POSTSCRIPT / November 24, 2002 / Sunday


Philippine STAR Columnist

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ERB actually allowed Meralco rate increase

MORE HEAT THAN LIGHT: It is disturbing to hear agitated people, many of whom have not had the chance to read the Supreme Court decision, spewing intemperate language and demanding rash action on the refund of excess payments of electricity consumers.

Their emotional outbursts in the media and the streets, while understandable, generate more heat than light. The inflammatory rhetoric hardly produces satisfactory answers to the questions over why and how the Manila Electric Co. (Meralco) would pay back.

Meralco has 15 days after receipt of the decision to ask the Supreme Court to reconsider its Nov. 15 order for the company to refund overpayments estimated at from P8 billion to P28 billion as of last October.

Until the court renders a final decision on that motion, it is premature to expect or to demand an immediate refund.

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SIMPLISTIC FORMULA: It would still be unrealistic at this point to expect Meralco to dip immediately into its retained earnings or borrow money to be able to distribute P28 billion (or whatever is the final figure) to over 3 million customers.

That was why we were startled to see a major newspaper validating in its banner story last Sunday a simplistic conclusion of supposed scientists that each Meralco customer would get P3,470-plus each in refunds.

It’s cruel to whip up wild expectations among people who believe newspaper headlines. Many of them are now waiting for that money to fall from the sky.

Repayment is not a simple matter of dividing the total refundable amount by the number of persons or households drawing power through Meralco’s electric meters.

Electricity consumers are not created equal. They are classified according to various criteria, including their volume of consumption and perceived capacity to pay. They do not pay under one uniform rate.

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SC DISPENSING ADVICE: In a mass refund, if one were to happen, consumers cannot be treated equally and given uniform amounts. Since they did not pay the same excess charges, their refunds will vary correspondingly.

For instance, what about lessees and apartment dwellers who had paid the excess charges but cannot prove it? What happens to those who cannot produce receipts showing they had made overpayments during the period covered by the court order?

Various other factors affecting the refundable amounts and the mode of repayment will have to be considered when the tribunal delves deeper into the new legal angles that the parties will cite in the next stage of the court battle.

We don’t mean to intrude into the affairs of the court, but we think that the tribunal should confine itself to resolving questions of law and not stray into the giving of unsolicited business advice to the parties.

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ELBOW ROOM NEEDED: In its Nov. 15 decision overturning a Court of Appeals ruling favorable to Meralco, the high court said the power firm should refund the excess payments (presumably as outright cash) or credit the refund to future payments of electric bills.

Why should the repayment be limited to either cash or credit? The court must allow the parties enough elbow room to be creative in their approach to the problem.

For instance, why cannot Meralco offer, and interested consumers accept, the conversion of the refunds into shares of stock? Why should the court shut out other arrangements or a creative combination of various modes of payment?

In the interest of order and equanimity, if only to ensure that the massive refund will not be disruptive, the court should just determine the refundable amount, and leave it to the parties involved (the consumers, Meralco, the Energy Regulatory Commission and such administrative bodies) how the refund is to be made — provided broad guidelines that the court may deem reasonable are followed.

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TWO SORE POINTS: The conclusion of the Supreme Court that there was overcharging was based mainly on two things: The inclusion by Meralco of its income tax to its operating expense, and the inclusion to its rate base (for computing its legal net profit) of some properties/assets not directly connected to operations.

Using these two items, Meralco managed its revenues versus expenses to stay within the 12-percent return on rate base (RORB) allowed by law and expected by its creditors.

With its own computation based on accepted practice in similarly situated enterprises, Meralco concluded it must raise its power rates to be able to boost profits to 12 percent. It applied in 1993 for a rate increase of 21 centavos/kilowatt-hour with the Energy Regulatory Board, forerunner of the Energy Regulatory Commission.

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ERB OKAYED RATE HIKE: The ERB said the increase applied for was too high and reduced it in a ruling in 1994 from 21 centavos to 18.4 centavos/kilowatt-hour.

The board allowed Meralco to collect the increased rate, but tacked on the condition that in the event the Commission on Audit finds reason to reduce the provisionally approved rate increase, the excess must be refunded.

The COA later recommended further slashing the rate increase. It gave two reasons: Meralco had included its income tax to its operating expense (thereby padding its expenses) and included certain property that are not directly contributing to its main business (thereby padding its rate base around which is computed the 12-percent net profit allowed by law).

The 12-percent RORB, by the way, is also the profitability required by creditors of Meralco before they approved some loans taken by the power utility. A number of the long-term loans were guaranteed by the government — which means that if Meralco defaults, the government (you and me) will assume the obligation!

Meralco pressed its application for a rate increase. Suing for time to forestall the refund, it ran to the Court of Appeals, which struck down the ERB’s refund order.

In turn, the ERB and some consumer groups elevated the case to the Supreme Court. In its ruling last Nov. 15, the high court said the ERB was right and that a refund was in order.

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INCONSISTENT RULINGS: Meralco has pointed out that inclusion of income tax in operating expenses is routinely done by many utility firms here and abroad, in the United States and Asia particularly.

The ERB itself has approved similar rate increases for some local utility firms based on computations that included income tax with expenses.

The treatment of income tax as expense is not unique to Meralco but is done even in the case of the National Power Corp. and other public utilities in Asia-Pacific that are, like Meralco, borrowers of the Asian Development Bank and the World Bank.

Meralco executives expressed surprise in seeing the ERB (now the ERC) applying double standards as regards income tax. Among the firms allowed by the ERC to raise their rates and include income tax with their operating expense are Cotabato Light and San Fernando Electric.

It has been noted that Commissioner Melinda Ocampo of the ERB stood for allowing the firms to treat income tax as expense while she ruled against a similar treatment in the case of Meralco.

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THREE SUGGESTIONS: But even if Meralco is able to marshal convincing arguments to warrant an overturning of the Supreme Court decision, we doubt if the tribunal would reverse the unanimous decision of its five-member Third Division that ruled against Meralco.

With a cynical public watching, a reversal could open the court to suspicion that the case was fixed.

While the Supreme Court, we think, is likely to stick to its earlier decision, it might want to consider: (1) giving Meralco and administrative bodies leeway in working out a refund scheme that is not disruptive, (2) refraining from dispensing unsolicited business advice, and (3) while disallowing the advance inclusion of projected income tax into operating expenses, the court can allow the treatment as expenses of taxes that had been paid already.

In conclusion, we want to make it clear that we are for a fair refund of the excess payments. But this should not be done in a manner that would just create more confusion and recrimination.

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(First published in the Philippine STAR of November 24, 2002)

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