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Meralco’s ₱0.01 centavo per kwh electricity rate reduction: Adding Insult to Injury

Trade Union Congress of the Philippines - TUCP

The Trade Union Congress of the Philippines (TUCP) scoffs at and ridicules the recently announced one centavo per kilowatt-hour electricity rate reduction by MERALCO. The power industry giant announced last month that power rates would go down this month of February, which had consumers eagerly anticipating such rate cut.

“It’s like the power industry is telling the Filipino people and Philippine industries that depend on power to just ‘DROP DEAD!’ It’s utterly disappointing to say the least”, exclaimed TUCP Vice President Luis Corral.

“Our pressing concern is how to directly address the plight of the ordinary Juan Dela Cruz whose earning capacity is severely at odds with his purchasing power. How can they be able to weather this storm? And now with MERALCO’s ridiculously minute power rate cut of one centavo, this is really adding insult to injury”, added Corral.

TUCP has long favored energy reform policies especially now in the face of skyrocketing rates of inflation which as of January 2023 is at 8.7% and still climbing. Electricity inflation for the month of January climbed to 22.2%, higher than December’s 20.1%.

“Can’t the power players in the energy sector moderate their greed in light of this current crisis we’re at? Obviously, the company won’t go belly-up with a higher rate cut”, suggested Corral. MERALCO’s net income in 2021 was reportedly at ₱23.49 Billion.

TUCP believes that electricity inflation can still be addressed by several mitigating measures. “We continue to urge the government to focus on how electricity rates should be much lower if the allowable Weighted Average Cost of Capital (WACC) for utilities is reduced by at least half. The current 15% rate is too high so much so that even Bloomberg said that the applicable WACC should only be around 7-8% for utilities. The adjusted WACC should also be applied to equity instead of the asset base so that it will become return on equity”, explained Corral.

“MERALCO reportedly has around ₱82 Billion in equity, with the adjusted WACC at 8% on return on equity, that would only be ₱6.5 Billion WACC. With this formula, electricity rates will go down and MERALCO could well afford to give consumers a higher rate cut”, explained Corral.

“Coupled with the WACC adjustment, the ERC must also set aside the Performance-Based Ratemaking (PBR) in favor of the simpler Return on Rate Base (RORB) tariff-fixing methodology. Under RORB, Cost recovery on investments already made or costs incurred was capped at 12% based on the Public Utility Act and jurisprudence. PBR does not set such price cap on recovery, making it ‘sky-is-the-limit’ for utilities, to the detriment of consumers”, added Corral.

“Another item that deserves another review is systems loss. Recovery should be limited to technical loss or line loss only. Losses from pilferage and theft of hardware should be solely borne by the utility and should not be passed on to consumers. Treat it as the cost of doing business, a risk that power distribution utilities like MERALCO are well aware of. The reckoning point of technical loss should be as a percentage of distribution cost where the losses occur, not the total cost that includes generation”, suggested Corral.

“To illustrate, if systems loss is capped at 7%, it should be 7% of distribution cost only, not of the entire cost of providing electricity. That will be a huge reduction if the policy is reviewed”, said Corral.

“The TUCP fully supports the latest initiative of Speaker Martin Romualdez in sponsoring House study sessions on addressing the matter of the affordability and 24/7 reliability of power”, stated Corral.

“The ERC has long been inutile and the DOE unfortunately, dismisses any responsibility by taking the position that it has limited powers in a privatized industry. It’s about time they wake up and actively do their respective jobs. Enough with their excuses already”, said Corral.

“Undoubtedly, cooperation of all sectors is much desired in order to get through this crisis. Empathy, not greed, should be the prevailing attitude most especially in these times. Industries like the power and energy sectors should contribute more to the welfare of the people and not provide added burden to an already weary nation”, concluded Corral.

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