Meralco overcharged clients in 2004, 2007 — COA report

Manila Electric Co. (Meralco) overcharged consumers after unduly generating almost P7 billion in excess revenues in 2004 and 2007 by unjustly including billions of pesos worth of property, equipment and expenses in the computation of power rates under a scheme that breaks down components of its business activities, state auditors said. In a report, the Commission on Audit (COA) said the country's biggest power distributor generated P1.68 billion above what it should have fairly collected in 2004, and P5.33 billion more in 2007 due to a misapplication of its so-called unbundled rates. "Unbundling" involves breaking out the components of traditional bundled services — generation, transmission, distribution and supply — and assigning existing costs to service components, as well as developing prices based on these costs. The scheme, which is pursuant to Section 36 of Republic Act 9136 or the Electric Power Industry Reform Act of 2001, is supposed to promote transparency in the local power industry by allowing consumers to find out how much they are being charged for various service components. State auditors audited Meralco's books pursuant to a Supreme Court ruling directing the Energy Regulatory Commission (ERC) to examine the utility's accounts to make sure a rate increase for 2003 was justified. The high court upheld the increase approved by the regulator, but ordered a review. In their report, government auditors said Meralco should not have included in the computation of its rate increases P3.7 billion worth of property for 2004 and P3.5 billion in equipment for 2007. Meralco should also not have included a parking area almost a kilometer away from its office, as well as employees' pension and benefits worth P2.356 billion in the computation of its rate adjustment, the COA said. “Certain operating expenses amounting to P3.48 billion and P2.92 billion for calendar years 2004 and 2007, respectively, were not considered recoverable from consumers [since] these were not reasonable and necessary in the delivery of distribution services," the report said. Meralco officials declined to comment on the audit report pending receipt of a copy from the ERC. "We will study the report as soon as we get the official transmittal from the ERC," Joe R. Zaldarriaga, Meralco external communications manager, said in a text message. The ERC, which released the audit on Tuesday, asked concerned parties to submit their comments on the audit. After that, the regulator will rule on Meralco's unbundled rate, ERC Executive Director Francis Saturnino Juan said. Juan noted that while they would take the COA report into account, they were not bound to follow everything it said. “It will be a judgment call on the part of regulators if we will allow these assets to be included in the computation of the unbundled rates of Meralco," he added. Caught red-handed This is not the first time that state auditors have found Meralco overcharging its customers. In 2003, the Commission on Audit discovered that the utility had overcharged its clients by 1.7 centavos/kilowatt-hour (kWh) by including income tax as an expense that it had passed on to consumers from 1994 to 2002. The Supreme Court subsequently ordered Meralco to stop this practice and to refund as much as P30 billion to consumers. The ERC, meanwhile, has been criticized for supposedly being powerless in preventing the power distributor's allegedly recurrent abuse. In 2003, the Freedom from Debt Coalition questioned the ERC’s approval of Meralco's provisional authority to raise rates by as much as 12 centavos/kWh. The high court, however, rejected the ERC ruling in January 2004 because it violated certain rules during its own hearings. In June 2004, Meralco again applied for an increase of 13.27 centavos/kWh through its so-called generation rate adjustment mechanism. The Supreme Court again junked the petition in February 2006, saying the utility had not followed the prescribed process. The Lopez family, which used to own majority of Meralco, has since divested much of its stake in the company following a spat with the government over high energy costs. The Lopezes first sold a 20-percent stake in Meralco to the PLDT group of Manuel Pangilinan in March 2009, raising P20 billion to retire mounting debt incurred in their foray into power generation, particularly geothermal energy. Firms allied with Pangilinan's Metro Pacific Investments Corp. later obtained an additional 14.7-percent stake from the open market, sending Meralco share prices skyrocketing. An alliance with the Lopezes fended off a takeover attempt last year by San Miguel Corp., which has a 27-percent stake but claims to be able to muster 43 percent. Last November, the power struggle took another twist when the son of mall tycoon Henry Sy, the country's richest man, offered to buy half of the Lopezes' remaining 13.4 percent Meralco stake for P300 apiece. Pangilinan's group, which had the right of first refusal, matched the offer under complicated terms — Metro Pacific first extended an P11.2-billion loan to the Lopezes in November, and then would be given a call option to expire on March 31 over the 6.6-percent stake for P22.4 billion. The latest deal will allow the Metro Pacific-PLDT bloc to hike its interest in Meralco to 41.4 percent from 34.7 percent. The Lopezes will reduce their stake to 6.7 percent from 13.4 percent. — Norman P. Aquino, GMANews.TV