OVER EIGHT MILLION customers of Manila Electric Co. (Meralco) may see higher electricity charges starting March after the Energy Regulatory Commission (ERC) approved P31 billion in fuel cost recovery sought by power generators.
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THERE IS A PENDING ISSUE FROM THE 3RD REG PERIOD DUE TO AN ERROR IN THE CALCULATION OF THE RATE. THERE IS NO ISSUE ABOUT THE ERROR BECAUSE ERC AGREED AND CONFIRMED THAT THERE WAS AN ERROR. HOWEVER, IN MA TO ONLY P7.8 KING THE CORRECTION, AN ERRONEOUS ASSUMPTION WAS MADE WHICH REDUCED THE OVER RECOVERY FROM ABOUT P37 BILLION TO ONLY P7.8 BILLION – THE AMOUNT ORDERED REFUNDED IN 2022.
My comment:
In separate orders promulgated last January 26, ERC approved the request of Meralco and other power generation companies to collect P31 billion from consumers which represent cost recovery resulting from terminated power deals between Meralco and power generation companies. It is equivalent to an additional P0.2816 per kilowatt-hour charge starting March 2026, over a period of 12 to 36 months, or until the full amount is recovered.
With immediate action from the ERC, this rate increase effective March could be negated or even eliminated by a Refund Order to correct an error in the approved rate during the 3rd Regulatory period as explained below:
As part of a regulatory contract, a distribution utility like Meralco is allowed to recover in full its investment in regulatory assets in exchange for the services to be rendered to consumers in their franchise areas. The compensation for loss in asset value due to inflation may be done via inclusion of the inflation adjustment to the asset value (by using replacement values) or, in the rate of return (by using a Nominal rate of return) = BUT NOT IN BOTH.
In calculating for the 3rd RP rate, the return on capital was computed using a RAB valued at replacement cost with a rate of return using a Nominal rate – THUS, THERE WAS DOUBLE COMPENSATION FOR INFLATION. A simple calculation of the resulting over recovery follows (Amounts in Billions):
Return at Return at
Reg. Year RAB at ODRC Nominal Rate Real Rate Over Recovery
2012 127.8 19.1 10.2 8.9
2013 132.1 19.8 10.5 9.2
2014 135.3 20.3 10.8 9.5
2015 138.2 20.7 11.0 9.7___
Total 37.3
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In a decision sated March 2022, ERC confirmed that there was such an error. However, due to an erroneous assumption, only P7.8 billion was ordered refunded to consumers leaving a balance still to be refunded of about P28.5 billion. In its financial statements, Meralco recognized provision for losses due to over recoveries at an average of about P10 billion annually or, about P40 billion included as part of Meralco’s Other Liabilities.
To date, in spite of earlier communications with ERC on this matter, there are no indications that a validation or re-computation will be done by the Commission to fully correct the error. It is unfortunate that the immediate action by the ERC could completely negate or eliminate the approved P31 billion generation cost recovery and relieve the consumers of additional cash outlay effective March.