The Performance Based Rating (PBR)
Methodology as applied by Meralco
A presentation by Romeo Junia
to the Freedom from Debt Coalition
(FDC) Task Force on Power
May 2012
MERALCO AND OTHER UTILITY ISSUES
• PHILIPPINE ELECTRICITY RATES, ESPECIALLY IN
THE MERALCO FRANCHISE AREA, ARE THE
HIGHEST IN ASIA AND THE FIFTH HIGHEST IN
THE WORLD.
1. TONGA, AS OF 6/1/11, 57.95 US CENTS
2. DENMARK, AS OF 11/1/11, 40.38 US CENTS
3. GERMANY, AS OF 11/1/11, 36.48 US CENTS
4. BRAZIL, AS OF 1/11/11, 34.18 US CENTS
5. PHILIPPINES, AS OF 3/1/10, 30.46 US CENTS.
THE WORLD’S HIGHEST
• AT TODAY’S RATE OF P13.40 PKWH FOR SOME
MERALCO CUSTOMER CLASSES, OR THE EQUIVALENT
OF 44 US CENTS, WE WOULD BE THE SECOND-HIGHEST
IF NOT THE HIGHEST RATE IN THE WORLD.
• OTHER COMPARABLE RATES ARE:
–
–
–
–
–
USA, 11.20 US CENTS
UK, 21.99 US CENTS
SINGAPORE, 22 US CENTS
THAILAND, 9.79 US CENTS
ITALY/IRELAND, 28 US CENTS.
HOW IT HAPPENED
• HOW DID ALL THESE BECOME POSSIBLE?
ALL THESE HAPPENED WHEN ERC ADOPTED A
RATE SETTING METHODOLOGY CALLED
“PERFORMANCE BASED REGULATION”, OR
PBR, ABANDONING “RETURN ON RATE BASE”
OR RORB.
UNDER RORB
– UTILITY HAD TO INVEST FIRST BEFORE IT COULD COLLECT ITS
COSTS AND ITS INVESTMENTS. IT WAS A RECOVERY
MECHANISM.
– WHILE THERE WAS PREVIOUSLY NO CLEAR CRITERIA UNDER
RORB AND UTILITIES COULD JUST CHARGE ANYTHING TO THE
CUSTOMERS, THE SC REFUND ORDER IN LUALHATI VS MERALCO
SET VERY CLEAR GUIDELINES AND CRITERIA FOR COST
RECOVERY. UNFORTUNATELY, ERC SHIFTED TO PBR RIGHT AFTER
THAT LANDMARK DECISION FOR CONSUMERS.
– RETURN ON ASSETS WAS CAPPED AT 12%.
UNDER PBR
– MERALCO SUBMITS ITS 4-YEAR BUDGET OR ANNUAL REVENUE REQUIREMENT.
THIS IS THE SO-CALLED RATE RESET PROCESS.
– ERC APPROVES THE 4-YEAR BUDGET IN ONE SWEEP.
– ARR IS CONVERTED, YEARLY, INTO THE MAXIMUM AVERAGE PRICE OR MAP
AND TRANSLATED INTO DIFFERENT RATES FOR DIFFERENT CUSTOMER
CLASSES. THIS IS WHERE DISCRIMINATORY RATES ARE INSTITUTED AND
DISTORTED COSTS AND PRICES IN THE ARR ARE PERPETUATED.
– THE PROCESS IS VERY TECHNICAL AND LITIGIUOUS RESULTING IN MERE TOKEN
COMPLIANCE WITH PROCEDURAL AND SUBSTANTIVE DUE PROCESS FOR
CONSUMERS.
– RATES UNDER PBR HAVE REACHED THE ROOF – FROM P0.70 PKWH UNDER
RORB TO P1.6464 PKWH UNDER PBR.
– UNDER PBR, MERALCO’S NET EARNINGS INCREASED FROM P3.2 BILLION TO
P14BILLION IN JUST FOUR YEARS.
– THE 12% CAP ON RETURN ON CAPITAL HAS BEEN LIFTED.
• TRACKING MERALCO’S RATE:
–
–
–
–
–
–
–
–
–
FEB., 1994 - RORB - P0.70 PKWH
JUNE, 2003 - RATE UNBUNDLING, P0.9657 PKWH
2005 - INITIAL SHIFT TO PBR
JULY, 2007 - PBR (1ST & 2ND REGULATORY PERIODS)
MAY, 2009 - PBR RATE,
P1.2227 PKWH
APRIL 2010 - PBR, RY 2010 MAP, P1.4917 PKWH
JANUARY 2011 - PBR RY 2011 MAP, P1.6464 PKWH
JUNE, 2011 - PBR RY 2012 MAP, P1.60PKWH
JUNE, 2012 - PBR RY 2013, P1.6303 PKWH.
