Supreme Court orders Meralco to refund P28.1-B in ‘overcharges’

The Supreme Court ordered the Manila Electric Co. (Meralco) yesterday to refund the amount it overcharged its over three million consumers for several years.

Although the high tribunal did not give an amount that the country’s largest power distributor would have to refund, Meralco earlier said it could reach as much as P28.15 billion.

The 21-page ruling came a day after a warning from Meralco that it was on the verge of bankruptcy and a refund order would "most likely put its utility business to a halt" and imperil the economy.

The five justices of the Supreme Court’s third division voted unanimously for the refund based on a petition of the government’s Energy Regulatory Board (ERB), predecessor of the Energy Regulatory Commission (ERC).

The ERB ordered Meralco in 1998 to refund some P10.8 billion to consumers based on overcharging allegedly committed from February 1994 to February 1998.

Meralco charged 18.4 centavos per kilowatt-hour (kwh) instead of 16.7 centavos from 1998 up to the present.

The ERB said Meralco should not pass on to customers its income tax but power firm argued that this was part of its operating expenses and that the practice was acceptable under US law.

Meralco resisted the ERB order and elevated the case to the court, winning a decision in the Court of Appeals in 2000. This prompted the ERB to bring the case before the Supreme Court even as the amount to be refunded continued to grow.

Based on Meralco’s own estimate, the refund stands at about P28.15 billion because it continued to charge at least 18.4 centavos per kwh up to the present.

The tribunal said it found "no reasonable basis to overturn the recommendation" of the ERB and reversed the Court of Appeals ruling.

Meralco had argued in court that the ERB erred when it ordered the power firm to reduce its rates after being granted a tariff increase.

"The burden of paying income tax should be Meralco’s alone and should not be shifted to the consumers by including the same in the computation of its operating expenses," the Supreme Court said in its decision, penned by Justice Reynato Puno. The other members of the division are Justices Artemio Panganiban, Angelina Gutierrez, Renato Corona and Conchita Carpio-Morales.

"To charge consumers for expenses incurred by a public utility which are not related to the service or benefit derived by the customers from the public utility is unjustified and inequitable," the ruling said.

It added that it "cannot give in to the importunings of Meralco that we blindly apply the rulings of American courts on the treatment of income tax as operating expenses in rate regulation cases."

"Meralco has not justified why its income tax should be treated as an operating expense to enable it to derive a fair return for its services. Meralco has not adequately shown that the rates prescribed by the ERB are unjust or confiscatory as to deprive its stockholders a reasonable return on investment," the court said.

Allowing that practice, the court continued, "may serve as blanket authority for public utilities to charge their income tax payments to operating expenses and unjustly shift the tax burden to the customer."

Meralco, which is 24 percent owned by Philippine government agencies and 16 percent by the Lopez family, covers Metro Manila and surrounding areas. It has three and a half million customers.

"Definitely this is a setback. The proportion is staggering. We really have to file a motion to reconsider and hope that the courts will consider the consequences of that decision," Meralco chairman Manuel Lopez said. "We have to meet and assess our thrusts and strategic moves for the future."

However, the country’s highest court rarely reverses its decisions.

Analysts have said that if the refund does push through, the government will allow it to be paid in installments to keep Meralco from halting operations.

The Supreme Court gave Meralco the option to have the refund "correspondingly credited" to customers’ future billings. However, it is the ERC that will decide how the refund would be made.

The order will worsen the woes of the power distributor, which has already been unsuccessfully petitioning the government for a power rate increase.

Meralco ‘disappointed’

"We are deeply disappointed by the outcome of the case. Obviously, the high court’s decision has serious implications on our company, and while we shall try to cope as best we can under such an environment, we still believe that utilities like Meralco are entitled to a reasonable return (on investment)," company president Jesus Francisco said.

Meralco said it will have even less money to avoid a debt repayment crunch. Of its P31-billion debt, P9 billion are short-term and the rest long-term.

Thirty-two percent of the loans are government-guaranteed, meaning the government will pay the loans in case of default.

"We will not meet that," Meralco chief financial officer Rafael Andrada told a news conference after being asked whether the company could service debt maturing next year if the court did not reverse its decision.

Credit ratings agency Standard and Poor’s said Meralco has P5 billion worth of debt maturing in 2003, P7.2 billion in 2004, and P6.4 billion due in 2005.

The company has been in breach of a profitability covenant on loans from the Asian Development Bank and World Bank for the past few years, although the lending agencies have consistently granted Meralco a waiver.

Leftist groups said Meralco’s earlier warning that an adverse court ruling would hurt the economy was tantamount to "blackmail."

Meralco share prices plunged as news of the court decision filtered into the stock market. Its B-shares, traded by foreign and local investors, slid P2.25 or 12 percent to close at P16.5, while its domestic A-shares ended down 50 centavos or 3.5 percent at P13.5. – With reports from Mayen Jaymalin, Romel Bagares, Sandy Araneta, AFP