The Manila Electric Company (Meralco) strongly denies the baseless claims made by Santa Rosa City Rep. Dan Fernandez that the distribution utility overcharged its customers starting 2012.
Meralco First Vice President and Regulatory Management Head, Atty. Jose Ronald Valles refuted the overcharging allegations, insisting that its rates undergo a review and confirmation process to ensure that they are fair and reasonable, just like other distributors.
Meralco emphasized that it has no power to unilaterally set its own rates. All rates reflected in the electricity bills of customers are approved by the regulator following a very stringent and transparent process of public hearings.
“I would like to reiterate that as a highly regulated entity, Meralco strictly adheres to the rules governing its operations and franchise and the rates we implement always have prior approval from the regulator. A testament to the strict review, these rates are still subject to periodic confirmation process by the ERC,” Valles said.
“The proper venue for discussing the refund claims is the ERC, which has the rate-setting power and the regulator has already decided on a refund totaling P48 billion, which Meralco implemented in a timely manner,” he added.
Meralco said it is unfortunate that the lawmaker is focusing on Meralco when records will show that Meralco is, in fact, the only private distribution utility (DU) that has made a distribution refund in compliance with ERC directive.
As to Rep. Fernandez’s allegations that Meralco has an “extremely high weighted average cost of capital”, Meralco emphasized that the setting of the weighted average cost of capital (WACC) is a function of the regulator. Meralco’s last approved WACC is the lowest WACC given by the regulator under the Performance-Based Regulation (PBR), whether for NGCP or for a private DU. The WACC was determined based on a set of rules that underwent public consultation and thorough review by ERC. This WACC is an industry WACC that applies to all private DUs in the same category and is not company specific. In addition, Meralco does not have a determined WACC since July 2015 because there was no completed rate reset during that regulatory period up until now.
Further, Meralco cited a recent study of the International Energy Consultants which concluded that Meralco’s rates are fair and reasonable since they reflect the true cost of electricity as against other countries whose power costs are heavily subsidized by their governments.
This was the result of the company’s constant efforts to source the least cost available supply through, among others, the conduct of a transparent competitive selection process (CSP).
Before conducting CSP, Meralco also secures an approval from the Department of Energy (DOE) of its Power Supply Procurement Plan and the Terms of Reference (TOR) of its proposed CSP, to make sure that these are aligned with the requirements and standards set by the government.
“This is contrary to the baseless and malicious claims that Meralco’s TOR is tailor-fitted to favor select generation companies,” Valles said.
“Our past CSPs conducted are proof that no such tailor-fitting is happening, precisely because the TOR and other bidding documents are required to comply with existing policies of DOE and regulations of ERC, and the resulting Power Supply Agreement needs to be approved by regulator,” he added.
In fact, the ongoing CSP of Meralco is just a rebidding of a valid CSP held in 2020. Unfortunately, the PSAs resulting from the original CSP were terminated by the two winning Power Suppliers due to lack of ERC approval for more than 2 years. The new CSP simply reiterated most of the provisions in the previous TOR that has been approved by DOE and its terms strictly followed the previous guidance of DOE particularly with respect to the requirement to limit the bidding to greenfield power plants to encourage new capacities, thereby ensuring security of supply and lowest cost to consumers.
Based on records, there are already six companies that have expressed interest to participate, proving that there is competition and Meralco could get the least cost supply for its customers through the process.
“The CSP is a very transparent process, and the resulting PSAs from this bidding will still be subject to the review and approval of the ERC,” Valles concluded.