Business Mirror
Published on Monday, 21 January 2013 20:05 Written by Butch del Castillo
MANUEL V. PANGILINAN, chairman of the Manila Electric Co. (Meralco), expressed satisfaction last week (BusinessMirror, Wednesday issue) over the giant power utility’s financial performance in 2012.
He said Meralco met its P16-billion profit target for the year, surpassing the P14.9 billion it cleared in 2011. And now, he said, the giant power-distribution utility is awash with cash. The excess liquidity would most likely be invested in power-generation projects.
Of course, Meralco is awash with cash! You can bet your life on it. It has always been like that for the power monopoly from the very start.
It spits outwards upon wads of bank notes like some giant cornucopia or money machine gone berserk. The funny part is nobody seems to know how, or care, to turn it off to give it a break before it runs itself down.
For several decades (except a 14-year gap during Marcos’s martial rule), Meralco had been the Lopez family’s trusty money machine. In 2009, however, the Lopezes unexpectedly sold out to the Metro Pacific Investments Corp. (MPIC) led by MVP. But by that time, the family had safely shifted its major investments to the more lucrative generation side of the power business.
When you talk of Meralco operations, you’re talking of cash, lots of it pouring into corporate coffers on a monthly basis. All of Meralco’s commercial, industrial and residential customers—numbering a little over 5 million—are under obligation to pay their monthly electricity bills in cash under pain of disconnection.
Meralco is the biggest power-distribution company in the country with a franchise area extending far beyond the boundaries of the National Capital Region. It is continuously expanding its franchise area by acquiring smaller distribution franchises in the surrounding provinces. Its power lines have progressively crept outward radially and have, in fact, penetrated Batangas, Quezon, Pampanga and who knows where else.
When the MPIC successfully bought out the Lopezes from Meralco, it was a proud historic moment for Pangilinan. He now had in his pocket one of the bluest blue-chip companies in the country, truly a trophy acquisition. (The MPIC had gone on a buying binge not long after it took control of the Philippine Long Distance Telephone Co. or PLDT.)
We can only surmise that Pangilinan may have bragged about Meralco’s high liquidity position in a moment of expansiveness, and most likely to stress that the company wouldn’t need to do any borrowing in 2013.
But while MVP has drawn attention to Meralco’s highly liquid status, a consumer watchdog group has been complaining about Meralco’s less than transparent handling of one of its huge cash hoards—the P26-billion customer-deposit fund.
The complaining watchdog group is the National Association of Electricity Consumers for Reforms (Nasecore), which has demanded proof that the Energy Regulatory Commission (ERC) has not been remiss in its duty to closely monitor the handling of this fund.
According to Nasecore, this fund belongs to Meralco’s customers. The principal (original deposits entrusted to Meralco since 1995) and all the legal interests that have accrued to the fund while the fund remained in Meralco’s keeping, also technically belongs to them.
(Each and every Meralco customer, without exception, is required to make a deposit equivalent to one month’s billing plus the unit cost of a power-consumption meter. The deposit ensures that Meralco would get paid in case a customer defaults).
Nasecore is a low-budget, non-profit consumerist group headed by Pete Ilagan, its president.
(I’ve personally known Ilagan for more than a decade and I have consistently supported him in his seemingly quixotic advocacy and obsession to bring down the unconscionably high cost of power in this country. In at least one celebrated case, Nasecore helped persuade the Supreme Court to order Meralco to refund billions of pesos it had overcharged its unsuspecting customers.)
Nasecore has so far written three successive letters to the ERC since October 2012 on the issue of the loosely supervised customer-deposit fund. All of these letters, unfortunately, have been ignored by the ERC, especially by its do-nothing chairman, Zenaida G. Cruz-Ducut.
This is why his third letter (dated December 22, 2012) was directly addressed to the entire five-man commission of the ERC. Ilagan also furnished copies of his complaint to Energy Secretary Carlos L. Petilla, Senate President Juan Ponce Enrile, House Speaker Feliciano Belmonte Jr., Sen. Sergio Osmeña III (committee on energy), Rep. Henedina R. Abad (committee on energy) and several other department heads of the government.
Nasecore discovered, among other things, that Meralco had arbitrarily reduced the annual interest earnings of the customer-deposit fund.
It also suspects that Meralco is now trying to obfuscate the issue by publicly announcing that it was set to release a mere P1 billion to its customers without saying exactly how much its customers may expect by way of earnings from its huge deposit fund.
Meralco has yet to make a full accounting of the customer-deposit fund from 1995 to the present, not even to the ERC or its own stockholders.
Ilagan cited Section 28 of the Magna Carta for Residential Electricity Consumers promulgated by the ERC in June 2004, which states that distribution utilities shall pay interest on bill deposits equivalent to…the weighted average cost of capital or WACC…and the interest rate shall be credited yearly to the bills of the customer.
Not one of the above stipulations has been complied with by Meralco, Ilagan said.
Ilagan pointed out that in a decision on May 30, 2003, the ERC identified four sources of Meralco capital. It was here that the bill and meter deposits were lumped together as “customer deposits” and was given an annual interest of only 10 percent as against the 17.92 percent given to the Common Equity of Meralco and as against the 15.5 percent of the WACC also of Meralco.
Ilagan said assuming that based on the assumption that the customer-deposit fund earned only 10 percent a year since August 1995 until August 2012, the ERC should be able to determine how much is Meralco’s total liability to its customers. Trouble is it has not even asked the Meralco to do an accounting of this special fund, bolstering suspicions that the ERC has ceased to function as the guardian of the public’s interest.
Nasecore suspects that Meralco has not been religiously complying with the annual reportorial requirement on the status of this fund. Neither is the ERC itself enforcing this annual reportorial requirement.
Nasecore, therefore, ended its letter to the ERC with the following statement:
“We are not forgetting that the operation of Meralco as a public utility is imbued with public interest, and this is the very reason its operation is regulated by the state through the ERC. Thus, if Meralco failed to do its annual reportorial submission on its collection [of customer deposits] and yearly interests on the bill deposits to ERC, and if Meralco failed to seek ERC’s approval of what it has stated paying to its customers…then we may be looking at a Regulatory Failure where the important function of ERC on consumer protection is being sacrificed.” source
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