Meralco explains items in unbundled power bill

MERALCO REPLIES: Here is the response of Manila Electric Co. (Meralco) to questions we raised regarding some items in its new electric bill that had eliminated the despised PPA (purchased power adjustment) by "unbundling" or breaking it down and simply renaming it.

In a letter to us, Elpi O. Cuna Jr., Meralco vice president and director of corporate communication, said in part:

"1. Contrary to what you termed as a ‘conspiracy of silence,’ the unbundling of charges is mandated of all electric utilities in compliance with the Electric Power Industry Reform Act (RA 9136 also known as EPIRA). The purpose of the unbundling is transparency (not deceit), to clearly show (not to juggle) to customers where every centavo of their payment for electricity goes, whether to the Generation entities for the production of power, the Transmission company for the bringing of electricity from the distant power plants to the load centers, the Distribution utilities for the operation and maintenance of their conductors and transformers to bring the power to the customers’ homes or establishments, the Supply entities for the metering, billing, customer service and other services, and to the government in the form of taxes.

"2. The same law that mandated the unbundling also providing for the mandated rate reduction for residential users. What you consider as a ‘token reduction’ has in fact been enjoyed by all residential customers since August 2001, following the effecitivity of RA 9136.

"In May 2002, President Arroyo ordered the reduction of NPC’s Purchased Power Cost Adjustment (PPCA) to only P0.40 per kwh, causing Meralco’s PPA to decrease by more than P1 per kwh. This was followed, however, by an almost 80 centavos increase in Transmission Charges in October 2002, to a large extent negating the reduction in NPC’s generation rate.

"Meralco was also granted an 8.65 centavos increased in May 2003, its first rate increase after nine years, following the 18.4 centavos increase it was provisionally granted in February 1994. That increase has now been reduced to only 1.7 centavos, and the difference of 16.7 centavos (18.4 less 1.7) is now the subject of a P30 billion refund Meralco is currently implementing. Prior to this recent provisional adjustment that is still to take effect on January 2004, the increase in Meralco charges since 1994 has been a mere 10.4 centavos, which translates to a mere annual adjustment of 1.2 centavos per kwh.

"3. The review of NPC IPP contracts is also a provision of RA 9136 and the papers, including the Philippine Star, have carried reports of the concessions the government has obtained from these IPPs. Meralco, in a similar spirit, is now concluding its own negotiations with its IPPs and will soon apply with the ERC the amended terms of these contracts. Your reference to "payments for electricity that consumers never actually used, sometimes even for power that is not even generated" is not, however, accurate.

"ERC, in its Order dated February 24, 2003, approving the guidelines for the Generation Rate Adjustment Mechanism (GRAM), addresses this issue by stating: As to the concern of the consumers that they are paying for ‘undelivered’ power, the Commission would like to point out that the structure of the IPP contracts approved by the ERB provided for fixed monthly payments based on minimum energy quantity (MEQ). This causes the perception of the public that they are paying for ‘undelivered power.’

"The standard MEQ provision only becomes a problem if the IPPs are not allowed to run at these levels for reasons like transmission constraints which has prevented the dispatch of IPPs selling power to Meralco at MEQ levels.

"4. Your section entitled ‘Costly Service’ questions the Supply and Metering Charges as being functions of consumption. We would like to refer you to relevant portions of the ERC Decision dated March 20, 2002, on Meralco’s Unbundling Compliance Application. Pages 90 and following of the Decision states: The Commission acknowledges that cost-causation rate design principles suggest the recovery of customer related costs through fixed monthly charges. In addition to this cost of service principle, however, the Commission must also consider rate design impacts across the spectrum of customers within each rate class. The Commission believes that fixed monthly charges may significantly increase the bills of low consumption customers particularly within the residential and small commercial rate classes . . . The Commission therefore, has the flexibility to consider factors outside cost of service ratemaking in determining rate design for a particular class of customers. Nonetheless, the Commission also believes that it may be prudent to introduce fixed monthly charges for large industrial and large commercial customers while keeping the fixed monthly charge to a minimum level for residential and small commercial customers in order to mitigate the adverse impact on their power bills. (Underscoring supplied)

"5. In your section entitled ‘We Pay for Theft’ you opined that ‘Power theft is the system’s problem, not ours.’ We beg to disagree. Electricity theft should be everybody’s concern. Meralco’s system loss charges have been set to allow it to recover system losses up to 9.5 percent. Because Meralco’s system loss stood at 10.8 percent last year, it had to shoulder some P1.2 billion in purchased power costs that it cannot recover from its customers. For the first three quarters of this year, this cost which is direct hit to its bottom-line has already ballooned to P1.6 billion.

"6. ‘Tax Passed On’ is the last section of your column. Passing on of taxes whether it is the VAT or the sales tax is common practice in all business establishments. The Supreme Court only disallowed the recovery of income taxes in the rates of consumers."

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UNCONVINCING: Meralco’s explanation has not convinced us that all the items in its unbundled electric bill are justified. Neither are all decisions and orders of the Energy Regulatory Commissioner error-free and unassailable.

A number of readers who also have reacted to our column agreed with us.

Despite (or because of) the unbundling, the total charge in the new electric bills has not substantially gone down – contrary to promises made – compared to the charge for the same consumption before unbundling.

To settle questions, we urge consumer groups to file action in the proper regulatory body or the courts. But will the ERC be willing to rule against itself?

The government holds the biggest share in Meralco. What is it doing? On whose side is it?

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