Performance-Based Regulation hurts Meralco customers

Two months ago, consumers of MERALCO could no longer contain their surging protest over the 2nd Energy Regulatory Commission (ERC) approval of a new round of increase for MERALCO’s distribution charges – i.e., distribution, supply and metering (DSM), under the ERC-initiated new rate setting methodology called Performance-Based Regulation (PBR) which replaced the tested Return on Rate Base Methodology (RORB). This was aggravated by the successive increases in their generation charge from February to May. Some even went to Facebook to express their utter dismay.

From an average rate of P0.7957/kWh, MERALCO’s average unbundled rate rose to P0.9657/kWh in June 2003. With PBR, MERALCO’s former average rate went up to P1.2227/kWh in May 2009 and to P1.4917/kWh in May 2010. The total increase of P0.696/kWh is more than 87% increase in just seven (7) years. Under the PBR alone, the increase in a year’s time is P0.5313/kWh or 55%. Multiply this P0.5313/kWh increase by MERALCO’s 2.2 billion kWh monthly sales, and you will realize that ERC in fact granted MERALCO an additional monthly profit of P1.16 Billion. Doesn’t this make ERC the patron of power utilities now?

To make matters worse, if you are a residential customer with monthly electricity consumption of 400kWh or more, you are made to pay P3.2006/kWh not P1.4917/kWh. That’s a staggering 400% increase from MERALCO’s bundled rate prior to June 2003.

So, why are the distribution charges of MERALCO going up under this new and complicated scheme called PBR? The reason is simple—the utility owners/operators are no longer required to put up the needed capital requirement for their capital and operational expenditures. Through these rate increases approved by the ERC, consumers are, in effect, the ones made to provide for all the capital requirements of the power utilities.

Under PBR, ERC tells consumers that, if they want reliable and stable supply of electricity delivered to them by the distribution and transmission companies, they must provide the additional capital for the new and bigger sub-stations/transformers, posts, electrical wires, and for a bigger O&M budget.
Worse, these capital contributions of the consumers are treated by the utility companies as their own capital investment instead of CONSUMERS EQUITY, despite consumer protest. And ERC prefers to be silent on the issue.

It is worthwhile to remember that, under the former RORB, the rates approved by the ERC were meant to allow the utility to recover the owners’ capital embarked in the business plus a reasonable return of not more than 12% consistent with numerous administrative and judicial pronouncements. However, the shift to PBR allows among others a return on capital higher than 15%. ERC explains that the shift from RORB to PBR will compel power companies to file with ERC their annual application for the translation of rates so they can be subjected to a regulatory audit. In reality, such annual translation of rates has resulted in nothing but an annual increase of rates.

Truth be told, the National Grid Corporation of the Philippines (NGCP and formerly TransCo) is almost done with its five (5) yearly increases that started in 2006. On the other hand, MERALCO will still have another increase next year. Other power companies have embraced PBR and followed suit, and yet we have not seen or heard of a single audit report by ERC on NGCP, MERALCO and other distribution utilities (DUs), which audit report ought to determine the reasonableness of any rate increase as ERC is legally mandated to do.

PBR has simply become a wily scheme of giving undue advantage to MERALCO, NGCP and other private DUs to earn unreasonable perks and profits. Under this PBR, Power Rate Regulation has completely been CORRUPTED!

National Association of Electricity Consumers for Reforms, Inc. (NASECORE)
Tambo, Parañaque
City Tel. No.:+632.8530731
Telefax: +632.8530732 nasecore2003@yahoo.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it www.nasecore.com.ph/ www.nasecore.org