PRESS RELEASE: MERALCO to collect under-recoveries

The Manila Electric Company (MERALCO) was given authority to recover the under-recoveries it incurred in the implementation of its lifeline charge and inter-class cross subsidy charge, set earlier by the Energy Regulatory Commission (ERC). In its Decision dated 16 November 2009, the ERC computed MERALCO’s under-recoveries in the implementation of the lifeline charge at PhP856,367,808 as against PhP863,956,786.20 as applied for by MERALCO and allowed MERALCO to impose an additional rate of PhP.0068 /kWh, until such amount is fully recovered. In another Decision, also dated 16 November 2009, the ERC fixed MERALCO’s under-recoveries in the inter-class cross-subsidy charge implementation at PhP1,048,541,216 as against PhP1,053,686,128, which MERALCO sought to recover, and allowed it an additional rate of PhP.0103/kWh for its recovery.

MERALCO filed on 19 February 2008 its petition to recover its under-recoveries in the implementation of the lifeline charge for the period June 2003 to December 2007. MERALCO’s lifeline charge was established by the ERC pursuant to Section 73 of Republic Act No. 9136 (EPIRA). The proceeds of this charge, which is imposed on MERALCO’s non-lifeline customers, subsidize the discounts in the electricity rates granted to MERALCO’s lifeline customers. This charge was fixed based on certain assumed kWh consumption for the lifeline customers and kWh sales to the non-lifeline customers. On a monthly basis, however, these kWh consumption and sales vary from that used in the fixing of the lifeline charge. When the amounts collected from the non-lifeline customers to subsidize the discounts granted to the lifeline customers are not sufficient, either because there was an increase in the kWh consumption of the lifeline customers or a reduction in the kWh sales to the non-lifeline customers, or a combination of these factors, MERALCO is constrained to shoulder the shortfall. Given that the implementation of the lifeline charge should be revenue-neutral to the utility, MERALCO, in such cases, incurs an under-recovery in the implementation of the lifeline charge.

Earlier, on 14 November 2009, MERALCO already sought to recover its under-recoveries in the implementation of the inter-class cross-subsidy charge. Prior to its eventual phase-out and removal as mandated by Section 74 of the EPIRA, cross-subsidies existed and were allowed in the rate structures of the utilities. Certain classes of the utility’s customers, such as the industrial and commercial end-users, are imposed an additional charge, the proceeds of which are used to reduce the rates of other customers such as the residential end-users, hospitals and street lights. Consistent with the mandate of EPIRA to gradually remove this type of subsidy, the ERC set MERALCO’s inter-class cross-subsidy charges during the three-year phase out period from June 2003 to October 2006. Similar to the lifeline charge, the inter-class cross-subsidy charges assumed certain kWh consumption and sales of the subsidizing and subsidized classes. When the actual kWh consumption and sales deviate from these assumptions, such as when the proceeds of the kWh sales to the subsidizing classes are not sufficient to subsidize the discounted rates for the subsidized classes, the utility incurs an under-recovery.

The combined effect of these recent approvals issued by the ERC is less than 2 centavos per kWh or less than PhP4 per month for a residential customer consuming 200 kWh. The imposition of these additional rates is expected to last for about 4 years only and as soon as the full amounts of under-recoveries are recovered, MERALCO shall desist from further collecting the same.

Decision_ERC_CaseNo.2008-008RC_MERALCO

Decision, ERC Case No. 2007-157 RC_MERALCO

 

November 27 , 2009

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