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House panel vice chairman opposes early bid to extend Meralco franchise

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A House leader on Tuesday opposed a bill that would extend the legislative franchise of power distribution giant Manila Electric Company (Meralco) which would expire in 2028.

Sta Rosa City Rep. Dan Fernandez, vice chairman of the House committee on energy, said questionable actions by Meralco have led to high power rates and abuses against consumers.

“Meralco says there’s light in life, but in reality Meralco hid in the dark the abuses against consumer rights,” Fernandez said at a hearing of the House committee on legislative franchise chaired by Parañaque City Rep. Gus Tambunting.

Current power rates are high, according to Fernandez, because while San Miguel’s SPPC power generating subsidiary terminated a power supply agreement (PSA) with Meralco, the distribution utility last January contracted 1,800 megawatts (MW) of supply with the same company but at rates higher than the one that was terminated.

At the House legislative franchise committee hearing, Meralco representatives said the acquisition of power supply from the same company that terminated its previous PSA was allowed by law.

According to Fernandez, the biggest offense committed by Meralco was to overcharge its customers, but there are also other allegations that need to be examined before the House acts its franchise bid:

—      Meralco awarded PSAs to so-called associated firms, or generating companies owned by Meralco’s mother company, the MVP group, indicating conflict of interest;

—      Prior to entering into a mega liquefied natural gas (LNG) deal with generating companies owned by San Miguel Corp. and Aboitiz group, Meralco awarded PSAs to these companies, arousing suspicion that these PSA awardees were favored firms;

—      Meralco’s service area has expanded outside the National Capital Region (NCR) without legislation by Congress;

—      The overall trend in power rates is upwards. Rate reductions are few and far between and rates are barely explained;

—      Customers get refunds for overcharged fees through rebates in their power bills so Meralco gets to keep the cash.

Fernandez also listed these key reasons to reject the renewal of Meralco’s franchise:

—      Rate setting per kilowatt hour (KwH) is heavily influenced by weighted average cost of capital (WACC), which remains high at 14 percent and has not been adjusted by Meralco. This drives rates up.

—      WACC is used as basis for rate of return of investment instead of return of rate base (RORB), which would make power rates more reasonable.

—      The list of assets in the regulatory asset base, which is the basis to evaluate the value of Meralco that is used to compute WACC, includes the Meralco museum, Meralco theater, its corporate wellness center and shooting range, which have nothing to do with its sole function of distributing electricity but affects rate setting.

“For these reasons, we strongly oppose the early renewal of Meralco’s legislative franchise,” Fernandez added.

He said Meralco must first return to its customers the excess charges it has collected through the years in a process that would be supervised by Congress and regulatory agencies.

He said the praises and commendations that sponsors of the early extension of Meralco’s franchise must be taken with a grain of salt.

Fernandez said the bad outweighs the good in the case of Meralco.

“I must admit that there are a lot of good things that Meralco has done, but there are certain allegations of violations that have been committed by Meralco as well,” he said.

He said prior to acting on the franchise extension, the allegations should be discussed, too.

He said the House should study whether to renew the Meralco franchise or divide it into three for better services in areas outside the NCR.

Meralco has grown too big for a single franchise, he said.

“Instead of trying to renew their franchise, I will propose that we divide their franchise so that there will be real competition,” Fernandez said.

Fernandez had accused Meralco of overcharging its customers by at least P200 billion since 2012, which Meralco has denied.


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