CA upholds ERC decision allowing Meralco to hike rates

THE Court of Appeals upheld the 2011 decision of the Energy Regulatory Commission (ERC) allowing the Manila Electric Company (Meralco) to increase its rates by P0.0168/kwh despite earlier findings by the Commission on Audit (COA) that it overcharged its customers by as much as P7 billion in 2004 and 2007.

In a 16-page decision written by Associate Justice Victoria Isabel Paredes, the appeals court’s 7th division denied the petition filed by National Association of Electricity Consumers for Reforms, Inc. (NASECORE) to nullify the June 21,2011 order by the ERC.

The ERC, in its 2011 order, upheld its 2003 order granting Meralco’s application for the approval of its unbundled rates, appraisal of its properties and proposed increase in rates.

The appeals court, in its ruling made public Monday, recognized the power of the ERC to fix the rates of electric distribution utilities.

“After an examination of the assailed orders, we find that the ERC had dutifully complied with the order of the Supreme Court. Just because the ERC did not adopt the findings in the COA report does not mean that the ERC failed to follow the directive in the Lualhati case,” the appeals court said.

It also did not give weight to NASECORE’s claim that ERC disregarded COA’s finding that Meralco’s operating expenses, which include employees’ pension and other benefits worth P3.479 in 2004 and P2. 916 billion in 2007, were not recoverable from consumers as they were not reasonable and necessary in the distribution services.

The appeals court also dismissed Nasecore’s argument that the ERC erred when it ignored the COA finding that certain properties and equipment amounting to P3.701 in 2004 and P3.586 billion in 2007 should not be considered as part of the rate base as they were not used and useful in the distribution operation.

The appeals court said ERC is not bound to accept and adopt any findings by COA.

“The findings in the COA report cannot overshadow the initial conclusion of the ERC which led to the approval of the rate increase, more so, considering the fact that the methodologies used appear to be inconsistent…,” the appeals court said.

The appeals court also found no merit to NASECORE’s claim that the distribution revenues of Meralco, being over and above the ERC-approved distribution revenues, should be treated as over-recovery and subject to refund.

“Instead of auditing the records of Meralco to determine if it was justified in asking for a rate increase, the COA used data which result after the implementation of the rate increase,” the appeals court said.

“Simply, the COA relied on the impact of the rate increase on the revenues of Meralco, which we find proper ” it added.

Meralco, in seeking a rate increase, argued on the need to augment its growing operation and maintenance expenses, which include leased properties on customer premises, construction work in progress, and building plants for future use.

In 2003, the high court affirmed ERC’s order allowing Meralco to increase its rates. It also ordered ERC to seek assistance  in conducting a complete audit of Meralco’s books, records and accounts to see to it that the rate increases are reasonable and justified.

Then, pursuant to the high court’s ruling, the ERC requested COA to conduct an audit of Meralco’s books, accounts and records to determine whether the implementation of Meralco’s approved distribution rates resulted in a fair return and whether the recovery of generation costs had been revenue-neutral to Meralco.

On November 12, 2009, the COA transmitted to the ERC its audit report revealing the unbundling of Meralco rates effectively resulted in over-recoveries or revenues in excess of the required revenue by P1.682 billion in 2004 and by P5.327 billion in 2007.

The COA report said the over-recoveries were determined after it discovered certain factors  or items, which should not have been included in the computation of Meralco’s revenue requirements.

However, the ERC ignored the COA report and instead upheld its May 30, 2003 decision prompting NASECORE to file a petition before the appeals court to stop ERC’s order.

“Simply, the COA relied on the impact of the rate increase on the revenues of Meralco, which we find proper ” the appeals court added.

Concurring with the ruling were Associate Justices Magdangal M. de Leon and Elihu Ybanez.