‘Recalculated’ Meralco rate spike 50% lower?

Business Mirror 
06 Mar 2014 
Written by Butch del Castillo 

I HAVE it on good authority that the Energy Regulatory Commission (ERC) would, any day now, grant the motion of the Manila Electric Co. (Meralco) for a “recalculation” of the shockingly high generation-cost increases it came very close to passing on to its 5.3 million customers under their November and December 2013 billings. 
The anticipated ERC order, my source said, would definitely be in favor of Meralco’s customers. Meralco has lately taken the stand that a recalculation is imperative because the Wholesale Electricity Spot Market (WESM) clearing prices, used as bases for computation of the increases in generation costs, were not reflective of the actual supply-and-demand situation at the WESM. 
Meralco only recently filed the motion for recalculation in an apparent bid to mollify its angry customers. 
A recalculation should easily cut by half the outrageously high rate increases being demanded by the generation companies (gencos) through the WESM. 
A recalculation, or rerun of WESM transactions and dispatches last November and December, would give the ERC a more realistic generation-rate increase to approve. (The sharp rate increases announced by Meralco last November would have been a fait accompli by now if the Supreme Court [SC] hadn’t stopped it. The SC had issued two successive 60-day temporary restraining orders [TROs] based on a flurry of formal protests filed by various advocacy groups.) 
My unimpeachable source said the ERC would, in the end, not only approve a substantially reduced generation-cost increase based on recalculations of the WESM clearing prices in the last two months of 2013. 
He added that the ERC would also, most likely, go one step further by ordering Meralco to stagger over a 12-month period—sans interest charges—the imposition of whatever rate increase the ERC would approve based on the recalculation. 
This means Meralco would have to immediately pay the gencos in full as soon as the ERC issues its approval of the recalculated rate increase. But when it passes on this cost to its customers, it must stagger its collection over a 12-month period, sans interest. 
In effect, Meralco would be duty-bound to shoulder the cost of the money it advanced to the gencos. If its advance to these companies amounts to about P10 billion, then the cost of money it would have to take on would be about P300 million. 
That’s small change in the overall profit picture of the electric power-distribution giant, which had a net income of P16 billion in 2012. 
My source said: “Everybody has to take a ‘haircut.’ 
The gencos suffer a 50-percent cut in their expected windfall, while Meralco sacrifices P300 million to soften the blow to its customers. The welfare of electricity consumers is paramount.” 
However, my source also said the ERC is still weighing its options. It may choose to jump the gun on the SC by ordering an immediate recalculation of what would be the reasonable or just generation-rate increase for the period referred to by Meralco. 
On the other hand, it could decide to wait for the High Court to order it to recalculate the additional generation costs, based on unrigged market conditions at the WESM. “In either case, the outcome will be the same—dramatically reduced generation-cost increases would emerge,” my source said. 
Coincidentally, senior Justice beat reporters were talking about an imminent SC move concerning the controversial generation-charge increases. 
Jomar Canlas of The Manila Times said the SC was poised to remand the case to the ERC, based on the principle that it is not “a tryer of facts” like any ordinary court, but rather exists to settle “pure questions of law” or even the legality of existing laws. 
In effect, he said, the SC would be telling the ERC to do what it is supposed to do as industry regulator: to settle rate-setting issues, as mandated by the Electric Power Industry Reform Act of 2001, or Republic Act 9136. Another veteran Justice reporter, Rey Panaligan of The Manila Bulletin, confirmed that the case may be remanded to the ERC because most of the issues raised by the petitioners were not questions of law, but questions of fact. For instance, the militant group Makabayan charged that “collusion” or greed among the major industry players made the generation cost at the WESM shoot up by over 74 percent. That is clearly a question that only the ERC can judiciously settle. 
My friend Pete “Bull” Ilagan, the indefatigable president of the electricity consumer watchdog group National Association of Electricity Consumers for Reforms Inc. (Nasecore), said it was quite possible that the High Court would remand the consolidated case to the ERC, as far as the rate-setting issues are concerned. 
Right after Meralco announced last November that a huge increase in generation rates was imminent, at least 19 groups lost no time in filing petitions questioning the legality, and even the constitutionality, of the huge generation-rate increases.  
Nasecore was among those petitioners. Ilagan said: “But we strongly believe the issue of constitutionality we raised—for being deprived by the ERC of our constitutional right as consumers to due process—cannot fall within the jurisdiction of the ERC, because it is a question of law and its legality, and not a rate-setting issue, which would fall under the ERC.” source