Meralco rate hikes, prepaid electricity and neoliberal “users pay”

2014_02_10_16_21_46
Photo from GMA News Online

First published as IBON Features

The February rate hike of Php0.92 per kilowatt-hour (kWh) that the Manila Electric Co. (Meralco) announced is actually just the initial strike. In March, the unfortunate public should expect an even stronger blow from the utility giant as another rate hike of as much as Php1.44 per kWh looms.

Meralco has a simple solution for consumers who find it hard to cope with their ever-increasing monthly electricity bills. Go prepaid and supposedly save up to 20% in consumption. About 40,000 customers are already using Meralco’s prepaid system called Kuryente Load (KLoad). By yearend, Meralco expects to add 100,000 more.

But the basic question is – how can customers save amid the staggering rate increases? The answer is – they can’t. But with prepaid electricity, as the Energy Department once said, consumers will “not unnecessarily spend for what they cannot afford”. Put another way – If you can’t afford electricity, then don’t use it.

Indeed, looking past Meralco’s dodgy claim, KLoad is nothing more than the worst form of the neoliberal tenet “users pay”. It merely passes on the burden of high power rates further to the consumers. It also deepens the exclusion of the poor from access to electricity as a basic service and their right to decent living.

How it works

KLoad was pilot tested in 2013 and commercially rolled out in 2015. To use it, a customer must have Meralco’s “intelligent” meter installed first and register a mobile number for the account. Through SMS (‘text’) using the registered mobile number, the user can load KLoad cards worth as low as Php100 and as high as Php1,000.

The user will receive a text message confirming that the amount has been loaded successfully to his or her account. KLoad also lets users receive text notifications on the account’s remaining balance, low load reminder, and rate adjustments. Like prepaid cards for mobile, KLoad cards can be bought even at retail stores.

For Filipinos who have long been accustomed to prepaid mobile service, KLoad is pretty easy to grasp. In fact, it is this familiarity with and preference for prepaid mobile that Meralco banks on for its KLoad. Saddled with tight budget, most Filipinos use prepaid mobile to control spending.

Lack of a steady income, in fact, forces many to buy in tingi not just mobile credits but most of their daily needs – from shampoo to 3-in-1 coffee. The same concept supposedly applies to prepaid electricity.

The problem is it’s not quite the case.

Rising power rates

Under the KLoad system, retail rates will be the same as the effective postpaid rate at the particular month the load was consumed. Unconsumed credits in a given month will be charged with prevailing rates in the following month.

Unlike in prepaid mobile and other consumer goods where charges are more or less predictable, electricity rates vary monthly (often upwards). The reason is deregulation under the Electric Power Industry Reform Act of 2001 (Epira), which allows automatic adjustments in the generation charge and other periodic adjustments.

The fluctuating rates make it difficult for a household to effectively monitor and regulate their consumption, and accordingly plan their use of electricity based on prepaid credits.

But far more crucially, the ever-increasing power rates will offset efforts by a household to cut their electricity bill even when they shift to KLoad. No matter how much kilowatt-hour that a household tries to reduce in their consumption, the end result is still an exorbitant electricity bill.

Meralco’s own commissioned survey in 2016 shows that its rates are the third highest in Asia. An average Meralco customer is also paying 4.5% of their disposable income for electricity, higher than the global average of 3.9 percent.

Aside from deregulating rates, Epira also privatized the country’s power plants. In Luzon where Meralco operates, just three groups (i.e., San Miguel, Lopez, and Aboitiz) control 70% of power generation. Such tremendous control makes alleged collusion and price rigging easier like during power plant shutdowns that lead to rate spikes.

The whopping rate hike of up to Php1.44 per kWh that Meralco advised its customers to expect in March, for instance, is due to Malampaya maintenance shutdown from 28 January to 16 February. Other power plants will also be on maintenance shutdown on 13-17 February, placing more pressure on power supply and rates.

Anti-consumer, anti-poor

Instead of addressing these policy issues, the onus of coping with rising electricity costs is further passed on to hapless consumers under the prepaid system. With KLoad, no prepaid credits, no electricity. Disconnection is automatic, done remotely by Meralco. It’s that straightforward and heartless.

