• Creating fair and effective public utilities

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    FOR today’s installment of Rough Trade, I’ve dug into my archives for a column written almost exactly three years ago, because a couple events over the weekend reminded me that the more things change, the more they seem to stay the same.

    The first incident was the “expiration” of several hundred pesos worth of load on a prepaid Smart mobile number that I use.

    The second was a power outage, due to a breakdown of a local distribution line in the village where I live, which occurred at 8:00 am Sunday morning and was not restored by Meralco until approximately 1 a.m. Monday, roughly 17 hours later.

    I do not think I would be excessively optimistic to assume that nearly every consumer of public utility services in this country would agree that things like “expiry” of prepaid cell phone load or an unnecessarily-delayed repair of a localized electric supply problem (in this case, the replacement of a failed pole-mounted transformer) should not be the norm. That said, this country, despite aspirational reassurances from more agency heads than anyone can count throughout a couple of national administrations, has yet to embrace the idea of consumer-centric regulation.

    Today’s column—most of which is updated from one written a couple years ago in the wake of a rate overcharging scandal involving the Metro area’s two water suppliers, Manila Water and Maynilad—offers a suggestion about how to correct that disadvantage for the benefit of businesses and households. I can only hope, optimistically, that the new Administration that is seemingly a little more open to ideas that haven’t been tried here before will consider it.

    * * *

    Gross unfairness on the part of public service providers tends to fade quickly from the headlines before anything is done to correct it. It is not for lack of effort to keep issues affecting necessities of life such as water, electricity, and basic communications services in front of the public – there is no shortage of consumer advocates in this country. Nor, despite public impressions, is every media outlet tending an entire herd of sacred cows and unwilling to take on public interest problems caused by powerful businesses. This is unfortunate. It indicates a disturbing willingness of the public to surrender responsibility for life’s most basic needs to others who are primarily motivated by profit.

    Various pundits and the online chattering classes can complain all they like about the manipulation of public opinion by vested interest with links to the media or the government. But the average consumer should not require a cue from what he sees on TV or reads in the paper to draw the conclusion that he is being taken advantage of. The water and electric bills that almost every one of us receives every month make all the evidence required.

    Effective solutions require some degree of public engagement. Consumer passivity certainly makes it difficult to propose solutions to stop the systematic plunder by the country’s utility companies. At the same time, the government has a responsibility to ensure that basic services are available to all. It must ensure those services—which, being non-discretionary costs for individuals and businesses, actually amount to a form of tax—do not impose an undue burden on consumers. Additionally, the government also has another responsibility. That is, to ensure that the providers of utility services are able to earn a reasonable return for doing so, an amount that makes it worth the trouble and encourages continuous investment in expanded and more efficient services. And since this is a democracy—or so we’ve been told—the responsibilities of the government are ultimately the responsibility of the people.

    One solution to the problem of poor regulation of public utilities in the country is to radically revise the current framework, which consists of the Energy Regulatory Commission (ERC) for electricity, the Metropolitan Water and Sewerage System (MWSS) Regulatory Board for water services, and the National Telecommunications Commission (NTC) for telecom services. These three agencies, which have evidently been severely compromised by various conflicts of interest, should be disbanded and replaced by a Public Utility Commission (PUC) similar to (but not an off-the-shelf copy of) PUCs found in the United States. The PUC would be responsible for oversight of all public utilities, which in this country would include water supply and sanitation, the generation, supply, and distribution of electricity, telecommunications services. It could also oversee services such as solid waste management and public gas distribution systems, if those were ever built here (an idea that has some merit).

    To make the PUC independent from the industries it is responsible it must comprise equal number of representatives of all stakeholders, namely the concerned government agencies, industry representatives, and consumer advocates. Appointments to the PUC should be subject to the approval of the Commission on Appointments. Each of the three main groups (government, industry, and consumers) could determine the most suitable way of nominating their representatives; consumer representatives, for example, could be elected, chosen by Congress, or drawn from relevant party-list groups or non-government organizations. The key condition, however, would be that obvious conflicts of interest would be grounds for disqualification—for example, if a party-list or Congressional representative to the PUC is a former employee, legal counsel, or shareholder of utility businesses, he or she would be prohibited from serving as a consumer representative.

