UPDATE ON ERC HEARINGS ON MSK PETITION TO MODIFY THE PBR
David Celestra Tan, MSK
16 April 2017
The ERC held public consultations on your organizations petition with the ERC for rule changes on the rate making methodology called PBR or Performance Base Rate making system.
MSK is thankful to the ERC Commissioners for showing due importance to this consumer concern by presiding over the proceedings themselves. In the Manila public consultations last March 17, Commissioners Gloria Victoria Yap-Taruc and Alfredo Non presided. At the Cebu hearing on March 22, Commissioners Alfredo Non, Josefina Magpale-Asirit, and Geronimo Sta. Ana attended. On March 24 in Davao, it was only Commissioner Magpale-Asirit who presided assisted by ERC lawyers and assistants.
The three hearings were well attended….by the Distribution Utilities who are now under PBR rules, Meralco, Visayan Electric of Cebu, Davao Light, and Cagayan Electric or Cepalco. For public consultations however, there were not enough public in the hearings although many consumer groups attended trying to represent the consumers.
At the three roadshow consultations MSK presented its position on why the PBR is not in the public interest as required of the ERC by Section 43(f) of the Epira law and violates Section 25 which requires that charges to consumers should be based on investments incurred.
Meralco data show that its Distribution rate increased 100% since the adoption of PBR in 2007. Their revenue increased by P6 billion a year in its first year alone and in the recent years the net profit AFTER income tax of Meralco is 25% of equity per year. Under the PBR system, the ERC allows Meralco to recover from consumers their projected investments and corresponding profits in addition to the traditional rate base.
What is unclear yet is whether these stratospheric increases in charges to consumers are worth the improvements in the PERFORMANCE of distribution utilities?
At the hearing in Davao City we were able to get the distribution rate of Davao Light and it was P0.63 per kwh lower than Meralco rate. A City Councilor of Davao who attended the hearing commented that the much larger Meralco must have lower rates because of economies of scale. 6400mw vs 380mw. The distribution rate of VECO in Cebu that we got later showed the similar rate as Davao. Meralco, VECO, and Davao Light are supposed to be operating under similar PBR rules. Why is there is 25% difference in the rate? Let us hope ERC and the concerned DU’s will explain in subsequent hearings.
In all the three (3) hearings Meralco lawyers manifested that the MSK presentation seemed a personal attack on Meralco. We understand them feeling that way….or a little guilty or for lack of better answer. MSK explained that as part of the petition for review of the PBR MSK had to show data to ERC to probe the adverse impact on the consumers compared to the benefits. And the natural data is the exclusive franchised distributor in the Metro-Manila including Southern Luzon which is Meralco. After all it is 62% of the national energy demand and therefore a good representative of the test cases.
Do you know that when the PBR was adopted, the profits of DU’s became unregulated? This was something not pointed out by the old ERC when they sold the PBR idea to the public in 2007. That explains why Meralco’sprofits has risen to 25% of equity per year and it is legal under ERC’s current PBR rules.
Your association presented the comparative business risks that DU’s like Meralco face compared with the normal businesses. Meralco is protected through recovery from consumers of losses or theft of merchandise (systems loss), damages from natural calamities, forex and fuel fluctuations as examples.
Meralco and the ERC presented their process of implementing the PBR last April 10. They have not gotten around to answering directly the specific policy and customer impact issues raised in MSK’s petitions.
MSK asked for the comparative difference between the Service Performance of Meralco before PBR in 2007 and in 2016, almost 10 years after. This we believe will show whether the high increases in the distribution rates of Meralco under PBR is worth the improvement in Service Performance of the distribution utility. In other words, is the improvement in service we are getting commensurate to the additional costs being charged under PBR?
It appears to MSK that the service performance being used as incentives under PBR are the basic quality of service required of Meralco by its mega-franchise. So why should they be entitled to unlimited income on top of the guaranteed return on rate base under the old RORB?
Your organization while pushing for reforms at the regulatory agency does not wish to be disruptive as much as possible. For this reason we are not seeking to stop the process for the 4th regulatory reset until this rules change is resolve.
Instead we only asked the ERC to immediately remove from Meralco’s current rate the portion for future investments not yet incurred. Once validated, the charges can be restored. This we believe will cure the illegality of retail rates containing charges for investments not yet incurred.
We also filed an urgent motion to the ERC for the similar removal of such charges in the 4th regulatory reset which was supposed to be in place last July 2015.
If you wish to have an idea on the rate making practices of Meralco, you can secure a copy of the audit report of PB Associates which was the foreign consultants hired by the ERC for the start of PBR in 2006. You will be surprised at the kind of practices your beloved public service provider was pulling on the public. It is sad.
The data we presented during the hearings were not meant to attack Meralco but to factually present the situation and the consequences of PBR. Those must be viewed as eye openers for everybody.
We will update you on the next hearing.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
Matuwid.org
david_mskorg@yahoo.com