Through remote and automatic disconnection when credits run out, KLoad violates the rights of Meralco customers as outlined in the Magna Carta for Residential Electricity Consumers. These rights include the right to due process and notice prior to disconnection and suspension of disconnection.

Prepaid customers are supposed to be notified via text three days before the remaining load is estimated to run out. The warning shall be based on the average consumption of the household. But what if the household used more electricity than their average consumption and depleted the load in two days instead of three?

KLoad primarily targets poor communities where collection of monthly bill is problematic and illegal connection is prevalent. A prepaid system for these households ensures that bills are paid to and collected by Meralco. As explained by the Energy Regulatory Commission (ERC), prepaid electricity reduces pilferage and improves collection efficiency and cash flow for distribution utilities.

Meralco has an existing partnership with the National Housing Authority (NHA) to provide KLoad service to urban poor families resettled from waterways and danger areas in Metro Manila. Recently, in a Tondo slum, Meralco installed KLoad for former Smokey Mountain residents.

Notably, prepaid system is among the supposed best approaches to slum electrification that the US Agency for International Development (USAID) endorsed in its 2004 study that also included Meralco as one of the cases.

Affront to decent living

KLoad is part of the long-term plan of Meralco to install the so-called Advanced Metering Infrastructure (AMI) – an integrated system of intelligent meters – in its franchise area. The AMI will allow Meralco to, among others, remotely switch on and off the supply of electricity not only to prepaid customers but also those with regular connection.

Access to electricity is needed to achieve the minimum standard of decent living. Thus, it should not be contingent upon the ability of people to pay and must be a basic right guaranteed by the state. KLoad and Meralco’s remote and automatic disconnection system is a blatant affront to this right.

KLoad will set a worrisome precedent if not questioned and opposed. It is prepaid electricity today. Prepaid water soon? ###

Also read “Prepaid electricity, anyone?” and other articles on the Philippine power industry

Power lords

San Miguel Corporation cornered 41.3 percent of privatized generating plants and IPP contracts in terms of capacity (Photo from allvoices.com)

(Continued from Part 2)

The restructuring of the power industry under EPIRA facilitated the creation of new private monopolies that lord over not only the distribution but also the generation of electricity. The dominant position of these monopolies, controlled by billionaires in Forbes’ list of richest Filipinos and their foreign partners, is bound to further intensify under Aquino’s public-private partnership (PPP) program.

Privatized power plants and IPP contracts

Out of the 7,665.88 megawatts (MW) in capacity of privatized generating plants and IPP contracts, Danding Cojuangco’s San Miguel Corporation (SMC) cornered 41.3 percent while the Aboitiz group bagged 28.5 percent. Other major buyers include the Consunjis (7.8 percent) and the Lopezes (7.4 percent). American firm AES Corporation accounted for a significant 7.8 percent. South Korean companies SPC Power and K-Water have a combined 5.8 percent. (It includes the Angat hydropower plant that was put on-hold by the Supreme Court.) Five companies accounted for the remaining 1.4 percent.

The costs of these transactions total $6.69 billion. SMC accounted for 35.9 percent of the said amount; Aboitiz, 30.2 percent; AES Corp., 13.9 percent; K-Water, 6.6 percent; Lopez, 5.7 percent; Consunji, 5.4 percent; and others, 2.3 percent. (See Table 1)

In terms of overall generating capacity, the restructured Philippine power sector is now dominated by just three companies – San Miguel Power Corporation (20 percent), Lopez-owned First Gen Corporation (17 percent), and the Aboitiz group (15 percent).

Government through NAPOCOR and PSALM has 30 percent. (See Chart 4) SMC’s rise as a major player in the power industry is truly phenomenal considering that it has only started venturing in the industry in 2008.

