The United Filipino Consumers and Commuters (UFCC) and Freedom from Debt Coalition (FDC) called for the immediate dismantling of Performance Based Regulation (PBR) and adoption of a modified Return on Rate Base (RORB) for setting electricity rates, to reduce power rates and mitigate excessive utility profits.
Romeo Junia presented the group’s position paper at a public consultation conducted by the Energy Regulatory Commission (ERC) on the petition of Matuwid na Singil sa Kuryente (MSK) to repeal PBR and restore RORB.
Citing Meralco as the base case for excessive rates under PBR, Junia said its distribution costs had more than doubled from RORB to PBR and its earnings increased more than 700 percent over the same period.
“Consumers pay and arm and a leg to allow utilities to make money, hand over fist”, he added.
The distribution, supply and metering (DSM) charge of Meralco under RORB was P0.79 per kilowatt hour (pkwh) increasing to P1.64 pkwh under PBR; its earnings, on the other hand, soared from P2.7 billion to P19 billion over the same period.
Junia said PBR was conceived as an alternative to RORB in 2002-2003 when the Supreme Court ordered the P32-billion Meralco refund. At that time, the SC excluded Meralco’s corporate income tax from chargeable or recoverable expenses and capped its return or earnings at 12 percent. The Court also laid down the rule that operating expense to be chargeable must be prudent, reasonable, necessary, recurring and redounding to the benefit of the consumers.
“The benefit rule or criteria is significant because it makes the clear connection or correlation between electricity costs and the services we are provided,” Junia said.
The SC reasoned that corporate income tax was disallowed because it benefitted the shareholders and investors, not the consumers. Whoever enjoys the benefits of the income should pay the tax on it, the Court said.
Through PBR, ERC wiped out the benefits of the SC ruling written by Justice Reynato Puno, whose landmark decision elevated the people’s right to electricity and to be reasonably charged for it to the level of fundamental economic and political rights the State is bound to protect.
Under the power reform law, utilities are entitled to “the recovery of just and reasonable costs and a reasonable return… to enable it to operate viably” but ERC must also ensure a reasonable price of electricity to the consumers, Junia emphasized as he cited RA 9136 or the EPIRA Law.
Recovery of costs under RORB was based on historical and actual investments or expenses while in PBR, the Maximum Average Price (MAP) is set by ERC once every four years.
MAP, Junia said, is based on forecasted energy sales and projected expenses and investments that up to now, after almost six years, have not been audited or verified.
In the third regulatory period that ended June 30, 2015, Meralco was allowed to charge a total of P226 billion, and the single biggest item was P79 billion for Return on Capital which pays for investors’ profits and dividends.
It takes more money to pay for Meralco’s profits and dividends than the cost of operating the distribution network, the group said as they noted that operating expense was P61 billion.
PBR, Junia pointed out, resulted in multi-billion peso charges that were unheard of in RORB. He cited items like regulatory liaison amounting to P2 billion, reset experts at P545 million, advertising at P1.4 billion, and under recovery of P24 billion.
In their presentation, the group questioned the 14.9 percent rate of return granted to Meralco and the use of asset base instead of equity in computing rate of return.
When ERC applies return on equity instead of capital or asset base, Meralco’s rates can go down by about P0.15 pkwh, Junia said.
Present at the public consultations were lawyers of Meralco, representatives of PEPOA and NGCP, MSK and other consumer watch groups. Other consultations may be held outside Mero Manila.