Viewpoint: Meralco: Smarter than high-schoolers

Ben Kritz, Rough Trade Column
Manila Times
6 December 2020

There are few things that will hold my attention for hours quite like a suggestion that Meralco, the electric company everyone loves to hate, has committed some foul in order to extract more than its fair pound of flesh from its hapless customers. After all, it has happened before; Meralco has been sanctioned numerous times by the Energy Regulatory Commission (ERC), the courts or both for various missteps, and has paid billions in penalties and customer refunds over the years as a result.

A November 29 news item in the Philippine Daily Inquirer stuck on my desktop, because it seemed to indicate that Meralco was once again up to no good. The Bayan Muna partylist group and a consumer advocacy group called the Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK for short, and “Fair Electricity Costs” in English) claimed to have discovered that in 2019, Meralco had potentially collected 49 percent more in pass-through generation charges — about P66.1 billion — from its customers, and had underreported its power purchases in both volume and value terms to the ERC. This has been going on since 2011, Bayan Muna and MSK said, and the extent of the discrepancy has been steadily growing year after year, implying that it is at least partly responsible for Meralco’s corresponding expanding yearly profits.

These conclusions were reached, Bayan Muna and MSK said, after analyzing Meralco’s monthly disclosures of its energy costs to the ERC, along with its annual reports and audited financial statements for 2008 through 2019. Bayan Muna, represented by its chairman Neri Colmenares, is calling on the House Energy Committee to “fast-track” its investigation into Meralco’s alleged P66-billion “overrecovery,” and likewise demanding that the ERC and Commission on Audit (CoA) “fast-track” their audit of Meralco’s energy sales and purchases from 2011 to 2019 due to the “significant discrepancy.”

Red flags

As I said, I am inclined to believe “where there’s smoke, there’s fire” when it concerns Meralco, because that has turned out to be the case in the past often enough, but I was instantly skeptical of the Bayan Muna and MSK allegations for a number of reasons.

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First of all, the allegations were originally raised back in August, but received virtually no attention at that time. The only report of it I could find was in the Bulatlat, which occasionally does uncover some important social issues but, with all due respect, is not exactly considered mainstream media. The latest raising of the allegations only attracted the attention of the Inquirer, which ran a story containing Bayan Muna’s call for the relevant authorities to “fast-track” their probes of the matter on November 29, and followed it up with Meralco’s official (and dismissive) response to the accusations by the company’s spokesman Joe Zaldarriaga. The entire issue was comprehensively ignored by every other media outlet.

That lack of attention seemed even more strange given Colmenares’ intimation that both the House of Representatives and the ERC, and possibly even the CoA, were already looking into the matter. The Manila Times has reporters who cover all those agencies with great diligence, and so do most other major news outlets. A controversy with a P66-billion price tag would not be overlooked by anyone, particularly when it involves a consumer purse-string issue, and especially not when it involves Meralco, one of the most carefully watched entities in the country.

Then there are the details of the spectacular allegations themselves. Not to be immodest, but by dint of my education and years of corporate experience in my past life, I have a better-than-average understanding of financial statements and the bounds of corporate accounting, auditing and regulatory financial disclosures, and there was something that immediately seemed off-kilter about what Bayan Muna and MSK were claiming. So I assembled the reported sources of the information — Meralco’s disclosures to the ERC and in its 2019 Annual Report — and conducted my own analysis.

Amateur hour

MSK, which actually appears to be just one guy and not really a “group,” originally posted its “exposé” of Meralco’s supposed accounting shenanigans in a multipart series of blog articles on its website, matuwid.org, under the title “Unraveling Meralco’s Mystifying Sales Numbers – By Methods We Learned in High School,” starting on August 1 of this year. One thing that immediately stood out was that in the article, the author makes this dubious admission:

“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 SyCip Gorres Velayo & Co., the well-known accounting and audit firm]. 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.”

The version of Meralco’s 2019 annual report that I downloaded from the company’s website was complete and up to date, including all the required commentary from the company’s independent auditors. If the MSK “researchers” (again, I’m pretty sure this is just one guy) were, for some reason, unable to obtain a piece of information that was considered key to their conclusions, they ought to have waited until that information was available. That’s something I learned in high school, but education may be different here.

If one goes through the financial statement and the accompanying accounting and audit notes, it quickly becomes obvious that the supposed discrepancy is simply a function of normal methods of aggregating revenues, and contract balances, assets and liabilities.

What Meralco reported in its audited financial statements is correct, and what it reported to the ERC is also correct; that the two figures are different is because they are generated by two different sets of accounting rules: one applicable to corporate accounting and one applicable to regulatory reporting. Neither of which is, as far as I know, taught in high school.

That probably explains why the House Energy Committee is not actually looking into the “controversy,” and does not seem to have plans to do so. Likewise, while the ERC is reviewing some other Meralco issues involving refunds of things such as bill and meter deposits, for which it asked the CoA for assistance (which the CoA declined, perhaps because matters involving private companies are outside its purview), it has not commented on the “overrecovery.”

Meralco is a huge and hugely profitable company that enjoys a number of market and regulatory advantages, and it has demonstrated frequently that it is willing to bend the rules as far as it can and then some for its own benefit. But it also knows that it is firmly fixed in everyone’s crosshairs, and almost never makes a mistake that some eager beaver with a high school diploma — alone among the thousands of bright people watching Meralco for any hint of nefarious behavior — is going to be able to uncover. The only thing its critics in this case accomplished is to make themselves look foolish.

ben.kritz@manilatimes.net
Twitter: @benkritz

This opinion originally appeared in the Manila Times on 6 December 2020 and is being posted so the public can know both sides of the debate on Meralco’s overcharging practices. Underlinings provided by the Editors.