These are the same groups that also control the biggest distribution utilities (DUs) in the country. SMC and the Lopez group, for example, control MERALCO with 27 percent and 6.6 percent, respectively. (Manny Pangilinan’s Metro Pacific controls 45 percent.) MERALCO is the largest DU in the Philippines with a franchise area covering 24.7 million (about 25% of the national population) in 31 cities and 80 municipalities. It serves Metro Manila, Bulacan, Rizal, and Cavite as well as parts of Laguna, Quezon, Batangas, and Pampanga.

The Aboitiz group, on the other hand, controls the second and third largest DUs – the Visayan Electric Company (VECO) and Davao Light and Power Company. VECO serves Metro Cebu covering four cities and four municipalities. Meanwhile, Davao Light serves Davao City and Panabo City as well as three municipalities in Davao del Norte. Aside from these DUs, the Aboitiz group also controls Cotabato Light and Power Company, San Fernando Electric Light and Power Company, and the DUs serving the Subic Freeport zone, Mactan export processing zone, and the West Cebu industrial park.

SM tycoon Henry Sy has taken advantage of the EPIRA as well. His One Taipan Holdings (30 percent), State Grid of China (40 percent), and Calaca High Power Corporation (30 percent) control the National Grid Corporation of the Philippines (NGCP). NGCP holds a 25-year concession agreement (CA) with government to operate the country’s transmission system beginning in January 2009.

No transparency or competition

Cross-ownership in distribution and generation, which EPIRA allows, makes claims by advocates of neoliberal power restructuring about transparency and competition in pricing an outright lie. EPIRA’s unbundling of rates, for example, is practically meaningless even if a consumer can see in his or her monthly bill how much he is paying for generation and distribution. Market abuse is not prevented even if rates are unbundled due to cross-ownership. This has been clearly illustrated in the operation of the EPIRA-created Wholesale Electricity Spot Market (WESM).

The WESM, which has been operating in Luzon since 2006, is meant to among others “provide and maintain a fair and level playing field for suppliers and buyers of electricity”. But cross-ownership negates whatever benefits that the WESM is supposed to offer. The intention of the WESM is to make rates more competitive by offering prices other than those set in the bilateral contracts. EPIRA even capped at 50 percent the power requirements that DUs can source from their own generators and the rest they must get from other IPPs and the WESM.

However, the WESM itself is dominated by the same generators that are related with the DUs. IPPs connected with MERALCO, for instance, account for 42.6 percent (SMC with 24.8 percent and Lopez, including Quezon Power, 17.8 percent) of the 11,652-MW capacity registered at the WESM. The Aboitiz group, meanwhile, comprises 13.1 percent. The huge shares of these groups to the WESM-registered capacity make the spot market vulnerable to manipulation and speculation. Case in point was early last year when the price of electricity at the WESM reached an unbelievable P68 per kWh at one point during the height of the El Niño.

The high WESM prices have been blamed by MERALCO for the monthly increases in its generation charge last year. The latest adjustment in MERALCO’s generation charge worth 51 centavos per kWh, announced last Tuesday, is again being blamed at the high increases in the WESM, where rates jumped by P1.89 per kWh. MERALCO IPPs, on the other hand, increased their rates by a smaller 16.2 centavos per kWh.

Energy insecurity

Finally, the country’s energy security has remained precarious under EPIRA. The rotating brownouts experienced in different parts of the country last year is a tell-tale sign that the power crisis has not been resolved by privatization. In Mindanao, for example, the power shortage reached as high as 700 MW in March 2010 that led to rotating brownouts of as long as 8 hours daily. Government quickly blamed the El Nño because Mindanao gets more than half of its power supply from hydroelectric plants.

But apparently, the deeper issue is not drought but government neglect. During the Aquino administration, for instance, Mindanao’s power mix was 75 percent hydro while peak demand was 800 MW, according to a former NAPOCOR president. In 2010, DOE data show that hydro accounted for a relatively smaller 51.8 percent of installed capacity in Mindanao while peak demand was 1,288 MW. Thus, the El Niño could not be solely blamed for the shortage since no significant additional capacity has been put in the region. This should have been the job of government but because of EPIRA, it focused on selling the assets of NAPOCOR instead of installing additional capacity.

