Meralco’s rate hikes and neoliberal power reform (1)

Photo from flickr.com/Maan Bernales

Consumers are again up in arms with the latest increase in electricity rates imposed by the Manila Electric Co. (Meralco). The utility giant called the rate hike “slight”. At 5.8 centavos per kilowatt-hour (kWh), maybe it will be hardly felt by Meralco’s 4.7 million customers in their August billing.

But the recent power rate increase is neither small nor negligible when viewed in the context of successive rate hikes in the previous months (amid rotating brownouts, no less). The past increases were also huge that some consumers complained of having to pay Meralco twice as much for the same consumption.

Long-held perception

The unabated rise in monthly power bills reinforced the long-held public perception that Meralco is greedy and abusive and government regulators are inutile. It also revived calls to immediately bring down power rates by scrapping the 12 percent value added tax (VAT) on electricity. Indeed, Meralco and the Energy Regulatory Commission (ERC) must be held to account and the VAT on power must be scrapped.

But these proposals are not enough. Power rates will remain exorbitant and power utilities like Meralco will continue to abuse consumers without reversing one of Gloria Arroyo’s most anti-people, anti-development, corruption-ridden legacies – the neoliberal privatization and deregulation of the energy sector through the Electric Power Industry Reform Act (Epira).

Soaring profits

Doubtless, Meralco is a bad company (for consumers, that is, but surely not for its stockholders). Its long list of illegal and over collection cases is a testament to its unscrupulous reputation. To be sure, the Energy Regulatory Commission (ERC) is an even worse regulator. Its habitual failure to check Meralco’s abusive practices, and in many cases even legitimizing them, demonstrates its bias for industry players.

Last year, Meralco’s net profits increased by a whopping 114 percent (from P2.8 billion in 2008 to P6 billion) mainly due to an ERC-approved 13.9-centavo per kilowatt-hour (kWh) hike in the distribution charge of the utility giant in April 2009. Then in December, the ERC approved another increase in Meralco’s distribution charge, this time by 26.9 centavos. The distribution charge of Meralco thus increased from P1.0831 per kWh at the start of 2009 to P1.2227 in April and then to P1.4917 in December.

Imagine how much profits Meralco will rake in this year once the December increase in distribution charge makes its presence felt in the company’s end-2010 balance sheet. But to give you an idea, Meralco disclosed to the Philippine Stock Exchange (PSE) that its first quarter 2010 profits grew by 135 percent compared to the same period in 2009 (from P0.8 billion to P2 billion).

Overcharging

One week approving after Meralco’s distribution rate hike in December, the regulatory body received the report of the Commission on Audit (COA) saying that Meralco illegally collected as much as P6.64 billion from its customers in 2004 (P4.7 billion) and 2007 (P1.93 billion). But instead of reconsidering its earlier decision allowing the utility to hike its distribution charge, the ERC sat on the COA report. It was only after more than one and a half months since receiving the audit body’s findings that the ERC started to hear the case.

Amid this fresh allegation of overcharging, the ERC still allowed Meralco to continuously jack up its rates to recover the supposed increases in the cost of power generation like the 5.8-centavo/kWh increase this month. Prior to this increase in generation charge, Meralco also raised it by 44 centavos in February, P1.83 in March and P1.20 in April. It eased by P1.26 in May that the utility attributed to lower price of power it buys from its suppliers. But it again jumped by 18 centavos in June.

Remember also that until today, Meralco has yet to fully implement the billions of pesos in refunds that it owes to consumers worth more than P34.12 billion, including the P30.2 billion in income taxes that Meralco illegally collected from 1994 to 2002.    

VAT on power

Meanwhile, the 12 percent value added tax (VAT) imposed on electricity continues to be an onerous burden for consumers. In the case of the power industry’s system loss, VAT is doubly onerous since it is a consumption tax charged on electricity that is not even consumed.

In 2009, the Bureau of Internal Revenue (BIR) collected P10.6 billion (preliminary data) in VAT from the power industry and electric cooperatives. Since electricity was included among VAT-able goods and services in November 2005, no thanks to Republic Act (RA) 9337, the government has already collected a total of more than P47.41 billion in VAT on power.

Latest national data on electricity sales is 2008, pegged at 49,206 gigawatt-hours (GWh). Meanwhile, VAT collection from the power sector during the same year was P16.05 billion. This means that on the average, VAT collection from the power sector in 2008 was about 32.6 centavos per kWh.

System loss in 2008 for the entire power industry was about 12.63 percent of total electricity sales. This means that on the average, hapless consumers shelled out more than P2 billion to pay for the VAT on electricity they never used.

(To be concluded)

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