What’s Wrong with Meralco Charging Full Residential Rates for Higher Electricity Consumption While In Covid-19 Quarantine?

David Celestra Tan, MSK
8 June 2020

In our previous posting, we disclosed our findings from Meralco’s rates and charges that an approximately 702 million kwh of electricity that it used to supply to the high use industrial and large commercial establishments that were closed during the Covid-19 lockdowns, have instead been consumed by the quarantined residential customers. We suggested that Meralco should not charge these residents their full residential rates for the Covid-19 consumption but at a 30% discount.

Many residents were shocked at the 400% increase in the power bill due to their higher electricity use while staying and working at home and to the additional kwh that they consumed in March and April that was over what Meralco billed as average billing without reading the meters based on the previous three supposedly cooler months of December to February. “Out of the goodness of their hearts” Meralco offered consumers installment payments of up to six months.

Some readers asked “What’s wrong with Meralco charging their ERC approved residential rate to these residents?”  A valid question so let us nonetheless try to explain to them why it is wrong and unconscionable for Meralco.

There are two reasons. Regulatory Violation and Moral insensitivity

1. Regulatory Transgression

It is regulatorily wrong whether the government realizes it or not. Meralco has no right to gain windfall profits from such increased sale of energy from a lower rate group (the industrial and large commercial group) to a high rate group (the residential customers). And here are the reasons:

a. The increased windfall revenue of about P2 billion a month will make its “Maximum Allowable Revenue” (MAR) exceed the level approved by the ERC and hence will breach its allowed return on investment.

b. Meralco is a regulated public service entity. Its revenues and profits are supposed to be regulated by the ERC to a fair and reasonable level.

c. Contrary to common impression, the approved rate of Meralco is not a “per kwh rate” but the MAR or Maximum Allowable Revenue which is the limit of the amount Meralco is allowed to earn per year.

d. That MAR in turn is translated to an average kwh rate based on projected annual energy sales of Meralco. The last time this was calculated was 2013 and adjusted in 2015. Currently that per kwh rate is supposed to average P1.3810 per kwh broken down as Distribution Charge of 1.0114, Supply charge of 0.2251, and metering charge of P0.1444 per kwh. Note that we said average. 

e. Meralco however is allowed by the ERC to “translate” their MAR to the different classes of customers supposedly to account for the cost of delivering service to each class and as long as their average is not more than the approved P1.3810 per kwh and the total revenue does not exceed the MAR.  That is where things become non-transparent and evidently giving Meralco significant flexibilities with the numbers.

 f. We will cover the intricacies of this in another subject as part of our petition for refund of Meralco’s windfall revenues resulting from the outdated rate and understated annual energy sales from 2013 to 2019.

g. For now let us talk about the numbers that are relevant to the issue of Meralco’s charge to residential consumers for the Covid-19 quarantine consumption.

1.Meralco’s “DSM” rate (distribution, supply, and metering) to residential customers are P1.8474 per kwh to small consumers of 200kwh and lower. For those consuming over 400kwh it is P2.9849 per kwh.

2. Comparatively, under the complex formula arranged between ERC and Meralco, the DSM charge to industrial and large commercial consumers is only about P0.82 per kwh.

3. Meralco charges both classes of customers the same Generation rate. However, they charge residential customers a systems loss of P0.3472 Per kwh (7.99%) but charges these large industrial customers only P0.1486 per kwh (3.5%) or P0.1966 less.

4. The total of the DSM charge plus the Systems loss charge for Residential is therefore 3.3321 (2.9849 plus 0.3472) and for Industrial customers P0.9686 (0.82 plus 0.1486)

5. For the two customer classes and these two charges alone, Meralco’s charge differential is P2.3633 per kwh. (3.3321 vs 0.9686) or 71% less on DSM.

h. Sources of Meralco’s Energy Sales

These per kwh rates were arrived at using the assumed energy sales in kwh to each customer class. For purposes of this discussion, let us assume a ballpark energy sales allocation of 20% to small residential and lifeline consumers, 40% to residential and commercial consumers, and 40% to industrial and large commercial consumers. (We have done our research but the energy in kwh assumed in these computations cannot be found in the ERC documents we have access to. Could be one of the Philippines best kept secrets!)  However, based on empirical knowledge the above breakdown would be in the ballpark and would be valid for this discussion.

i. Reduction of Energy usage and sales to the industrial and large commercial class.

