SC orders ERC to review approval of Meralco’s unbundled rates

Mike Navallo, ABS-CBN News

Posted at Oct 10 2019 11:35 AM | Updated as of Oct 11 2019 04:06 AM

MANILA (2nd UPDATE) – In a bid to reduce electricity costs, the Supreme Court has ordered the Energy Regulatory Commission (ERC) to review its approval of Meralco's valuation of its regulatory asset base and determine whether expenses not directly related to the distribution utility can be passed on to consumers.

In its en banc session Tuesday, the high court voided ERC’s approval of Meralco’s unbundled rates for violating its statutory mandate to provide electricity to consumers “in the least cost manner” after it found that the commission ignored the findings of the Commission on Audit (COA).

A prior SC ruling in 2006 had ordered the ERC to request a complete audit on the books, records and accounts of Meralco. COA found MERALCO had "excess revenues" and "over-recovery" and recommended that Meralco’s operating expenses and some of its properties and equipment amounting to billions of pesos in 2004 and 2007 should not be considered part of the rate base. But the ERC, in June 2011 and February 2013, merely stood by its 2003 orders approving Meralco’s unbundled rate application.

Consumer group National Association of Electricity Consumers for Reforms, Inc. (NASECORE) questioned ERC’s orders before the Court of Appeals.

But the CA sided with ERC, saying COA used “questionable factors” in its audit. These include using data from different test years and a method other than that used by Meralco in its rate increase application. 

It added that the conduct of a COA audit was not a requisite for the ERC’s exercise of its rate-fixing powers, and that the ERC was not bound to accept and adopt any finding that the COA audit may come up with.

The appellate court also said factual findings of administrative bodies like the ERC on technical matters within their area of expertise should be given respect and finality if supported by substantial evidence.

But the Supreme Court, in a decision penned by Senior Associate Justice Antonio Carpio, said the ERC should still consider COA’s findings because the Government Auditing Code of the Philippines and the Administrative Code of 1987 specifically authorize COA to examine accounts of public utilities in connection with the fixing of rates of every nature.

It explained: “MERALCO and other electricity distribution utilities are monopolies that are regulated by the State, particularly on the rates they charge consumers. The same rationale in regulating power acquisition costs by distribution utilities applies to the allowable depreciation of capital assets by distribution utilities in the present case,” based on a press release issued by its Public Information Office.

The high court remanded the case to ERC to determine a reasonable and fair valuation of the regulatory asset base that will provide electricity to consumers “in the least cost manner,” as mandated by Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA).

The Supreme Court has yet to release a full copy of its decision.

In the same ruling, SC directed intervenors led by Clark Electric Distribution Corporation to raise their issues with the ERC.

ERRATUM: An earlier version of this article indicated that Meralco's rate hikes applied for in 2000 and 2001 were also voided. While these too were questioned, a Supreme Court source said only the depreciation method for valuation of the regulatory asset base was voided, not the rate hikes. A copy of the full decision has not yet been released.