BACK on March 26, the oddly liberal interpretation of the word “approval” by Meralco in announcing (for at least the fourth time, by my count) the imminent roll-out of its Prepaid Retail Electric Service (PRES) was discussed in this space, and it turns out an update is now in order.
On April 14, a petition was filed before the Energy Regulatory Commission (ERC) by the National Association of Electricity Consumers for Reforms, Inc. (Nasecore), seeking to intervene in Meralco’s application for ERC approval of its prepaid service, which was filed in early December of last year.
Nasecore’s petition cited a rule allowing intervention—in other words, contesting the application —in matters of significant public interest, even if the petitioner had missed a filing deadline, which Nasecore had.
Meralco’s initial PRES roll-out was to comprise 40,000 customers, with capital expenditure of about P312 million. Initial hearings on the application were only held in early March, with no decision having yet been made; those hearings were the ones Nasecore missed, forcing the consumer watchdog group to seek permission to join the proceedings late.
The reason Meralco presumed in statements to the media that its PRES had been approved is that its capex had already been approved, a reversal of the usual process, the one that has been imposed on the several provincial electric cooperatives wishing to use the more extensively tested alternative offered by Xen Energy Systems, Inc. (XESI).
What alarmed Nasecore and others (present company included) was that Meralco has also applied for a rate adjustment that would allow the company to recover its capex costs for PRES from its customers, an added cost that would fall almost entirely on the shoulders of 5.15 million residential customers. To make matters worse, Meralco’s 2016 capex application to the ERC seeks to expand the initial PRES roll-out by two-and-a-half times, adding a further 100,000 meters at a cost of P781.3 million. This cost would presumably also be passed on to Meralco’s customers.
In other words, Meralco intends to charge its 5 million regular postpaid customers a total of at least P1.09 billion, or about P218 per customer, to install a service none of them use, nor has actually been approved yet.
Being granted regulatory approval to go ahead and spend the money for PRES virtually guarantees approval of the program itself, something which Meralco has been trying to accomplish since at least 2012. While the idea of prepaid electricity is worthwhile in consumer terms (as long as one ignores the fact that the underlying rates, prepaid or otherwise, are among the highest in the world), and also makes a modest contribution to energy conservation, it is not necessarily worthwhile at any price. Meralco’s start-up costs for PRES, even adjusted for scale, were several times greater than those of the electric co-ops already using the system. The meter used by Meralco, for instance, costs about P12,000, while the meter used by the XESI-supplied system costs about P4,000. This is also a point made by critics of Meralco’s PRES program; it is bad enough to ask that consumers foot the bill for the system’s development and deployment, worse that the system is extravagantly priced.
But among the handful of electric co-ops which have embarked on developing prepaid electricity in their areas, the ERC has followed a consistent pattern: provisional approval of the system first, followed by approval of the capex plan. Unlike Meralco’s brazen attempt to make its investment completely risk-free, the co-ops are absorbing the costs of implementing PRES, expecting to make them up fairly quickly through lower operating costs and improved revenue collection. Which is likely why, in at least one case, the ERC has drastically lowered the allowed capex amount.
As fond of Meralco as my regular readers know me to be, I cannot exactly fault them for taking advantage of the favorable bias the ERC has toward the nation’s largest electric distributor. While many would argue, with some justification, that Meralco should be compelled to act in a way that is sensitive to public interest, sometimes the best way for Meralco to achieve its aims is to take advantage of the absence of clear rules and the ERC’s wide latitude to set policy through regulation.
The problem here is not with Meralco, but with the ERC and its framework of authority. As we saw with the controversy over unpaid royalties from the Malampaya gas facility —a dispute that is rumored, but not confirmed, to have had something to do with the temporary supply restriction from the gas platform earlier this week—corporate activity seems to be increasingly exposing fundamental flaws in the way businesses, particularly utilities, are developed and regulated, flaws that in most cases have gone unnoticed or ignored for years. Until those flaws are corrected, the consumer will bear much of the burden caused by inefficiency and lax controls, a sorry state of affairs, which in the Philippines’ sometimes perverse institutional environment actually discourages either the government or business interests from putting much effort into correcting the flaws.