial customers. To compute a per kwh rate for each of these consumer groups, ERC asked Meralco to allocate the amount of MAR from each consumer group.
6) To do this, Meralco is asked to breakdown its energy sales in kwh from each consumer group. The allocated MAR is then divided by the estimated energy sales volume to determine the rate per kwh for each group.
In general, Meralco sells 20% of its energy quantity to the low income residential consuming less than 200kwh a month. 40% is sold to the middle and high income residential and commercial establishments. The remaining 40% is sold to high consumption industrial and commercial establishments. From these sales volumes, Meralco computes the per kwh rate for each consumer group.
7) From this process, Meralco’s officially approved kwh rate of P1.3810 was translated further into the following rates for each general customer class. Low income residential customers consuming 200kwh or less a month is P1.8474 per kwh, the regular residential and commercial customers P2.9849 per kwh up to 5,000kwh a month, and large industrial and commercial customers at P0.82 per kwh. (that is right, it is not a typo).
8) Expressed another way, if Meralco is to stay within its legal limit of revenue (MAR) it must sell 20% of energy sales at 1.8474 per kwh, 40% of energy sales at P2.9849 per kwh, and then 40% of energy allotted to the industrial customers at P0.82 per kwh.
B. ERC and Meralco’s PBR regulatory reset process
1) Meralco’s rates are reviewed every 4 years called regulatory reset. The last time they did this was in 2012 for what is called the 3rd regularly reset for the 4 years from July 2011 to June 2015. It includes the determination of “over or under recovery” for the 2nd regulatory reset of 2007 to 2011. At that time the Meralco rate was translated to be P1.381 per kwh plus an extra of approximately P0.18 per kwh for “under recovery” from the 2nd regularly period of about P21 Billion. It totaled P1.561 per kwh. Meralco was authorized to charge this extra until June of 2015.
2) In May 2015, Meralco happily informed the public that they were reducing their rates by P0.18 per kwh. Wow, many consumers were impressed. But to us consumer groups watching Meralco’s charging practices, the magnanimity seemed out of character. True enough Meralco did not really reduce their rates. Their authority from ERC to charge the extra P0.18 per kwh expired on June 2015. (But taking credit and smelling like roses you have to admit is a nice public relations touch! 3 Points for wonderful hoodwinking!
3) There is more hoodwinking. Meralco and ERC also agreed that Meralco will maintain its old per kwh rate as the provisional rate for the Fourth (4th) regulatory reset for the period July 2015 to June 2019 because the ERC cannot come up with a better reset process. It’s clear by that time that the reset process is both complex and broken down and not serving the public interest.
4) Indefinite postponement of the rate resetting process
It is now 2020 and into the middle of the 5th reset period and a new reset process has not been put in place by ERC. And Meralco should be okey with that because their current rate is outdated to their advantage resulting to by far in MSK’s calculation P29 Billion in over recovery up to 2018. It is also to Meralco’s financial advantage that complaints of Consumer Groups like MSK, Alyansa para saBagongPilipinas, and Bayan Muna against the PBR rules have been bottled up at the ERC for four years at least.
C. Back to the Meralco’s Whopping Charges in April and May
1) To be clear, the issue in our opinion is not whether Meralco’s residential rate had increased. In fact, the total rate charge had come down a little.
2) We have a situation where, due to the Covid-19 pandemic and the general lockdowns, the industrial power that used to be sold by Meralco at the approved rate of P0.82 per kwh, should be allowed to be billed to the residential customers who used it due to the forced quarantine at the full residential rate of P2.9848.
3) Let us remember that under Meralco’s approve maximum allowed revenue, 40% of Meralco’s sales will be from the industrial customers with an approved rate of P0.82 per kwh. We estimated this to be at least 702 million kwh for May. Or a sales revenue of P575,640,000. This is only for Meralco’s distribution charges.
4) Now because of the pandemic, that 702 million was instead used by the quarantined residential customers. If Meralco is allowed to bill residential customers the full residential rate of P2.9848 per kwh, Meralco’s sales revenue from that 702 million kwh would be P2.095 billion, or an excess revenue by P1.519 Billion. For the 2 ½ months from mid-March, April, and May, the total could be P3.80 Billion.Their Maximum Allowed Revenue will be exceeded by P3.8 billion up to May. Every month we would be adding more than P1 billion. In regulatory terms, this is called “over recoveries” that would be refunded. So why allow it?
5) Same for systems loss charge. Meralco charges industrial customers only P0.1486 per kwh in systems loss. Residential customers P0.3472 per kwh. This will mean an increase in Meralco’s systems loss recovery of P139.4 million for May alone.
6) Our people are suffering. Their lives have been altered and everyone is trying to be out of harms way. Many lost their jobs and businesses if not loved ones. This is no time to allow an overcharge. They don’t need a refund later. They don’t deserve to be charged extra now. It would be exploitive and price gouging.
7) For now only the ERC is in a position to prevent this misery. Meralco is even threatening to start disconnecting power by September. ERC has the power to order Meralco to charge the extra electric consumption during the Covid-19 period only at the distribution, supply, and metering charge of only P0.82 per kwh, the allocated regulatory value of the industrial power that is now being used by the residential customers. That will make the due bills more within reach by millions of residential consumers.
We appeal to the ERC to act now. It is just the right thing to do both for duty to look after the public interest and Christian empathy and love.
God help us.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
