Power industry pandemic

Ijust received another bill from Meralco. Immediately, the joy from the festive season disappeared as I was reminded of the amount I have to pay. It is not the amount to be paid that irritates me—it is the fact that it should be a few thousand pesos less. Yes, for the past 10 years, we are being billed much more, but Meralco and the regulator—energy Regulatory Commission—appear to be insensitive to the plight of the consumers and to their responsibilities under the law (epira), which is to protect and bill the consumers on the least cost basis.

Meralco has always denied that there were overbillings. However, this contradicts what was presented in its financial statements. There, Meralco claimed as part of operating expenses, a provision for claims and losses in the amount of about P10 billion annually. The Notes to the financial statements mentioned that this provision was supposed to cover any amount of over recoveries. Later, ERC ordered Meralco to implement interim cash refunds amounting to P48 billion covering the regulatory years 2012 to 2022. The amount may appear significant, but the final validation by the ERC has not been completed. Based on best estimates, the unpaid balance of the overbilling could still reach P100 billion.

For clarity, the interim refunds meant a monthly reduction in the electricity bills of consumers by about P1.809 per kwh during the refund period. For consumers averaging

200 kwh, this translated to about P360 reduction in their monthly bills. If ERC could hasten the decision on the unpaid balance, this could mean an additional reduction of electricity bills by at least twice the amount of the interim refund—a big relief from the anticipated cost increases starting the new year 2023.

Somehow, I wonder why consumers do not seem to care because very few raised the issues to the ERC. Even the media (print and TV) showed no concern at all for this plight of the consumers. Except for one entity, the expose fell on deaf ears. I wonder, is there really no story or, is the value of stories from distribution utility owners more valuable?

The halls of Congress and the Senate sometimes were filled with the angry voices of some lawmakers—accusing Meralco of overbilling as a result of the use of a high and unvalidated rate of return. But the lawmakers now have long been silent.

The ERC appears very slow in rendering its decisions. Ten years is a long period. The ERC is under the office of the President, and he can demonstrate his real concern for the plight of consumers by ordering ERC to hasten their evaluation of the cases involving the remaining balance of over-recoveries as soon as possible. This is of utmost importance because:

The issues involved an error. It cannot remain uncorrected for a long time.

The impact on the economy and individual consumers is quite significant, which necessitates an early resolution.

During the past 10 years, consumers have been paying more than they should. As a result, Meralco is able to unduly accumulate funds from consumers giving it a very big advantage. By accumulating the funds, it is like borrowing funds with no contract, no collateral, no interest, and no repayment period. Even if ERC eventually decides to order Meralco to implement a refund, this normally comes in the form of bill reduction over a period of 12 to 24 months.

The early resolution of the cases by ERC could provide the muchneeded relief consumers needed to cope with the unabated cost increases during the year 2023.

This situation is the same for the rest of the 20 other private distribution utilities. The impact, therefore, is nationwide.

Meralco is a listed company. Any effect of this overbilling and subsequent correction on the traded Meralco shares needs to be resolved and known to the investing public as soon as possible to avoid any untoward situation in the stock exchanges.

Has Meralco grown to a point where it is considered too big to fail that even regulators try to soften the impact on the utility entity for fear of a failure that could affect the economy? This fear should be unfounded, especially since a distribution utility has limited risks. It has an assured return on capital and an inf lation-adjusted return on capital. Combining these with an assured recovery of efficient operating costs, the net income of a utility company is almost 100% assured.

While PBR is considered a good methodology, the way it is being implemented in the Philippines needs to be revisited and amended, since it appears to be more protective of, and advantageous to investors while the consumers’ interest is less protected—a situation contrary to the provisions of Epira.

If Meralco has grown too big, probably it is the time for legislators to consider breaking up the franchise for better regulation, and distribution of wealth. This can also put an end to the exploitation of consumers. This also reduces the risks of regulatory capture and possible ineptness on the part of the regulator and the external auditors.

Alfredo Non is a CPA by profession and a former Partner at SGV & Co. He served as Commissioner of the Energy Regulatory Commission till he completed his term in 2018. He also served as Director and Executive Officer of several private companies and was a former professor in Financial Management at the Ateneo Graduate School of Business.