by Francis Saturnino Juan
The Energy Regulatory Commission (ERC) announced recently that it ordered Meralco to refund its consumers the total amount of PhP19.95 billion representing “Meralco’s over-recovery of rates for the lapsed period from 01 July 2022 to 31 December 2024.” In a decision split 3-2, the ERC directed Meralco to return this over-recovery by decreasing its distribution charges by PhP0.1189 per kilowatt-hour (kWh) across all customer categories of the distribution utility over three years, or until the entire PhP19.95 billion is refunded. In response to this announcement, NASECORE, a consumer group led by former DOE Undersecretary Pete Ilagan, expressed that the decision favors Meralco and is detrimental to consumers, especially residential customers who face higher distribution charges compared to other customer categories. The group suggested an immediate audit of Meralco’s over-recovery and a full refund of the PhP19.95 billion, rather than spreading it over three years.
As a Meralco customer, I am pleased with any forthcoming rate reductions. However, I am frustrated that over the years, the ERC has permitted Meralco to implement interim distribution charges instead of fixed and final rates. This has allowed Meralco to collect more from its customers than it would have if the distribution charges had been pre-approved by the ERC, rather than relying on the current and legally questionable “lapsed period rate regulation,” which is tantamount to retroactive rate-making. This approach has led to various uncertainties and inequities, some of which NASECORE has highlighted. Despite the ERC’s recent refund order, the harm to all Meralco consumers, both large and small, has already been inflicted, and Meralco has already benefited from additional free cash to support its past operations.
Why has the situation arisen where Meralco is periodically required to refund billions of pesos based on the ERC’s true-up calculation of its “Actual Weighted Average Tariff (AWAT) compared to the Approved Final Distribution Rate Implemented During the Lapsed Period?” The explanation is straightforward – over the last decade or so, the ERC has not managed to conduct, finalize, and issue a conclusive rate-reset decision or Final Determination on Meralco’s rates. Had this been done, the concept of “lapsed period rate regulation” would not have been invented. Consequently, there would have been no over-recoveries in the implementation of Meralco’s distribution rates during the lapsed period, and no necessity for any refunds.
To be fair, the situation is not unique to Meralco. All other private distribution utilities (DUs) under performance-based rate-making face the same dilemma. Worse for them, rather, their customers, there seems to have been no urgency for them disclose and update all of their distribution charge over-recoveries to ERC and for ERC to direct them, similar to Meralco, to already implement their own refunds.
Over-recoveries and refunds are not gifts from the ERC to us, the consumers. Whether the refund is given all at once, as NASECORE suggests, or spread over three years, as decided by the 3-2 ERC majority, the PhP19.95 billion refund Order is a reminder of the ERC’s failure to effectively and timely regulate distribution tariffs, not only for Meralco but for all DUs, including all the Electric Cooperatives, across the country. Instead of celebrating the refund Order or debating the length of the refund period, we should collectively demand an improved system of distribution rate regulation that altogether eliminates the occasion and need for over-recoveries and refunds.