Even Luzon was not spared from rotating brownouts during last year’s El Niño. Aggravating the low levels in Luzon’s major dams were the uncoordinated shutdowns implemented by privately controlled power plants. They include SMC generation plants Sual and Limay as well as the Lopez plants that use natural gas from Malampaya. The power supply shortfall reached 641 MW, which could have been easily offset by Luzon’s excess capacity and thus avoid the rotating brownouts. But because EPIRA has dissolved government’s role in ensuring power supply, there is no mechanism in place to fill the gap resulting from plant shutdowns.

Ten years is enough

Its proponents argue that EPIRA must be given a chance to work because once fully implemented, the country will surely reap its promised benefits. They cite the impending implementation of the so-called open access and retail competition. Under this system, power consumers will have the opportunity to choose their suppliers. But then again, the industry has already been monopolized by a few players making the supposed option to choose an illusion.

For its part, the Aquino administration and its allies in Congress have worked for the amendment of EPIRA to extend the so-called lifeline subsidy. But it still does not address the exorbitant and rising electricity rates that Filipino consumers are forced to shoulder. Besides, the subsidy is being paid for by other consumers and does not come from the pocket of MERALCO or government.

Ten years of EPIRA is enough. Its defects could not be corrected by simple cosmetic amendments. It is fundamentally wrong to allow the narrow profit agenda of private companies and banks to take over a sector as strategic as the power industry.

EPIRA has resulted in the doubling of power rates and intensification of private monopolies. At the same time, it failed to address the financial problems of NAPOCOR and the country’s energy security. Only NAPOCOR’s creditors and private local and foreign companies have benefitted from power restructuring. For these reasons, there is a clear and urgent need for our policy makers to seriously rethink the law and work for its repeal. (END)

Read Part 1 – 10 years of EPIRA: what went wrong? and Part 2 – The curious case of NAPOCOR debts

Also read The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform

More power rate hikes coming soon

meralco
Meralco has raised its generation charge for the fourth straight month and the seventh time since the start of the year (Photo from Reuters/www.daylife.com)

Sorry folks. Meralco (Manila Electric Co) “miscalculated” and had to increase our monthly bills again by 44 centavos per kilowatt-hour (kWh). (Read here) This is the fourth straight month that the giant utility has raised its generation charge and the seventh time since January. This also means that we will be paying Meralco P2.18 per kWh more this month than what we used to pay at the start of the year. If you are consuming 200 kWh a month, it means you will be paying about P236 more in your August billing than what you paid Meralco last January. The bad news is the power profiteers are just getting started.

Good news?

The good news is, according to Malacañang spokesperson Edwin Lacierda, high electricity rates are just temporary and may go down next month. No, the Aquino administration will not compel the Energy Regulatory Commission (ERC) to scrap the Automatic Adjustment of Generation Rates (AGRA) that has legitimized the monthly increases in Meralco’s generation charge. Lacierda, quoting Energy Secretary Jose Rene Almendras, said that they just expect the San Jose power plant to be completely rehabilitated by September. “Hopefully next month we will have lower prices of electricity,” Lacierda said. (Read here)

I do not know which “San Jose power plant” Lacierda is referring to. But I suppose it is the San Jose substation in Bulacan, which is not a power generation plant but a 2,400 Megavolt-Ampere (MVA) transmission facility. In May, the ERC approved the rehabilitation of the San Jose substation, which serves 40 percent of Metro Manila’s power needs, and ordered the replacement of its transformers. The ERC assured then that the rehabilitation “will have no immediate impact on the price of electricity charged to consumers”. (Read here)

Anyway, Lacierda and Almendras are blatantly misleading the people. Electricity rates will remain unreasonably high and will continue to increase in the coming months and years unless Congress will repeal Republic Act (RA) 9136 or the Electric Power Industry Reform Act (Epira) of 2001. (Read here) No less than President Noynoy Aquino has assured the people of high power rates in his State of the Nation Address (Sona), in which he lambasted the Arroyo administration for allowing the National Power Corp. (Napocor) to sell electricity at a loss. But Aquino’s argument on why the state-owned power firm went broke ignored the role of privatization as I’ve pointed out in a previous post. (Read here)