BASE CALCULATION
• RATE COMPONENTS, USING A 200 KWH CUSTOMER AS
BASE CASE:
• TOTAL BILL: P2,462.00/ JUL-AUGUST 2012 BILLING
–
–
–
–
–
–
–
GENERATION
P1,360.12
TRANSMISSION
196.18
SYSTEM LOSS
155.54
DISTRIBUTION (MERALCO)
462.53
SUBSIDIES
30.46
GOV’T. TAXES
233.42
UNVERSAL CHARGES
23.76
55.2%
8.0%
6.3%
18.8%
1.2%
9.5%
1.0%
• MERALCO COUNT FOR CUSTOMERS IN THE
101-200 KWH CLASS BASED ON DOCUMENTS
SUBMITTED BY MERALCO IN ERC CASE 2011088, FOR MAP 2012 – 1,268,332 – THE
BIGGEST CUSTOMER CLUSTER.
• GENERATION:
– DE-REGULATED
– COMPETETIVE
– PASS-THROUGH COST
– MERALCO HAS APPLIED FOR ERC APPROVAL OF ALLEGED
UNDER RECOVERY FOR GENERATION, FOR YEAR 2011
ONLY, AMOUNTING TO P1.8 BILLION. IT IS ALSO ASKING
FOR 8.9% INTEREST AMOUNTING TO P162MILLION.
– UNTIL THERE IS A SURPLUS IN SUPPLY, THERE WILL BE NO
TRUE COMPETITION IN THIS SECTOR.
– NOTE THAT THE COA REPORT OF DECEMBER 2009
INDICATED THAT MERALCO MAY HAVE OVERCHARGED
P2.7BILLION IN ITS GENERATION RATES.
• TRANSMISSION:
– REGULATED MONOPOLY
– SUBJECT TO THE SAME REGULATION AS MERALCO
UNDER PBR
– WHEN POWER RATE WAS BUNDLED UNDER NPC,
THIS WAS BARELY P0.60 PKWH
– ANCILLARY CHARGES ARE COLLECTED FROM
CONSUMERS AND THERE SHOULD BE
VERIFICATION IF THIS HAS BASIS.
• SYSTEM LOSS:
– ORIGINALLY CAPPED BY LAW UNDER RA 7832, THE
ANTI PILFERAGE LAW.
– MERALCO CURRENTLY REPORTS 7.13% SYSTEM LOSS.
– SL INCLUDES GENERATION COMPONENT, DESPITE THE
FACT THAT SL IS ESSENTIALLY LINE LOSS.
– UNDER A 200 KWH HOUSEHOLD, IF THE 7.13% SL IS
APPLIED TO MERALCO DISTRIBUTION RATE ONLY
(P462.53), THE SL CHARGE WILL ONLY BE P33.07
PKWH INSTEAD OF P155.54, OR A SAVINGS OF
P122.47. AT ANNUAL SALES OF 30BILLION KWH, THAT
MEANS P36.7 BILLION LESS CHARGES TO
CONSUMERS.
•
DISTRIBUTION:
– PBR IS REVENUE-SETTING, NOT COST RECOVERY AS MANDATED BY EPIRA.
– CONSUMERS ARE STILL QUESTIONING THE ARR FOR THE 3RD REGULATORY PERIOD. MR. URIEL
BORJA HAS BROUGHT THIS UP TO THE SUPREME COURT.
– MR. GENARO LUALHATI SAYS THE REGULATORY ASSET BASE OF MERALCO IS BLOATED BY P39
BILLION.
– MR BORJA SAYS THE CAPITAL EXPENSE PROGRAM IS OVERPRICED – BY AS MUCH AS 500% TO
900%.
– MERALCO APPLIED FOR P18BILLION UNDER-RECOVERY FROM THE 2ND REGULATORY PERIOD.
ERC GRANTED P20BILLION.
– MERALCO APPLIED FOR P2.04BILLION REGULATORY LIAISON AND COMPLIANCE, ERC GRANTED
P2.2BILLION.
– RETURN ON RATE BASE NOW CALLED WACC OR WEIGHTED AVERAGE COST OF CAPITAL IS
14.97%. AT ONE TIME THIS WAS 15.5%. CAP UNDER RORB WAS 12%.
– RAB IS NOW P126BILLION. THIS RESULTED FROM APPRAISAL INCREASE AND CAPEX
COLLECTIONS FROM CONSUMERS, NOT INVESTMENT OR EQUITY INFUSION BY THE OWNERS.
THIS HAS RESULTED IN A HIGH RETURN ON CAPITAL THAT THE OWNERS DID NOT PUT IN.
RETUIRN SHOULD BE BASED ON EQUITY RATHER THAN RAB.
– MERALCO IS GIVEN/ADVANCED BY CONSUMERS ITS WORKING CAPITAL, AND CONSUMERS ARE
EVEN CHARGED INTEREST OR CARRYING COST FOR THAT CAPITAL.
– ACCORDING TO MR LUALHATI’S COMPUTATION, MERALCO’S DISTRIBUTION RATE SHOULD
ONLY BE P0.90 PKWH, THUS MERALCO SHOULD REFUND CONSUMERS P21BILLION.
