Meralco warns performance-based rate scheme delay to burden customers

MANILA, Philippines - Manila Electric Co. (Meralco) warned yesterday that further delays in the implementation of the performance-based rate (PBR) mechanism would lead to a bigger burden on its customers.

“The delay in the implementation of the PBR makes it more expensive for consumers,” Meralco president Jose de Jesus told reporters in a briefing.

De Jesus said a delay will not only be cumbersome to the company’s customers but to the company itself which will eventually suffer cash flow problems.

The Energy Regulatory Commission (ERC) has already approved Meralco’s PBR scheme but decided to defer implementation pending the resolution of some issues lodged by is consumer groups.

The Meralco chief admitted that while they want their customers to realize that the PBR will result to better service, they have to wait for the ERC’s approval.

“That’s one of the things we explain to the regulators — so that they would understand the impact. I think they do, but of course their mandate is to protect the interest of the consumers. The last time we met, I said we’d probably survive but our cash flow is going to be affected and our ability to sustain the service is going to be affected. The ERC will always try to mitigate the price shock to consumers – that’s why they apply side constraints to cushion the impact,” De Jesus said.

Based on the approved maximum allowable revenue (MAR) under the PBR for 2009, Meralco could charge customers P1.36 per kilowatthour (kwh).

But to be able to minimize the impact of such, Meralco could only collect P1.23 per kwh, the balance of which will be carried over the next revenue period.

 “The ERC has a formula where you cannot get the full amount petition. They have something called side constraints. There is an element in the equation that will cushion the impact to consumers. For instance, instead of P2 per kwh, the rate the ERC would approve will be P1.20 per kwh or something else. The difference will be carried over and subjected to side constraints,” de Jesus said.

Meralco vice president and head of utility economics Ivanna dela Pena explained that this rate mechanism is proven to have worked well in other countries so there is no reason for Meralco customers to worry about the impact of such new system. The PBR is now being used in the UK, Australia and the US.

 “The reason there are objections is that perhaps because they still don’t have a full grasp and understanding of the process and principles and the objectives. That is why we take pains in explaining. Opposition usually springs from lack of understanding,” she said.

Under the PBR, Meralco is obliged to set aside budget for capital and operational expenditures.

Under the proposed PBR, Meralco would increase its distribution charge to P14.49 per kWh.

The PBR was to be implemented last November 2008 but the ERC decided to defer implementation after customer groups and the Department of Trade and Industry (DTI) lodged various complaints against the PBR application.

Based on the PBR, Meralco set a P7-billion capex level annually from 2007 to 2011.

The PBR ensures that distribution utilities  provide a high level of service since there are performance rewards and penalties on the part of the Dus utilities.– Donnabelle Gatdula