Nationwide increases

The problem of exorbitant and unabated power rate hikes is not confined to Metro Manila or Meralco’s franchise area. Using the Performance Based Regulation (PBR) scheme, a rate-setting methodology for distribution utilities that was made possible under Epira (Read here), the Visayan Electric Co (Veco), for example, has recently raised its distribution charge for residential customers by 3.41 percent. (Read here) Meralco, using the PBR methodology, has also increased its distribution charge by a total of 35 percent last year, on top of its increases in generation charge. (Read here)

But the rate increases of Meralco, Veco and other distribution utilities are just a portion of the bigger increases that households nationwide will have to face soon. The Power Sector Assets and Liabilities Management (Psalm) Corp., which Epira created to undertake the privatization of Napocor’s generation assets, has asked the ERC for rate increases (all in all, about P1.86 per kWh) to recoup supposed losses arising from stranded costs (read: guaranteed profits of independent power producers) as well as fat bonuses of Psalm officials. (Read here) The Philippine Electricity Market Corp. (PEMC), which is the governance arm of the Wholesale Electricity Spot Market (WESM), another Epira creation, has filed a petition for a 74-centavo per kWh hike in the spot market’s transaction fees. (Read here) The National Grid Corp. of the Philippines (NGCP), which took over the privatized transmission facilities, again as mandated by Epira, is seeking its own rate increase of 5 centavos per kWh in Mindanao. (Read here) Finally, Napocor has pending applications for rate increases of P3.38 per kWh in Luzon and P4.71 in the Visayas to recover adjustments in generation costs and currency fluctuations. (Read here)

Imagine how much our monthly electricity bill will cost if all these applications – on top of the automatic monthly increases such as Meralco’s generation charge – were approved by the ERC.

Overpriced oil inflates costs of El Niño, power crisis

Petron and other oil firms have been jacking up pump prices in recent weeks (Photo from http://www.petronmarketing.com)

Those who are ready to absolve government for the harmful effects of El Niño should think again. While El Niño is a natural phenomenon, its impact on the people and the economy could have been eased by right government policies. Sadly, the policies in place have exposed the country not only to the strongest blows from what experts describe as a “moderate” El Niño. These flawed policies have also exposed us to El Niño’s magnified impact.

Deregulated, privatized energy

Take the case of power and oil – strategic sectors that have been privatized and deregulated by government. As the water level in dams around the country fell, hydropower generation also declined. Consequently, more power is generated from plants running on expensive and overpriced oil. To make the situation worse, oil prices have been on an uptrend again in the past few weeks. Electricity bills, which are also artificially bloated, climbed as a result. Prices of other commodities and services are sure to follow.

Such predicament could have been capably addressed by a government that has the needed policy tools. But it threw away these tools when it allowed private corporations to take control of the entire energy sector. It tried to reclaim some of these tools through emergency powers but was met with understandable public skepticism. In the end, the reality that Congress could not be convened at this point in the election season forced government to give up the plan.

As an alternative, government now intends to lease modular generating sets that could produce an additional 160 megawatts (MW) of electricity for Mindanao. By itself, this plan is already costly with an initial tab of P5.5 billion aside from increasing power rates in Mindanao by P14 per kilowatt-hour (kWh). But it is made even costlier by overpriced oil that will be used in great amounts to feed the generating sets.

Amid the El Niño, energy companies, with their greed and abuses un-moderated, are having a heyday.

P8.12 per liter overpricing

In the coming months, households not only in Mindanao will have to pay for higher electricity bills. The reason is not only the limited supply of cheaper hydropower due to El Niño. As more power is generated by oil-fed power plants, consumers also become more exposed to the impact of frequent oil price hikes and overpriced petroleum.

Under Republic Act (RA) 8479 or the Oil Deregulation Law of 1998, oil companies are allowed to increase pump prices at whim. They are not even required to inform the public about their price changes, much less explain their price hikes. This policy has been abused to the hilt by the oil firms. The National Economic Development Authority (Neda) itself has once confirmed that oil firms are indeed overpricing their products.

