Why is MSK Petitioning ERC for P29 B Meralco Refund due to Windfall Revenues from 2013 to 2018?

David Celestra Tan, MSK
9 January 2020

Your electric consumers’advocacy group MatuwidnaSingilsaKuryente Consumers Alliance Inc. (MSK) filed a petition with the Energy Regulatory Commission for a refund of P29.6 Billion for over recovery of allowed annual distribution charges to consumers from 2013 to 2018.

Meralco’s current rate was computed in 2013 and was based on lower energy sales of 30.61 Billion kwh a year and an annual growth of 3.5%.  Meralco sales have been growing at an average of 6.78% per year in the last 9 years, resulting to windfall revenues of an estimated P29.6 billion up to 2018.

Over recovery refers to collections or charges made by a regulated utility like Meralco of more than what was allowed or intended by the regulators ERC.

This excess recovery is separate from the PBR rate setting methodology that determines the Annual Revenue Requirement (ARR) which is the total revenue Meralco is allowed to make from consumer distribution charges after considering its expenses, investments, and allowed return. This ARR figure is then translated into a per kwh rate by dividing it with a projected annual kwh sales. The quantity projection is equally important because it determines the per kwh rate that Meralco is allowed to charge consumers. But it is not an object of careful methodology much less public consultations by ERC.  If the projected energy sales is too low, the resulting per kwh rate is higher than intended. Under the current PBR method, the actual recovery of Meralco is determined every regulatory period of four (4) years and adjustments are made for over and under recovery.

The current rate of P1.38 was for the third regulatory period that was for July 2011 to June 2015 and based on a forecasted sales of 30.61Billion kwh for 2013. Based on a 3.5% annual growth, the current Meralco rate would be valid only if the sales of Meralco for 2018 is 36.005 Billion kwh.  But their sales for 2018 was 44.31 Billion kwh or higher by 8.31 billion kwh resulting to P11.46 billion windfall profits for that year alone. If we allow that 50% of that should cover increase in legitimate operating overhead, there is at least a P5.73 billion over recovery for 2018 alone.

MSK’s analysis of the utility’s annual financial reports show Meralco’s operating overhead increased from only P21.7 billion in 2009 to P26.699 Billion in 2010 when the current owners took over from the Lopez group or an unprecedented 22.61% increase. The following year 2011 their operating expense increased another 21.48% to P32.434 billion. That is a cumulative increase of 45% for the two year 2010 and 2011 and followed by another 15% increase in 2013 to P36.111 billion. Despite these expense increases Meralco’s robust energy sales increases still caused undeserved profits in the billions per year.

Further, it appears that the current distribution charges per kwh for the 3rd regulatory period erroneously used a projected sales for 2013 of only 30.61 billion kwh which is the “FQ” value in ERC approval 2013-056 RC, Meralco’s actual sales for that year was 36.11 billion resulting to windfall revenues of 5.5 billion kwh for that year alone. At a rate of P1.38 per kwh that was an over recovery from the divisor alone of P7.59 billion for 2013.

In MSK’s petition, it is asking ERC to immediately order a provisional refund of at least 50% or P14.84 Billion while it is determining the true extent of over charges and due interests for 2013 to 2018.  It is unconscionable to allow Meralco to continue enjoying the use of the excess charges for their corporate benefit and to the disadvantage of the consumers.

In our petition MSK asked ERC to investigate why in computing the per kwh rate under ERC Case 2012-054 RC,  the regulator only used 30.61 billion kwh annual energy sales shown as “FQ” value in the approved formula, when the actual energy sales of Meralco during that year was already 34 billion kwh? It appears the Annual Required Revenue approved for that year by ERC was P44.24 billion which was divided by the FQ value of 30.61 billion kwh, resulting to a per kwh rate of P1.38.  Had they used the correct energy sales of 34 billion kwh, Meralco’s per kwh rate should have been P1.3012 per kwh. There has been an excess charge of P0.08 per kwh.

In addition to this P1.38 per kwh regular charge for the 3rd regulatory period of 2013 to July 2015, the ERC also allowed Meralcoto charge a supposed under recovery for the 2nd regulatory period of P24 billion equivalent to P0.15 per kwh, resulting to the total kwh distribution rate of P1.55 per kwh.

These are no minor discoveries that a government agency that is specifically tasked by law to look after the consumer interest like the ERC should show concerned interest.  Instead on December 5, ERC actually blocked MSK’s first attempt at just submitting the consumer complaint. An ERC lawyer just decided that she did not want to allow MSK to file a petition allegedly because it is a rate case that has pre-filing requirements. First, it is clearly a consumer complaint and not a rate case. Consumers now need to meet complex documentations to file a complaint with the ERC?  Why was this lawyer including the receiving clerks at the docket office whose job is it to only accept petitions, pre-empted the commission in the adjudication of complaints?

The Honorable Commission probably was not aware that their people downstairs are doing this to protect Meralco? Is the regulatory capture of ERC that pervasive that the agency is subservient from Top to Bottom? What will it take to remind them that they work for the people and the EPIRA law that created them, the ERC, specifically mandated them to protect the public interest? (We are happy to report that the security guards at the ground floor and on the upper floors did not stop MSK from entering the building)

These never ending over charges are getting out of control and must be reduced by the ERC before they become so big that Meralco will no longer be able to refund them once Meralco had already declared them to be legitimate profits and already repatriated them as dividends to their foreign controlling stockholders? Consumers will be the losers. Should this not be a concern of the ERC?

The current drafts of the continued implementation of the PBR rate did not show that the ERC is aware of the erroneous and outdated energy sales projections and the consequent windfall profits in tens of billions that Meralco is allowed to overcharge the consumers. We thought maybe the new Commissioners of the ERC would welcome this input and discovery of MSK. We are not trying to betheir adversary, much less a nuisance. In fact we should be on the same side protecting the consumers.

We trust that the ERC will give similar urgency to protecting the consumers from excess charges as they do when Meralco asks for rate increases. If there are onerous contracts, this is an onerous computational methodology with similar major improper charge to consumers in the multi-billions…..per year.

This anomalous and onerous situation is on going for almost a decade. Let us not look the other way.

Please.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.com
david.mskorg@yahoo.com.ph

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