SC: Meralco’s unbundled rates anti-consumer

By Joel R. San Juan - October 11, 2019

https://businessmirror.com.ph/2019/10/11/sc-meralcos-unbundled-rates-anti-consumer/

THE Supreme Court has declared that the Energy Regulatory Commission’s (ERC) approval of Manila Electric Co.’s (Meralco) unbundled rates, appraisal of its properties, and the rate increase of P0.168/kwh in 2014, were in violation of its mandate to protect its consumers.

Thus, in a decision penned by Senior Justice Antonio T. Carpio, the Court en banc partially granted the petition filed by National Association of Electricity Consumers for Reforms Inc. (Nasecore). The petition sought to nullify ERC’s June 21, 2011, order upholding its decision of May 30, 2003, which granted Meralco’s application for the approval of its unbundled rates.

Meralco argued before the ERC that the rate increase was to augment its growing operation and maintenance expenses, which include leased properties on customer premises, construction work in progress, and building plants for future use.

While the Court voided ERC’s adoption of the current or replacement cost in the valuation of Meralco’s regulatory asset base, it nevertheless remanded the case to the ERC for proper determination of the power company’s assets.

Specifically, the SC said the ERC should determine the parameters of whether expenses that are not directly and entirely related to the operation of a distribution utility shall be passed on wholly or partially to the consumers, in order that electricity shall be provided to consumers “in the least cost manner.”

The Court held that ERC’s approval of Meralco’s unbundled rates order was in violation of its statutory mandate to approve rates that will provide electricity to consumers “in the least cost manner.”

As such, the SC said the case should be remanded to the ERC for determination of a reasonable and fair valuation of the regulatory asset base that will provide electricity to consumers “in the least cost manner.”

In its previous decision, the SC affirmed the ERC’s May 2003 order granting the petition of Meralco for an increase in rates. The SC also directed the ERC to seek the assistance of the Commission on Audit (COA) in conducting a complete audit of Meralco’s books, records, and accounts to see to it that the rate increases are reasonable and justified.

Pursuant to the SC ruling, the ERC requested COA to conduct an audit of Meralco’s books, accounts and records to determine whether the implementation of Meralco’s approved distribution rates resulted in a fair return and whether the recovery of generation costs had been revenue-neutral to Meralco.

On November 12, 2009, the COA transmitted to the ERC its audit report revealing that the unbundling of Meralco rates effectively resulted in over-recoveries or revenues in excess of the required revenue by P1.682 billion in 2004 and by P5.327 billion in 2007.

The COA report said the over-recoveries were determined after it discovered certain factors or items, which should not have been included in the computation of Meralco’s revenue requirements.

However, the ERC ignored the COA report and instead upheld its May 30, 2003, decision prompting Nasecore to file a petition seeking to stop ERC’s order before the CA.

Eventually, the CA affirmed ERC’s order in a decision issued on February 29, 2016, and a resolution dated August 18, 2016.

The appellate court declared that even if the SC directed the ERC to request the COA to undertake a complete audit of the books, records and account of Meralco, it recognized that the power to fix the rates of electric distribution utilities primarily belongs with the ERC.

It stressed that the COA audit is not a prerequisite to rate fixing, and the ERC is not bound to accept and adopt any finding that a COA audit may come up with. Nasecore subsequently elevated the case before the SC.

In partially granting Nasecore’s petition, the SC pointed out that under Section 38 of the Government Auditing Code of the Philippines and Book V, Title I, Subtitle B, Chapter 4, Section 22 of the Administrative Code of 1987, the COA is authorized to examine accounts of public utilities in connection with the fixing of rates of every nature.