As of January 2010, oil products in the country are still overpriced by an average of P8.12 per liter. This figure is based on the monthly difference between the ideal and actual changes in pump prices from January 2008 to January 2010. The ideal pump price adjustment is computed using the difference in the monthly averages of Dubai crude and foreign exchange (forex) rate during the said period. The actual price movement, meanwhile, is based on the Department of Energy’s (DOE) monitoring.

There is no consolidated data yet on actual pump price movement for February and March. But note that in February, there should have been an 83-centavo per liter rollback based on Dubai crude and forex monthly movements. The actual pump price of diesel, however, did not move during the said month while kerosene prices even jumped by 25 centavos a liter. In other words, the overpricing could be much higher (aside from the fact that even before imported oil reach our ports, they are already overpriced due to global monopoly control by the oil giants).

Daily overcharges of P7.44 M for Minda extra power

Meanwhile, government’s plan to lease modular generation sets to produce

Power generated by the Agus and other hydroelectric power plants in Mindanao has drastically fallen due to El Nino (photo from http://static.panoramio.com/)

an additional 160 MW of electricity in Mindanao will require millions of liters of petroleum. For purposes of comparison, let us look at the 1 MW Generac Diesel Power Module manufactured by Mitsubishi. This generator, running at 100 percent capacity, consumes 238.56 liters per hour of diesel; at 75 percent, 178.92 liters; and at 50 percent, 119.28 liters.

Using this as yardstick, and factoring in the P8.12 per liter in overpricing, we can estimate how much the people will needlessly spend for additional electricity in Mindanao. We shall use the 100 percent capacity level since the generating plants that will be leased need to run at full capacity to augment the power shortage in the region.

Per hour, the overpricing would be equivalent to P1,937.11. If a 1-MW generator runs for the entire day, the extra cost would be P46,490.57. If the entire 160 MW is generated in a day, the figure would be P7.44 million. For one month (30 days), the overpricing would be P223.15 million. If the 160-MW generators were commissioned for three months (April to June), taxpayers will unjustly shell out around P669.45 million on top of the real price of diesel and the cost of leasing the generating plants.

Unabated oil price hikes and overpricing also worsen the people’s burden due to El Niño in other ways. For instance, farmers who rely on irrigation pumps and fishers who use motorized bancas will have to pay more for gasoline. Note that due to El Niño, more farmers turn to irrigation pumps. Fishers also consume more gasoline as they spend more time fishing (warm temperature drives fish to deeper waters, fishers claim).

Overpriced power, too

Meanwhile, outstanding issues in the power sector continue to unjustly burden the people with or without an El Niño. Due to the ongoing implementation of RA 9136 or the Electric Power Industry Reform Act (Epira) of 2001, power rates remain exorbitant and continue to shoot up. Automatic adjustment in generation charges, for instance, allowed Meralco to again hike its rates for March by P1.38 per kWh. Just last year, Meralco jacked up its distribution rates by 41 centavos per kWh.

The Epira-created Wholesale Electricity Spot Market (WESM) also gave more opportunities for the new private power monopolies to manipulate electricity rates. In February this year, for example, power rates in the WESM spiked to as much as P68 per kWh, which Arroyo’s own economic adviser Albay Gov. Joey Salceda described as “unspeakable”. Apparently, power companies trading in the spot market withheld supply, a market abuse easily done by firms in control of both distribution and generation, jacking up prices in the process. Power sold in the Luzon grid is dispatched through the WESM, a mechanism that will also be set up in the Visayas soon.

These increases become more deplorable as power companies, like the oil firms, also overcharge the consumers. In its December 2009 report, for instance, the Commission on Audit (COA) said that Meralco’s illegal charges could reach more than P7 billion. And Meralco has not even com-

Activists call for the nationalization of the oil industry (photo from http://www.bayan.ph)

pletely refunded the P34.12 billion in overcharges that it illegally imposed on its almost 5 million customers in the past.

Nationalized energy

The energy sector is a lucrative industry but the billions of profits it makes come at the expense of the people and national development. Such greed and abuse become more deplorable during times of natural calamities such as the current El Niño when the people’s poverty and hunger intensify and the domestic economy is further undermined.

