Philippines: Consumer groups ask ERC to scrap rate-setting method on Meralco

Philippines: Consumer groups ask ERC to scrap rate-setting method on Meralco

THE UNITED FILIPINO CONSUMERS & COMMUTERS (UFCC) AND FREEDOM FROM DEBT
COALITION (FDC) SEEK IMMEDIATE DISPOSAL OF THE ENERGY REGULATORY
COMMISSION'S (ERC) RATE-SETTING METHODOLOGY FOR A MORE CONSUMER-CENTRIC
BILLING COSTS.

Consumer groups called on the energy regulator to adopt a low rate-friendly
methodology, such as a modified Return on Rate Base (RORB) setting.

The energy regulator has employed the Performance Based Regulation (PBR) in
determining the distribution and transmission rates as well as capital
expenditures of private transmission and distribution utilities.

According to a position paper sent to the ERC, Meralco doubled its
distribution cost under the PBR compared to its 700 percent boost in
earnings with the RORB method.

In detail, Meralco's distribution, supply, and metering (DSM) charge under
RORB was P0.79 per kilowatt-hour (kWh), which increased to P1.64 per kWh
under PBR.

Meralco's earnings, on the other hand, also saw a huge leap from P2.7
billion to P19 billion over the same period.

Romeo Junia, UFCC and FDC's representative during a public consultation,
said that the PBR was conceived as an alternative to RORB in 2002 to 2003,
the same period the Supreme Court (SC) ordered Manila Electric Co.'s
(Meralco) refund worth P32 billion.

The SC capped the power retail's earnings at 12 percent and excluded its
corporate income tax from chargeable or recoverable expenses.

Meralco's corporate income tax, SC cited, was disallowed because it
benefited its shareholders and investors, not the consumers. Whoever enjoys
the income should pay the tax on it, the Court said.

This court rule gave leeway for PBR, wherein the income tax serves as
building block authorized by the ERC.

The consumers argued that it is ironic that ERC thru PBR wiped out their
gains from the landmark decision of Justice Reynato Puno that raised the
people's right to electricity and to be reasonable charged for it to the
level of fundamental economic and political rights the State must protect.

"While utilities are entitled to 'the recovery of just and reasonable costs
and a reasonable return. to enable it to operate viably' ERC must also
ensure a reasonable price of electricity to the consumers," Junia said.

Under RORB, recovery costs are based on historical and actual investments or
expenses, whereas a Maximum Average Price (MAP) is set by the ERC every four
years for PRB.

MAP is based on forecasted energy sales and projected expenses and
investments that until today, after almost six years, have not been audited
or verified.

When ERC applies return on equity instead of capital or asset base,
Meralco's rates can go down by about P0.15 per kWh, Junia said.

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Link to Original Article:
http://powerphilippines.com/2017/07/03/consumer-groups-erc-scrap-rate-settin
g-method-meralco/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com