This customer class under Covid-19 lockdowns had suspended operations. As a group, we estimate that their normal share of Meralco sales is 40%. For May 2020, Meralco purchased 2.541 billion kwh of power. If we deduct their systems loss to residential customers of 7.99%, we can calculate that their sales for the month of May 2020 is about 2.3380 billion kwh.

Normally, this industrial and large commercial class would have consumed 0.935 Billion kwh (or 935 million kwh) for the month. Let us assume however, that they still used 25% of that for plant maintenance and partial operations.  We therefore can calculate that about 702  Million kwh of what they used to consume they did not use due to the lockdown.

j. Meralco’s total energy sales however did not reduce significantly in April and May.

If these large customers did not use the 702 million kwh but Meralco’s sales remained the same,  it was then used by Meralco’s other customers which is the residential customers and the commercial establishments who were allowed to operate like grocery stores, hospitals, and certain restaurants. The 702 million kwh is only for May. If we assume that it was the same for April and proportionately the same for the last half of March, the total energy that went to the residential customer class from mid-March to May would then total 1.755 Billion kwh.

k. Rate differential and Meralco’s windfall revenue

Using only the Distribution Charges and the Systems loss charge, these energies of 1.755 billion kwh that would have been sold to the industrial and large commercial class at the lower rate by P0.9686 was then used instead by the residential class and Meralco would like to charge them the residential rate of P3.3321 per kwh.  The rate differential on these two billing items alone is P2.3633 per kwh or a windfall revenue for Meralco for the 2-1/2 months of P4.39 Billion.

l. What’s wrong with that?

Allowing that windfall revenue would add at least P4.39 billion to Meralco’s actual MAR and will exceed the rate of return allowed by the law for the public service utility. This would be a violation of the revenue approved by the ERC. It is true that there is a mechanism at ERC where they review (supposedly) Meralco’s actual revenue to see if they are exceeding the approved annual revenue and if there is an excess, they would be asked to refund the “over recovery”. To this, many consumers would say we will not see that money back!  ERC had not been able to audit Meralco’s books for at least 6 years.

Aside from the fact that the system of Meralco refunds has become a sham, this excessive imposition will put undue burden on the already suffering Manila consumers and hence should not be charged in the first place.

2. Unconscionable and heartless Charge

Residential consumers did not consume more electricity while in quarantine out of carelessness and lavish consumption.  They did so because they were forced to stay at home and work at home as part of the Covid-19 pandemic lockdowns. They used more air conditioners, more lights, cooked more at home, watched more TV because they had to. Kids are at home.  Everyone did so because they were trying not to get infected and to survive.

            On top of that, many lost their income and closed businesses.  Everyone is suffering. It is a miserable situation partially alleviated only by escaping infection so far.  In this kind of once in a lifetime misery, should Meralco be allowed to profit from the suffering of our people and country? It would be morally insensitive.

            Meralco tried to varnish their corporate image by offering sleeping quarters to the “front liners”.  What about treating fairly and showing kindness to the residential consumers who had to stay quarantined at home? This is truer and genuine corporate social responsibility if they really mean it.

It will not cost Meralco anything if it reduces its rate for that industrial power that instead was consumed by the residential customer class. Meralco’s distribution and systems loss charge for them is P0.9686 per kwh.  Trying to charge P3.3321 per kwh would border on price gouging and profiteering on the misery of our people. That would be P4.39 Billion excess profits for the 2-1/2 months of Covid-19 quarantines.

We are already reeling from Meralco’s 24% annual return on Equity, double than the 12% allowed by law. Allowing this P4.39 billion pure profit will further aggravate that to 31% return.

More than the installment payments offered by Meralco, what consumers deserve is the appropriate reduction of the rate for the Covid-19 electricity consumption by at least 30% (71% of DSM and Systems loss charge) and for Meralco not to exact P4.39 billion in opportunity profits from them.  The attempt is just unconscionable and contrary to public interest.

Let us not allow the exploitation of our quarantined consumers. The excess revenue is illegal anyway….unless the ERC condones it and looks the other way.

When will this consumer oppression end?

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

“It only takes good men to do nothing for evil to triumph”