    The natural reaction of many people to this sort of suggestion, of course, is “that will never work.” The questionable ethical orientation and inability of Philippine institutions to develop efficient processes is certainly discouraging. However, that does not mean better performance should not be an active objective. There is, after all, still a big difference between “difficult” and “impossible.” In the meantime, some recommendations that could be implemented in a more simple way through legislation or regulatory rule changes should be considered. Among them:

    Making public utilities exempt from income taxes or exempt utility services from the value added tax regime. The reason for this is that utilities are essential basic commodities—water, in particular, is a completely non-discretionary expense for consumers, being a matter of survival. If the government is unwilling to disembark from the gravy train VAT represents, then income tax on utilities should be removed; other conditions that would be imposed on the rates they can charge to consumers would lower their revenues and thus reduce the potential loss of government tax revenue anyway, and the tax-free incentive might very well become necessary to encourage continued investment in utility infrastructure.

    Removing the utilities’ privilege to charge “foreign currency adjustments” to consumers. In the course of the revelations about Manila Water’s and Maynilad’s financial pillage that provoked the original version of this column back in 2013, it emerged that the water concessionaires had been double-charging customers for foreign currency fluctuations, first through a direct line item on customer bills, and additionally by using exchange rates as a justification for overall rate increases.

    In the case of water services, no foreign currency adjustment charges to customers should be permitted at all—the last time I or anyone I know checked, the Philippines imports exactly zero percent of its fresh water, meaning that customers are paying for exchange-rate fluctuations for a commodity that is never purchased using any other currency.

    Exchange rates do affect the water distributors’ debt servicing, as is the case for any of the large utility providers, but that’s their problem; debt service is not an operating expense related to the distribution of water, electricity, or electronic communications services to customers, no matter how strenuous the accounting gymnastics that might be applied to argue differently. In the case of electricity distribution, foreign exchange fluctuations do impact on the delivery of the commodity in the sense that much of the fuel used to generate electricity is imported. But here again, the consumers are not purchasing an imported commodity – they are purchasing a domestically made commodity possibly made with imported ingredients, in a manner of speaking.

    Therefore, the exchange-rate fluctuation is not the consumers’ concern. It might be reflected in the cost of electricity purchased from generators, which that is justifiable. However, if that’s the case, it should not be reflected in any other way on a customer’s bill other than in a fluctuating generation charge.

    There is also the need for more clearly defining—even to the point of specifying them through legislation—the permissible costs that can be passed on to consumers and the ceilings on automatic discount rates (ADR), or guaranteed rates of return. The water concessionaires and the MWSS pleaded blamelessness when called out for the ridiculous justifications they gave for rate increases in 2013 because the expenses passed on to water customers are contractually-guaranteed, which is a cynical explanation—the contract terms were devised by the MWSS and its concessionaires themselves, with virtually no guidance from existing laws.

    Companies absolutely have the right to recover their costs of doing business and earn a reasonable profit. Customers also have absolutely the right not to be robbed in the course of buying a service they have no choice but to purchase. Spelling out limits that are fair to both is something that is critically needed, and soon.

    ben.kritz@manilatimes.net

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    2 Comments

    1. A well written article which I hope will be given due attention by the administration. The suggestions by the writer to improve the situation for the consumers are indeed worthy of consideration,

      Whilst businesses have a right to fair profits, the sense of corporate responsibility for the public, especially those in the lower income group should never be disregarded.

    2. Amnata Pundit on

      In a communist system, the monopolies are publicly owned, while in privatization these monopolies are privately owned. If its not the party thats screwing the people, its the likes of the Ayalas, Aboitiz, Pangilinan etc. At least in a communist system they don’t charge the highest rates in the world, and the service is superior. In a communist state, oligarchs are hanged, while here in privatization heaven communist armed bands are allowed to roam the country side because they have human rights, which obviously is superior to society’s rights to affordable, reliable public utilities. Doesn’t the whole thing drive you crazy?