Analysis
Meralco Ruling Stresses Urgent Need to Abolish Power Reform Act

While the recent Supreme Court decision ordering Meralco to refund its excess charges is a victory, it must be kept in mind that there is still another SC petition that is still pending decision --- the constitutionality of the power reform law. Under the latter, suppliers can dictate power rates to their captive markets. This means that overpricing becomes tolerated as a result of the non-intervention of the government. 

BY DANILO ARAÑA ARAO
Bulatlat.com  

The Manila Electric Company’s (Meralco) doomsday scenario of economic collapse and power outages if it will refund P28 billion of overcharges to its consumers is just a recycling of government’s argument for the passage of the Electric Power Industry Reform Act (EPIRA) of 2001. More important, Meralco’s posturing also reinforces the validity of the cause-oriented groups’ call to abolish EPIRA.

The electric company stressed over the weekend that refunding its excess charges since 1994 will result in bankruptcy and “longer daily rotating power outages.”

Based on media reports, an “inevitable collapse” of the economy will also happen since “(the government guarantees) 32 percent of (Meralco’s) long-term loans…(T)he invocation of the cross-default provisions appearing in (Meralco’s) loan agreement with…creditors will…impact on the obligations of the national government. Such a scenario will eventually throw the country in financial turmoil, hence, the inevitable collapse of the economy.”

Various sectors and even concerned legislators denounced Meralco’s posturing that it may declare bankruptcy if it refunds its more than three million customers. Their statements, after all, are clearly negated by its financial viability. 

In 2001, data from the Securities and Exchange Corporation (SEC) show that Meralco was the top corporation in consolidated sales with P130.73 billion (or $2.4493 billion, based on P53.375 per US dollar exchange rate). The company was second largest corporation in terms of equity (P67.88 billion or $1.2718 billion), following the Philippine Long Distance Telephone (PLDT) Co.

The Lopez family-controlled Meralco also had assets amounting to P134.54 billion ($2.5206 billion), the 10^th largest in the country. Not surprisingly, it is the 14^th largest company in terms of number of employees with some 6,000.

Not th e first time

The issue of overpricing is not new to the electric company. In 2001, Meralco a purchased power adjustment (PPA) of P1.82 ($0.0341) per kilowatt-hour (kWh), franchise tax and systems loss of P0.26 ($0.0049) per kWh, and the basic rate of P1.784 ($0.0334) per kWh.

This means that Meralco’s total charges amounted to P3.846 ($0.0720) per kWh, even if the National Power Corporation’s (Napocor) grid rate then was only P3.5906 ($0.0673) per kWh.

A study by IBON Foundation entitled “The Agenda Behind Power Reform” (IBON Facts & Figures – Special Release edition, 31 May 2001), shows that given the average household consumption of 200 kWh monthly, “Meralco charged an average of P772.80 ($14.4787) monthly, which was roughly P54.68 ($1.0244) more than Napocor’s grid rate. (Therefore,) the PPA alone charged by Meralco already amounted to P364 ($6.8197) monthly.”

Same line

Just like Meralco, the Arroyo administration last year used power outages as a scenario if Congress does not pass the Electric Power Industry Reform Act (EPIRA) of 2001 (Republic Act No. 9136). It stressed the possibility of a supply shortfall reminiscent of the early 1990s, power rate increases and decreasing global competitiveness of Philippine industries. It adds “the… administration will be sending very bad signals to the international financial community...”

According to the administration, the average investment requirement needed for additional generation and transmission facilities amount to P387.1 billion ($7.2524 billion) for the next 10 years. Without the said funds for the power sector, there could be a supply shortfall in Luzon by the year 2007, and much earlier in Visayas (2004) and Mindanao (2006). If the private sector would shoulder such expenses, the Arroyo administration argued that “the national government (would be able) to channel funds intended for the power sector to other basic priorities.”

Such arguments may explain why the ERB was initially disinterested in elevating the case against Meralco to the Supreme Court in 1999, and that it took the prodding of various cause-oriented groups to file a petition in 2000. At this point, a review of the events leading to the recent SC decision is in order.

