Unraveling Meralco’s Mystifying Sales Numbers – By Methods We Learned in High School (Part 1/4)

Part 1

David Celestra Tan, MSK
1 August 2020

One thing we started learning in high school is analyzing and solving problems. And proving hypotheses in lab experiments. We were taught that one approach to solving seemingly complicated problems is to break them down into their parts. And to further breakdown the parts into the givens and knowns and the unknowns and variables. (My lab teacher probably will not believe that I’d remember that because she only gave me a barely passing grade of 78! Shhhh. I actually skipped class that day to play basketball but I copied the notes of my ever studious classmate Amor Cerrado)

Meralco’s mystifying sales numbers

In Meralco’s mystifying sales numbers, we can try applying the same method in trying to understand what is this that has been hitting us the consumers month after month, taking a significant amount of our hard earned income that we could have been spending for our children’s education, food, and health.

 We are referring to their purchases of power supply of 33.565 Billion kwh in 2019 but apparently earning revenues equivalent to 46.871 Billion kwh, a 13.3 billion disparity. In terms of pesos, their reports to the ERC and the consumers for generation costs was P174.859   Billion but their annual report say their purchased power cost was P241.032 billion.  These numbers were taken from their official reports to the ERC and their Annual Report to their Stockholders, and the Phil. Stock Exchange.

Why is this important to the consumers?

The reason is, legally, distribution utilities like Meralco should only pass on to the consumers the cost of power generation supply. That means actual costs and actual quantities. In other words, in 2019 Meralco should only have billed its customers a total of 33.565 billion kwh and not the 46.871 billion kwh that they reported to their stockholders. The power generation they should have recovered from customers was P174.859 Billion and not P241.032 Billion, a P66.17 Billion difference.

This is indeed mystifying and anomalous unless there are fair and reasonable regulatory and accounting answers to this serious disparity.

 So let us try to unravel these confounding numbers using deductive methods we learned in high school.

A. The knowns and verifiables

In Meralco’s complex equation the following are at least known and verifiable

Let us start with the supposed basic Meralco formula for their generation charge to their consumers:

1. Generation Cost Purchased/quantity of energy purchases in kwh = generation rate per kwh to the consumers

2. Billing to customers and Sales for Power Generation: Monthly energy consumed in kwh x generation rate per kwh

3. Monthly revenue from customers for DSM (distribution, supply, and metering)=

Monthly energy consumption of the customer x the rate per kwh approved by the ERC for the customer class

4. Let’s look at what’s known

a) Quantity of power in kwh they bought from all their power suppliers including WESM. We totaled their monthly power generation report for all the 12 months of 2019 and came up with 33.565 billion kwh. We have to presume these are true numbers based on available data.

b) The total power generation costs that they paid to all their power suppliers of P174.859 billion should also be true including the guaranteed minimum off-take and capacity payments whether the plants run or not.

c) Let us also grant that the total of the monthly energy QUANTITY in kwh that they billed to their customers in total ARE EQUAL to what they bought and supplied. So let us assume that they did not overbill anyone with more energy than they really consumed. Other than excess billings due to averaging and estimations. 

d) Reported revenues to their Stockholders

1.Monthly revenue from customers = amount of billings to all customers, small and regular residential, commercial, industrial, and street lights. We assume these are correct revenues received by Meralco and validated by their external auditors. So the revenues are supposed to be true and accurate.

2. Meralco DSM rates 

We also can assume that the DSM rates as approved by the ERC are being used by Meralco in their monthly billings. Small residential of about P1.88 per kwh, Normal residential of about P2.98 per kwh, Commercial customers of varying consumption ranging from P2.98 per kwh down to P0.98 per kwh, and Industrial customers averaging P0.98 per kwh.

e) So if all these are known, how can there be a big disparity between the quantity of power that Meralco is reporting to their stockholders of 46.871 Billion kwh for 2019 compared to only 33.565 Billion kwh that they actually purchased from generators? What accounts for the difference? 

5. SGV Independent Audit Report

In search for more knowns and verifiables, our MSK volunteer researchers looked at another official Meralco document which is the Independent Audit Report of SGV. Our initial report was based on the Financial Summary of Meralco as reported in page 5 of their Annual Report. MSK researchers however were able to look only at SGV’s Audit Report for 2018 since 2019 which normally should have been posted by March 2020 has not been posted up to now. Probably due to Covid19 ECQ.

Next: What’s in the SGV Report and What the correlation of the numbers are saying?

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