Meralco’s capital cost too high, passed on to customers – House rep | Inquirer News

Meralco’s capital cost too high, passed on to customers – House rep

/ 12:11 AM November 08, 2023

Meralco logo superimposed on a stock photo of power lines

MANILA, Philippines — The Manila Electric Company (Meralco) has a weighted average cost of capital (WACC) that is too high, which it passes on to customers, Santa Rosa City Rep. Dan Fernandez said in a privilege speech during the House plenary on Tuesday.

But the Meralco spokesperson, Joe Zaldarriaga, insisted in a statement to that the power distributor had been giving service beyond the expectations of its customers.


WACC should be lower

The WACC determines the return a company should be getting to ensure the viability of its investments. A higher WACC means the company needs to make more profit to ensure its operations. A lower WACC indicates that the company need not make too high a profit to sustain its investments.


However, Fernandez claimed that Meralco’s 14.97 percent WACC set in 2010 was no longer accurate. He said it should just be cut down to 9.23 percent — which would lower the electric bills of consumers.

“They have not computed their weighted average cost of capital… never, since 2015 up to this year. They have not computed their weighted cost of capital which was set at 14.97 percent. That is the percentage of their profit they base from since 2010,” Fernandez said in Filipino.

“Since 2015 up to now, the ERC [Energy Regulatory Commission] has not been recomputed, and that was due to the Asian Crisis in 2010. But we did not have any financial crisis in 2014 and 2015, and the risk rate of the country, their financial requirements, indicators, are telling that the weighted average cost of capital is so low,” he added.

Conniving with ERC?

Fernandez accused Meralco and ERC of conniving to get bigger profits.

“They connived because had they computed in 2014, the weighted average cost of capital will be lower. As a matter of fact, I challenge each and everyone of you: Let us look at the WACC of Meralco today. Because they are a publicly listed office, they are being externally audited. It shows that based on their profit, Meralco’s WAC at Google is at 9.23 percent. Now, that is their WACC. But they are charging us based on a 14.97 percent rate since 2015,” he said.

In response, Zaldarriaga said in a statement: “Our rates and service are monitored strictly by the regulator and records show that we have always outperformed and have more than complied with the level of service expected from us. As far as our rates are concerned records will also show that at current levels Meralco’s charges are lower than many jurisdictions in the country which is the reason why some areas are clamoring for Meralco’s level of service.”


Accused of economic sabotage

Fernandez also accused Mercalco of not complying with the Renewable Energy Act of 2008, which mandates power distributors to find renewable energy sources, as it would hamper its operations.

“They are economic saboteurs. They sabotage our economy,” Fernandez said.

“Why? In accordance with Republic Act 9513 — or the Renewable Energy Act of 2008 — the government is mandated to encourage our consumers to be a part of economic growth through energy development. According to the law, people are encouraged to be involved in the economy by placing energy development, [a] renewable energy facility in each home.”

“Why?  Because if we have facilities powered by renewable energy — like the sun, wind, water, garbage, biomass where we can create electricity — and we creat net metering, Mr. Speaker, this will result in a zero Meralco bill. There are areas doing net metering. They are paying nothing. This is what Meralco fears for,” Fernandez added.

In response, Zaldarriaga said: “As far as the net metering is concerned and, with all due respect, we are 100 percent compliant with all those who have participated in the program through both actual implementation in energy export and processing of requirements for those currently applying in accordance to the rules.”

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“Meralco connected the country’s first Net Metering customer and continues to work closely with ERC and LGUs to accelerate net metering adoption. We recently signed an agreement with Pasig City and ERC to further streamline net metering processing,” he added.

Last July, Sen. Risa Hontiveros made a similar call on Meralco to recompute its WACC. She said Meralco had already benefitted from a high WACC, which if corrected, would lead to a drop in distribution and transmission charges.

TAGS: Dan Fernandez, MERALCO, power rates, weighted average cost of capital

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