Contextualizing the current issue

Last Nov. 15, the high court ordered Meralco to refund its consumers since it was found overcharging its consumers by P0.167 ($0.0031) per kWh since February 1994.

Despite opposition from cause-oriented groups, the Energy Regulatory Board (ERB) approved in 1994 a provisional increase of P0.184 ($0.0034) per kWh. However, the ERB in Feb. 1998 ordered Meralco to reduce its rates by P0.167 ($0.0031) per kWh and refund P10.3 billion in excess collections.

This decision was based on the Commission on Audit’s (COA) study of Meralco’s operation from Feb. 1, 1994 to Jan. 31, 1995 which concluded that Meralco should have increased its rates in 1994 by only P0.017 ($0.0003) per kWh instead of P0.184 ($0.0034) per kWh.

Meralco filed an appeal with the Court of Appeals (CA), and the latter decided in favor of the former in 1999. It was only in February 2000 that the ERB, together with other cause-oriented groups, filed a petition with the Supreme Court to appeal the CA’s decision.

While the SC decided in favor of the consumers and ordered Meralco to refund the excess charges that the company concedes to amount to roughly P28.15 billion ($527.4 million), AGHAM, a group of young scientists that closely monitored the issue, clarified that it will still take “some time” before the consumers will get their money back since Meralco could still file an appeal.

Assuming an average consumption of 200 kWh monthly, AGHAM chair Giovanni Tapang argues that households are projected to be given P3,473.60 ($65.0791) from the P0.167 ($0.0031) per kWh refund for 104 months (i.e., from February 1994 to the present).

Overpricing and EPIRA

RA 9136, also known as the Electric Power Industry Reform Act (EPIRA) of 2001, clearly stipulates deregulation of the prices to be charged by suppliers for the supply of electricity. (Sec. 29)

Just like the automatic pricing mechanism in the deregulated downstream oil industry, suppliers can dictate power rates to their captive markets. This means that overpricing becomes tolerated as a result of the non-intervention of the government as regards power rates.

As if these are not enough, the EPIRA which took effect in June last year introduces a universal charge that is imposed for the recovery of the following: (Sec. 34)

payment for the stranded debts and stranded contract costs of NAPOCOR and qualified distribution utilities resulting from the restructuring of the industry; missionary electrification; equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis-à-vis imported energy fuels; environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025 or $0.0000468 per kWh) which shall accrue to an environmental fund to be used solely for watershed rehabilitation and management; and charge to account for all forms of cross-subsidies for a period not exceeding three years.

The EPIRA also seeks the gradual removal of cross-subsidies. (Sec. 36 & 74) As early as May 2001, even the Asian Development Bank (ADB) admitted that certain areas like Mindanao “are expected to face higher electricity rates” as a result of EPIRA. In its report, “the increment will stem from the withdrawal of existing government subsidies given to Mindanao.”  

While Sec. 73 of EPIRA provides for a socialized pricing mechanism called lifeline rate for marginalized end-users, the EPIRA fails to define what is meant by marginalized, as well as the intricacies of socialized pricing.

In July 2001, the NAPOCOR Employees Consolidated Union (NECU) and Bagong Alyansang Makabayan (BAYAN) filed a petition with the SC questioning EPIRA’s constitutionality.

The 42-page petition stressed that the EPIRA violates the constitution since individuals and corporations cannot solely undertake the generation of hydropower and geothermal power. Petitioners cited Art. XII, Sec. 2 of the 1987 Constitution which requires the presence of “co-production, joint venture or production-sharing agreement with the State.”

The petitioners stressed that power generation and supply are public utilities and should therefore be controlled by Filipinos based on Art. XII, Sec. 11 of the Constitution.

Through EPIRA, government claimed the two sectors are not considered public utilities and should be open to competition. Consequently, the petitioners said that this is obviously “most unsound” because “constitutional restrictions cannot be made to vanish through mere legislation.”

As of this writing, the high court has not yet acted on this petition. Bulatlat.com

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