The questioned costing method of Manila Electric Co. (Meralco) where it has included in the computation of electricity bills in its franchise area the expenses it had incurred that had nothing to do with those related to its business as a distribution utility remained unresolved at the Supreme Court.
Cited as “anti-consumer” in a Supreme Court decision, the said asset valuation had gone through a stringent review from the Commission on Audit but the findings, although favoring a costing method that will result in multi-billion refunds to Meralco consumers, were not given a legal leg to stand on as it is within the purview solely of the Energy Regulation Commission.
At issue is the “optimized depreciated replacement cost” a way by which asset valuation takes into account other expenses that include even those not related to its business as a distribution utility. For consumer watchdog NASECORE, Meralco has to distribute refunds related to its costly valuation method that includes non-business costs.
Well, what the asset valuation matrix provided was an optimal return for Meralco that goes higher year after year. Last year, the company reported earnings of P28.4 billion, higher by 21 percent from its year-ago income, due to higher revenues. Contributing to its hefty gains was its gas-fired power plant from Singapore.
Last year, Meralco had consolidated revenues of P426.5 billion, which is 34 percent up from its P318.5 billion revenues in 2021 due to what it said was higher pass-through charges. These charges, of course, include the questioned Meralco costing method that is yet to be fully decided upon by the Supreme Court.
Also included in the pass-through charges is the systems loss that Meralco incurs, due to illegal connections and others although there is a ceiling that ERC allows for the distribution utility to charge related to systems loss. For this reason, the company need not have an effective deterrent against electricity theft since it can just pass on the charges to its consumers.
The pass-through charges also include the depreciation of the peso vis-à-vis the dollar, the 16 percent increase in the average retail rate for electricity to P9.52 per kilowatt hour from the previous P8.24 per kwh. After all, these pass-through charges are meant to shield the distribution utility from the risks associated with operating its business.
Should the matter be resolved in favor of the consumers, Meralco will be asked to again give refunds to its consumers in much the same way that it was ordered to give refunds for the Distribution Rate True UP (DRTU) that as of end-2022 amounted to an average of P0.67 per kilowatt-hour.
This month, the entire refund of the DRTU that ERC ordered Meralco to redistribute amounting to P48.3 billion will be fully settled. The refunds were ordered by the ERC following the discovery of over-recoveries that Meralco and other distribution utilities have obtained.
Thus, should Meralco be ordered to undertake a refund program if its questioned costing method is decided against its favor, the company can always pluck from its higher income to pay off the consumers for the “extra” charges. Meralco is expected to again have a banner year with an income stream seen at around P36 billion as its first quarter earnings amounted to P9 billion due to higher energy costs.
It is depressing to note that Meralco gains more from higher energy costs, which is the culprit for the dismal numbers on the country’s foreign direct investments. The energy costs in the country, which is higher than that of Japan, is the main reason why the Philippines lags behind in the FDI numbers. With high energy charges, many foreign investors opt out of the Philippines and instead set up their businesses somewhere else, notably Vietnam.
In the Thursday Group at Westin Hotel, where Congressman Joey Sarte Salceda, Chairman of the Ways and Means Committee holds court, the high energy costs in the country is often cited for the seeming lack of interest from foreign investors to set up shop here. Actually, with the energy problem we have, pretty soon, Myanmar will eclipse us in terms of FDIs, in the same way that Thailand and then Vietnam did so years ago.