ERC junks overcharging findings on Meralco

by Alvin Elchico, ABS-CBN News

Posted at Jul 05 2011 09:51 PM | Updated as of Jul 06 2011 05:51 AM

MANILA, Philippines - The Energy Regulatory Commission (ERC) has affirmed an earlier decision dismissing Commission on Audit (COA) findings that Manila Electric Co. (Meralco) overcharged consumers by P2.59 billion in electricity charges.

ERC Executive Director Atty. Francis Juan says the COA did not consider incremental costs when it audited Meralco's finances in 2004 and 2007.

Juan explains that Meralco's profits rose beyond the approved return on rate base due to an increase in electricity sales for the period, which cannot be considered "over-recovery."

According to the ERC, while the COA calculated Meralco's revenue using historical costs of assets and a 12% rate on return, this is contrary to existing laws which allow the use of present market value and reasonable return to which Meralco is entitled.

In simple terms, the ERC negated a cap on Meralco's profits with the implementation of the performance-based rate setting in determining the profits of the utility.

In 2006, the Supreme Court ordered the COA to audit Meralco's books, accounts and records after it increased its rates due to the unbundling of rates as a result of the Electric Power Industry Reform Act or EPIRA law.

In 2009, COA found Meralco to have exceeded its revenue requirement by P2.59 billion, while in 2007, it had a deficiency of P1.27billion.

According to COA, the excess/defiiency was due to certain operating expenses that were not recoverable from consumers as they were not reasonable and necessary in the delivery of distribution services. These include, among others, pension and other benefits of employees and company officials.