Facts on the Overcharging Case vs Meralco

Prepared by POWER/AGHAM
November 18, 2002

Immediately after the Supreme Court ordered it to return billions of pesos to its customers, MERALCO has started to muddle the issue. To set the record straight, we summarize here the facts of this overcharing case.

On December 28, 1993 Meralco petitioned the Energy Regulatory Board (ERB, now Energy Regulatory Commission or ERC) for a rate increase of 21 centavos per kwh with prayer for provisional authority. This was docketed as ERB Case 93-118.

On January 3, 1994 ERB scheduled public hearings for January 31 and February 1 and even had public notices (ads) and notice of billborads in affected municipalities. On January 5, 1994, Meralco filed an urgent ex parte motion for provisional approval of the revised rate schedules.

Various groups immediately opposed the petition: FFW on January 10, 1994; KMU with PILC as legal counsel, TUCP and others  the following day. Appendix B lists all the individuals and groups who registered as oppositiors.

On January 28, 1994 , without holding a public hearing, the ERB, then under Chairman Rex Tantiongco,  approved a provisional increase of 18.4 centavos per kwh effective February 1, 1994.  The oppositors objected to the provisional increase but ERB simply ignored them.

At the same ERB requested COA to cause an audit of Meralco. If the audit would recommend a lesser amount of rate increase  then “all excess amounts, collected from the applicant’s customers as a result of this order shall either be refunded to them or correspondingly credited in their favor.”

COA made an audit of the Meralco operations for the period  February 1, 1994 to January 31, 1995. Three years later, on February 11, 1997, COA submitted its audit report with subject  “SAO Report No. 95-07 on the Rate Audit of the Manila Electric Company (Meralco)” submitted by then COA chair Celso D. Gangan.

Three of the eight  major findings and recommendations of COA were the following:

1. “Meralco’s invested capital for the period  February 1, 1994 to January 31, 1995 yielded a 32.05% and 21.04% rates of return at cost and at appraised values of property, respectively, after considering  income taxes of P2.14 billion as non-operating expenses…

“This office adopted the view that income taxes should be shouldered by the company’s stockholders who are the recipient of income realized from the operations of the business based on Supreme Court decision on PSC-Meralco Case Nos. 85889, 89890,89893 dated December 27, 1957.”

2. “Various items of property and equipment either used by affiliates, held for future use, or not essential in operation with a total cost of P2.68 billion and an appraisal increase of P340.5 million were segregated from therate base and accordingly reclassifed to ‘Electric Plant Not  In Service’ account. Related expenses totalling P55.4 million were excluded from operating expenses and reclassified to Miscellaneous Deductions from Income.

These properites include the following:

• Meralco Theater

• Rockwell

• Meralco Shooting Range

• Long Ranger Helicopter

• John F Cotton Hospital and Jolly Recreation Center and other s

3. “Operating expenses totalling P2.27 billion which did not meet the criteria set to be allowable for rate determination were reclassified to Miscellaenous Deductions from Income.”

Upon receipt of the COA report, the ERB correctly decided that the issue boiled down to “whether or not the provisional increase granted in the amount of P0.184/kwh is fair and reasonable  and within the maximum 12% allowable RORB.”

In its decision dated February 16, 1998, the ERB, chaired by Neptali S. Franco, reported that “The Board concurs with COA’s position that by its very nature, income tax should be borne by stockholders who are recipients of the income or profits realized from the operation of their business instead of passing over to ther te pwyers the burden of paying the income tax by allowing it as an operating expense.

The decision also reports that “The Board adopts COA’s position in segregating various properties found not in service in its ocular inspection….”, properties that include the Rockwell Thermal Power Plant already listed earlier.

The effect of the deletion of these items in the rate base of Meralco is  that with the 18.4 centavos rate increase the actual RORB (Return On Rate Base) was found to be way beyond the authorized return of only 12%.

Based on the findings of COA to which it agreed, the ERB in February 16, 1998 decided that Meralco should only be allowed a 1.7 centavos increase, not 18.4, which means there has been an overcharging of  16.7 centavos per kwh. The ERB also ordered Meralco to return to its customers the  total amount of Php 10.3 billion of excess collections since 1994. Let us quote the order:

“….Accordingly, the provisional relief in the amount of P0.184 pkwh granted under the Board’s Order dated Jan. 28, 1994 is hereby superseded and modified and the excess average amount of P0.167 pkwh starting with the applicant’s billing cycles beginning Feb. 1994 until its billing cycles beginning Feb. 1998, be refuinded to applicant’s customer or corresopondingly credited in their favor for future consumption….”

Meralco promptly filed an appeal  with the Court of Appeals, which on February 24, 1999 sustained Meralco with a decision penned by Associate Justice Bernardo Salas.. Surprisingly the ERB did not show much interest in appealing to the Supreme Court but it was compelled to do so by the insistence of the various oppositors such as the KMU, TUCP and FFW. Thus, in February 2000, a petition with the Supreme Court  was filed by the ERB and the oppositors.

Today  the Supreme Court decided in favor of the oppositors and ordered Meralco to return to its customers the excess charges collected since 1994. Our computations of the exact amount is P29.29 billion. Meralco can vey well afford the refund.

What does this mean to you?

If your average kwh consumption per month is 200 kwh this means that you are entitled to a refund of  P33 monthly, or a  total of P3,500 plus interest, quite a fortune in these hard times. If it is 400 kwh then you are entitled to a refund of P66 monthly, or a total of P7,000 plus interest.

Meralco can still file an appeal, so it will be sometime before we get our money back. The more important thing to remember in this case is that if we are vigilant and united we can put up a good fight against a giant like Meralco. 

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LIST OF OPPOSITORS TO THE MERALCO PETITION
 FOR RATE INCREASE IN DECEMBER 1993 

1. Federation of Free Workers - registered as oppositor on Jan. 10, 1994

2. Kilusang Mayo Uno with counsel Public Interest Law Center - Jan. 11

3. Federation of Concerned Organization of Balut - Jan. 11

4. Trade Union Congress of the Philippines - Jan. 11

5. Ms. Belen Atendido - Jan. 11

6. Genaro Lualhati - Jan 18, who is also with us at the current ERC hearing on unbundling of rates of Meralco and rates increase

7. Phill Consumers Federation - Jan. 25

8. Municipality of Sampaloc, Quezon - Jan. 28

9. Mr. Cesar Escosa - Jan. 25

10. San Pablo City - Jan.  31

11. Lawyers Against Monopoly or LAMP  - Jan. 31

12. Philippine Justice Foundation - Jan. 31

13. Jeepney Owners and Operators of Metro Manila

14. Federation of Philippine Industries/Multi-Sectoral Task Force on Energy

15. NASECORE (National Association of Electricity Consumers for Reforms)

16. Philippine Consumers Federation – Jan. 25, 1994

AGHAM/Reposted by Bulatlat.com

Scientists Group Show that Meralco Can Very Well Pay Back Its Customers

Meralco Refund for the Period 1994 to 2002

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