Date: April 2003

Power Distributor in Financial Crisis

The Manila Electric Co. (Meralco) claims that the final Supreme Court ruling ordering the power utility to refund some P28 billion it had overcharged its customers since 1994 would be a serious financial blow against the company.

Company officials said that the final court ruling will threaten the firm's financial standing. They insisted that the company would have a difficulty in refunding the amount.

On April 10, the Supreme Court's Third Division denied Meralco's appeal to reverse the court's decision asking the company to return its overcharges to 3.5 million power consumers in Metro Manila, Central Luzon and Southern Tagalog.

The Lopez-owned company is the country's largest power distributor and buys electricity from the National Power Corp. (Napocor) as well as the so-called independent power producers (IPPs). Since February 1994, the company has been computing its income-tax payments as a part of its operating expenses, contrary to normal accounting practice.

The Supreme Court, however, supported the Energy Regulatory Commission's (ERC) argument that the income tax payments should have been shouldered by Meralco and should have not been passed on to its customers. Because the company has been doing so in 1994, it was found guilty of overcharging.

The court ruled that public utilities "cannot be allowed to overcharge at the expense of the public and, worse, they cannot complain that they are not overcharging enough."

Several congressmen have warned that they will file estafa charges against Meralco officials, should they fail to implement the court order. The solons said that each of the 3.5 million Meralco customers could file 96 counts of estafa against the company, if it does not refund the amount it had overcharged from them.

Ironically, Meralco is asking the ERC to allow it to increase further its power rates, even after being allowed a 22-centavo per kilowatt-hour (KwH) increase on March 21. Meralco has been clamoring for an increase of P1.22 per KwH.

A further increase in power rates would make the cost of electricity in the Philippines one of the highest in Asia. The Philippine Chamber of Commerce and Industry (PCCI) said the purchased power adjustment (PPA) makes the cost of electricity in the country uncompetitive.

The PPA refers to a cost adjustment mechanism representing additional charges on top of the cost of the actual power consumed.

In its study, the PCCI said the present computation is not transparent and allows Meralco to resort to multiple charges. Apart from the basic energy cost, power consumers also pay for demand charge, foreign currency adjustment and the PPA. In particular, the PCCI described the demand charge as a double charge because it is calculated every time a motor is turned on.

Meralco is also said to be collecting charges for its own losses and passing them to its customers. In short, customers do not only pay for their own consumption but for the unpaid consumption of others. Under the separate Napocor PPA, consumers also pay for unused electricity generated by the IPPs.

Click Here to View Complete Listing of Special Reports