– THE SO-CALLED RATE TRANSLATION RESULTS IN RESIDENTIAL CUSTOMERS PAYING MORE
THAN COMMEFRCIAL-INDUTRIAL CUSTOMERS, AT MORE OR LESS DOUBLE THEIR RATE.
– THERE ARE INTRA-CLASS SUBSIDIES THAT RESULT IN DISCRIMINATORY PRICING. PRICE
ALLOCATION IS BY REGULATORY FIAT AND NOT COST OF SERVICE.
• SUBSIDIES:
– RESIDENTIAL CUSTOMERS USING MORE THAN 100
KWH ARE PAYING THE LIFELINE SUBSIDY AND
SENIOR CITIZEN DISCOUNT. THIS IS UNFAIR.
– THIS SUBSIDY SHOULD BE BORNE OR PAID FOR BY
GOVERNMENT FROM OUT OF THE VAT ON
POWER.
• GOVERNMENT TAXES:
– VAT ON SYSTEM LOSS AND SUBSIDIES SHOULD BE
REMOVED. HOW CAN LOSS AND AN
INVOLUNTARY SUBSIDY BE TAXED?
– VAT ON POWER SHOULD BE USED TO COVER THE
LIFELINE SUBSIDY AND SENIOR CITIZEN DISCOUNT.
• UNIVERSAL CHARGES:
– WE SHOULD VERIFY IF PRIVATELY-OWNED
DISTRIBUTION UTILITIES ARE CHARGING THEIR
DEBTS TO THE UNIVERSAL CHARGE.
– THERE SHOULD BE MONITORING OF THE POWER
DEBTS AS THEY ARE SUPPOSED TO BE RETIRED
FROM THIS AND THE PROCEEDS OF
PRIVATIZATION.
• MATTERS PENDING AT ERC:
– MAP 2012: ERC CASE NO. 2011-088. THERE HAS BEEN NO RULING ON THE
MERITS BUT A SUPERVENING ORDER WAS ISSUED, RENDERING THE HEARING
MOOT AND ACADEMIC.
– MAP 2013: ERC CASE NO. 2012-O54. NO HEARING ON THE MERIT BUT
ALREADY IMPLEMENTED UNDER A PROVISIONAL AUTHORITY. THIS IS THE
PROV AUTH THAT SUPERSEDED A PRIOR PROV AUTH (MAP 2012) WITH
NEITHER CASE BEING RESOLVED ON THE MERIT.
– APPLICATION FOR APPROVAL OF PRO-FORMA CONTRACT, ERC CASE NO. 2012013, A VIRTUAL BLANK CHECK FOR MERALCO TO LEASE ASSETS.
– APPLICATION FOR APPROVAL OF TWO POWER SUPPLY CONTRACTS – PANGEA
AND SAN MIGUEL ENERGY. WE HAVE TO REVIEW THE DETAILS OF THE
CONTRACTS.
– APPLICATION FOR OVER/UNDER RECOVERY OF GENERATION, TRANSMISSION,
SYSTEM LOSS, AND SUBSIDIES, FOR YEAR 2011 AND FOR FOUR PRIOR YEARS,
UNDER A SEPARATE FILING.
– APPLICATION TO SELL SAN MARCELINO PROPERTY, WE HAVE TO ESTABLISH
OUR INTEREST IN THE PROCEEDS AND THE REGULATORY/TRANSPARENCY OF
THE SALE ITSELF.
– A VERY SIGNIFICANT CASE TO WATCH OUT FOR IS THE SETTLEMENT
AGREEMENT, WHICH MERALCO MAY REVIVE ANY TIME SOON. AND WHICH
WE COULD OR SHOULD BRING TO CRIMINAL JUSTICE ON OUR OWN.
• WHAT CAN BE DONE:
– IN THE CERA OVERCHARGES, WE OBTAINED A REFUND.
– IN A COUPLE OF CASES AT THE APPELATE COURTS, INCLUDING THE SUPREME
COURT, WE HAVE LOST AND WON. IN FACT, FDC ITSELF WON A SUPREME
COURT DECISION THAT STRENGTHENED PROCEDURAL DUE PROCESS. WE JUST
HAVE TO BE PERSISTENT. WE HAVE TO REGISTER OUR PROTESTS. WE HAVE TO
ENTER OUR INTERVENTION. WE HAVE TO CHALLENGE AT EVERY TURN.
– WE HAVE TO MATCH THE INTERVENTION IN THE ERC PROCEEDINGS WITH
STREET/MASS ACTION.
– CONTINUING EDUCATION OF THE CONSUMER, HEIGHTENED READINESS TO
ENGAGE IN ALTERNATIVE FORUMS.
– IN FACT, IF WE CAN CREATE A PEOPLE’S REGULATORY COMMISSION TO
SHADOW AND TRACK THE ERC, WE WILL NOT JUST BE AIRING THE ISSUES, WE
COULD EMBARRASS AND SHAME THE COMMISSIONERS BY CARICTURING
THEM.