What we need is an oil and power industry that is not privatized and deregulated, and that is not controlled by the Cojuangcos, Aboitizes, Lopezes, Pangilinans and their American, European, and Japanese partners. What we need is an energy sector that is nationalized, state-owned, and effectively controlled by the Filipino people. Only then can we stop overpricing in petroleum and electricity, and better plan the energy needs of our people and economy.

Meralco’s insulting attempt at pa-pogi

Meralco bill (Image from ofwnow.com)
On Tuesday (March 9), the Manila Electric Co. (Meralco) asked the Energy Regulatory Commission (ERC) to allow it to “reduce” and spread over several months the whopping P1.83 per kilowatt-hour (kWh) hike in this month’s generation charge.

This is clearly a case of an insulting attempt at pa-pogi. Meralco wants to make it appear that consumers should have utang na loob for the firm’s voluntary offer to mitigate the impact of a drastic rate hike when in reality, the rate increase is unreasonable and Meralco has billions of unpaid debts to its close to 5 million customers.

Lower rate hike

In its petition, Meralco said that instead of a one-time hike of P1.8298 per kWh in generation charge for March, the ERC approve a rate hike of just P1.3852. The remaining balance of 44.46 centavos shall be collected from April to September to ease the impact of the increase on its customers.

Under the Electric Power Industry Reform Act (Epira) of 2001, distribution utilities like Meralco can implement automatic generation rate adjustment. This means that they can automatically pass on to consumers increases in the cost of power generation.

Overcharging probe

Meralco’s move comes amid an ongoing probe on fresh allegations that the power firm overcharged its customers. In a December 2009 report, but released to the public only last month by the ERC, the Commission on Audit (COA) accused Meralco of overcharging its customers by as much as P7.29 billion.

According to the COA report, Meralco illegally passed on to consumers operating expenses such as P2.36 billion worth of employees’ pensions and benefits. Consumers were also made to shoulder the costs of property and equipment that COA said are questionable including the construction of a P526.2-million creek and a P156-million parking lot.

The ERC is expected to conduct public hearings this month to determine if the power firm needs to refund or implement a rate reduction to offset its over collections. Or it can also uphold Meralco’s claim of innocence.

Propensity for abuse

But this is not the first time that Meralco has been accused of overcharging. In 2003,  the Supreme Court (SC) affirmed COA’s findings that Meralco illegally collected P30.2 billion from its customers from 1994 to 2002. COA discovered that Meralco included income taxes in its RORB (return on rate base) calculations resulting in bloated electricity bills for consumers. Until today, the power distributor has yet to fully comply with the refund order of the SC.

Far from the image of a considerate and responsible company it desperately hopes to portray, Meralco has shown its unmistakable propensity for abuse. Its pattern of overcollections in the past couple of years clearly attests to this. Aside from the P30.2 billion, Meralco was also ordered by the ERC to return P2.88 billion in meter deposits as well as P3.92 billion in over-recovery of currency adjustments.

Upholding public interest

The power distributor could not claim that its generation charge is simply a pass on cost. Remember that Meralco sources its electricity from its own independent power producers (IPPs) and sister firms. Even in the Wholesale Electricity Spot Market (WESM), which Meralco is citing for the sudden and drastic hike in this month’s generation charges, Meralco’s sister companies and IPPs allow Meralco to account for as much as 40 percent of generated capacity.

Thus, consumers have nothing to thank Meralco for. We do not owe Meralco a single centavo, and it is Meralco that still has to return billions of pesos it illegally collected from us.

In light of the latest COA report accusing Meralco of again overcharging the consumers, the ERC should disallow any petition for a rate hike by the power distributor. Allowing it to jack up its rates would mean continuing injustice to consumers.

An immediate rate reduction is also justifiable considering that the latest COA report questioned the cost assumptions that the ERC used in approving Meralco’s huge 41-centavo hike in its distribution rates last year, which  allowed Meralco to post a 114 percent increase in its 2009 profits.