POSTSCRIPT / August 10, 2004 / Tuesday


Philippine STAR Columnist

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CA ruling on Meralco case could raise rates

COURT MEDDLING: We don’t blame Energy Secretary Vince Perez for lamenting the seeming propensity of the courts, including the Supreme Court, to nullify acts of the Energy Regulatory Commission pertaining to power.

Perez appealed to the courts to give the ERC, an independent body, a chance “to exercise its competence and proficiency in resolving highly complicated and technical power issues.”

He was reacting to the recent ruling of the Court of Appeals nullifying an ERC decision that allowed a rate increase and the unbundling of charges of the Manila Electric Co. (Meralco) because the ERC did not ask the Commission on Audit to look into the power firm’s financial books.

“We cannot afford any more delays,” Perez said. “Instead we have to work double time to put in place the necessary structural reforms by attracting investments in the power sector so that every household and industry could enjoy sufficient and reliable electricity today and tomorrow.”

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UNPREDICTABLE: Aside from Perez’s observation, there is also the fact that judges’ meddling in business matters has given the impression that the investment climate in the country is unpredictable and that contracts are no longer inviolable.

Forced to speak up, Malacanang reminded judges to keep their hands off the ERC. The Palace pointed out that the regulatory body was performing its lawful functions in relation to complicated power issues beyond the ken of regular courts.

The Court of Appeals may have been overreaching when, in effect, it legislated another element in the determination of power rates by the ERC — by requiring a mandatory COA audit of a private company applying for rate adjustment.

Who knows what additional requirement the CA or the SC will think of next when another power-related suit is brought before it?

Why don’t we just follow the law as it is and not continue to amend it as a case goes through the judicial mill?

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EFFECTS OF RULING: More alarming are the effects of the CA decision on government finances, creditors and Meralco consumers.

Junking the ERC decision for the unbundling of charges, required by the Electric Power Industry Reform Act of 2001 (EPIRA), would throw the system back. We do not know if the CA was told that bundled rates would mean:

  1. Given a bundled bill, consumers will no longer be able to see where their payments go. In unbundled bills, consumers see what part of their payments go where — such as for generation charges, to taxes, to currency adjustment, etc., and can intelligently react.
  2. With the total electric bill shown without detailed explanation under the bundled system, the small consumers that enjoy socialized rates under the unbundled setup will lose their “lifeline discounts.” Rates for the poorest consumers will go up.
  3. With the reversion to bundled rates, revenues will be reduced to about P600 million per month and the local franchise tax recovery mechanism will be lost.
  4. Refinancing will be jeopardized and payments to Meralco’s suppliers such as the National Power Corp. (Napocor) and independent power producers are likely to be suspended.

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POOREST TO BE HIT: The CA decision will nullify a socialized measure protecting small Meralco consumers. It will mean raising electric rates by more than P100/month for almost 1.2 million of the poorest customers.

Under the unbundled system, Meralco provides for graduated discounts to residential customers consuming within 100 kwh per month that the ERC considers lifeline users. Such customers comprise 34 percent (1.33 million) of Meralco’s 3.96 million costumer base.

Also, residential users consuming between 51 to 70 kwh are entitled to a monthly discount of 35 percent, while those using from 71 to 100 kwh get a 20-percent discount on their monthly bill.

Under the bundled rates that the ERC decision will bring back, these consumers will no longer enjoy their discounts.

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BACKGROUND: The unbundling issue arose from a Meralco petition for a P.30/kwh rate increase filed on April 14, 2000, as an offshoot of an earlier order (January 1994) by the ERC granting it a provisional increase.

The petition was opposed by cause-oriented groups seeking a suspension of the hearings in place of a case pending before the SC questioning the grant of the provisional increase.

Oppositors also moved for the opening of Meralco books to determine its return of rate base (RORB), the amount indicating its profits on which its application for rate increase will depend.

The ERB, however, dismissed their motion and proceeded to hear the application of Meralco for rate increase.

When the EPIRA was passed in June 2001, Meralco applied for the unbundling of its rates as provided under the new law. Unbundling was intended to promote transparency in electric billings.

Cause-oriented groups again opposed the unbundling of rates by Meralco arguing that it will increase electric rates.

ERC then moved to consolidate all the pending petitions of Meralco ­- the rate increase and the unbundling of rates.

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OPPOSITION POINTS: After more than 50 hearings, the ERC granted the rate increase and ordered the unbundling of Meralco charges.

The oppositors went to the CA and presented four main issues: (1) ERC abused its discretion in granting rate increase when EPIRA required only an unbundling of rates, (2) ERC defeated the principle of transparency when it caused the hiding of the Purchased Power Adjustment in the Generation and Transmission Charges, (3) ERC abused its discretion when it allowed Meralco to incorporate charges for undelivered energy in its rates, and (4) ERC violated due process when it prescribed GRAM rules even though it failed to give an explanation on key issues.

The 18 groups opposing the unbundling and rate increase applications had the chance to question Meralco in all the 55 hearings. They were given copies of all the petitions and documents submitted by Meralco as well as allowed to cross-examine Meralco’s witnesses and present their own witnesses.

The CA appears to have picked up an observation of the Solicitor General who, while agreeing that the unbundled rates could result in higher rates, submitted that the ERC should have required COA to audit Meralco’s books before deciding the case.

t was so easy for the court to rule either way. All that it needed was one point on which to turn an argument. The Solicitor General provided that point.

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(First published in the Philippine STAR of August 10, 2004)

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