Pensions

Meralco’s treasurer calls it “unfunded liabilities.” GSIS chief Winston Garcia calls it “abusive management practice.”

Both are referring to the rather generous pension plan Meralco gives its employees.

In 2006, the electricity distribution monopoly paid out P1.79 billion to fund the pension fund. In 2007, this ballooned to P2.8 billion. The money is charged to the company’s maintenance and operating expenses — and, therefore, eventually to the consumers.

It is the sort of pension plan every employee dreams of. No contribution is paid by the employee to the pension fund. It assures pensions not only to the employee during his lifetime but also to his survivors for as long as they live.

No wonder Meralco’s employees are intensely loyal to their company. Such benefits to retirees could only be matched by the benefits given state workers in the now defunct Soviet Union.

Which is the reason the Soviet Union is now defunct.

Non-contributory pension plans are not illegal. They are just rare. This is because such generous plans create tremendous overhead for the company that competitiveness is lost and sustainability comes into doubt.

But competitiveness is not an issue for a monopoly. Meralco is a monopoly. It is free to incur unusual overhead costs and simply pass on these costs to the consumers.

Without freedom of choice in a contested market, consumers have no recourse. The power monopoly can choose to inflate its maintenance and operating costs and pass everything on the hapless consumer.

Because the generous Meralco non-contributory pension plan may be highly irregular but not illegal, oppressive to the consumers but humane to the firm’s employees, poor Winston cannot add this item to the cases he had filed in court against the Meralco management. If he wants to reform this pension plan and make employees pay their share for the security of future pensions, he will again be jeered the next time he steps on Meralco grounds.

But this item of concern does add ammunition to Winston’s contention that the Meralco franchise area be broken up into two or more competitive parts so that certain standard for operating efficiency be realized.

There is a precedent for doing so. When the MWSS was privatized, the franchise area was cut into two parts. One part was awarded to the Ayala-led Manila Water and the other to the Lopez-led Maynilad consortium.

It was, to be fair, an imperfect partition. And, for many other reasons in addition to managerial competence, Maynilad lost money and the concession is now in the hands of a Consunji-led consortium.

I am not sure if it is at all technically feasible or economical to break up the Meralco franchise area. It has been argued that power distribution in the metropolitan area cannot but be a monopoly. Utilities experts will have the final word on this one.

It will have to be conceded, though, that there are inherent dangers in allowing monopolies to exist. There is little pressure on monopolies, especially when regulation is lackadaisical, to constantly innovate to bring down their operating costs in order to afford consumers a lower price for the service.

Meralco, to be sure, has not given monopolies a good name.

Before being slapped down by the courts, the company charged consumers a “deposit” on power meters the company uses to track consumption. Because consumers will always need the meters, being permanently hooked to electricity, the fund from these “deposits” will be eternal, gaining interest and, as we saw Meralco do after the courts ordered them to refund customers, part of the interest earnings on the deposits could be transferred to boost the firms profits. That transfer of interest earnings is now the subject of a multiple estafa case filed against the Meralco management.

Although perfectly legal, Meralco has booked its own power consumption to “systems-losses” passed on to consumers. The free power, which is not reflected as distribution costs, does not encourage prudence of use of an expensive commodity.

And now, finally, the matter of a truly generous multi-billion pension plan charged to maintenance and operating expenses. That might not be illegal. But neither might it be proper.

We can split hairs on that. But what matters is that, in this unhealthy environment of high power costs, the generous pension plan helps keep high power costs high. One of the highest in Asia.

What remedy is there to the apparent ease with which the power distribution monopoly accepts higher operating costs in the form of a generous pension plan and pass these on to the consumers?

Apparently, efficiency in the accrual of maintenance and operating expenses is not part of the scope of regulatory coverage. If a firm wants to be generous to its employees to a fault, only effective competition may provide a check.

Where there is no effective competition, firms, even if imbued with so much public interest, may be run by commissars instead of managers.

And that is exactly how Meralco appears to be run, unless Winston’s ranting generates enough public pressure to force the monopoly to do more than a token price reduction.