Scam in electricity transmission?

"The electricity-consuming public should follow this investigation."

Lately, electricity consumers complained about the very significant increase in their Meralco bills covering the Metro Manila lockdown period. Some were charged by as much as double their usual consumption.  This is particularly problematic especially in the face of millions of workers both in the formal and informal economy losing their jobs and livelihoods. This is alarming because during the same period, Meralco did not do meter reading. How then was it able to determine consumption?

The House Committee on Good Government has conducted hearings on this issue. Undoubtedly, Meralco erred in simply estimating consumers’ consumption during the hard lockdown period. The power distributor has promised to correct the billings and even extended the grace period for payments to up to August.

One would think that the problem has been addressed. However, Deputy Speaker Dan Fernandez exposed another big problem in relation with the electricity bills being paid by consumers. Fernandez, in the two Committee hearings questioned the Energy Regulatory Commission (ERC) and the National Grid Corporation of the Philippines (NGCP) in relation with how both entities perform their responsibilities that result in shortchanging consumers.

Most of us only know that we pay Meralco for the electricity we consume. We simply look at the bill and pay accordingly. We rarely scrutinize what we pay for unless there are problems like the big hike in our billings. However, we need to know that Meralco’s electricity distribution rate is just one of the several things we pay for our use of electricity.

Note that the Electric Power Industry Reform Act (EPIRA) was passed to promote competition, encourage market development, ensure consumer choice, and penalize abuse of market power in the restructured electricity industry.  These mandates were given to the ERC.  This law segregated the three major industry components namely, power generation, transmission, and distribution. Consumers pay for the three and more, but are only familiar with the distributor, Meralco.

NGCP on the other hand is contracted for the transmission component. According to Rep. Fernandez, the NGCP has most probably overcharged consumers by around P53.3 billion. If this is proven, he wants consumers to be refunded especially at this time when most families are struggling to make both ends meet.

Moreover, Fernandez wants the transmission rates passed on to consumers to go down. During the hearings, he questioned the ERC for its failure to conduct the reset for the Fourth Regulatory Period (2016 to 2020) in order to determine the correct Maximum Annual Revenue (MAR) for NGCP. This failure violates ERC’s own rules. This reset process is important because it determines the level of profit (MAR) that the NGCP is allowed to charge consumers for electricity transmission.

Instead, what happened was, the ERC increased the 2015 NGCP profit rates of P43.1 billion to P43.8 billion in 2016, and further increased it to P47.1 billion for 2020. Because of the failure to do the reset, the ERC calls this profit rate Interim Maximum Annual Revenue (iMAR).

One of the determinants of MAR is the Weighted Average Cost of Capital (WACC). According to Fernandez, WACC is around 66 percent of MAR and the others such as return of capital, operations expenses, and taxes make up 34%. Fernandez alleges that the NGCP’s WACC should have gone down in 2016 by about seven per cent (7%). Fernandez claims that this could potentially translate to a reduction of about P53.3 billion of MAR for 2016 to 2020. This means LOWER electricity rates paid for by consumers.  This claim was reinforced when in the hearing, the National Transmission Corporation (TransCo), the former transmission player before NGCP, said that it has conducted a study and the conclusion was the WACC should have gone down by around seven per cent (7%).

If Fernandez is correct that a reduction of 7 percent could have meant a P53.3 billion decrease, what more if the other determinants of profit were included? The NGCP profit reduction could have been significantly more than P53.3 billion.  Imagine how big a relief this could have been for the Filipino people.

If ERC did its work, that is to conduct the reset to determine the just and correct profit rates for the NGCP, electricity consumers could have enjoyed a significant decrease in the bills they have paid from 2016 onward. This could have been good news to all of us.

In relation with this issue, Fernandez, with Representatives Luis Raymund Villafuerte, Jr., Eric Go Yap, Abraham Tolentino, Claudine Diana Bautista, and Alyssa Sheena Tan filed House Resolution No. 953 directing the House Committee on Good Government and Public Accountability to conduct an immediate investigation in aid of legislation.

The electricity-consuming public should follow this to determine if we are being scammed by those who should protect us as consumers.

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