MANILA, DECEMBER 24, 2010 (MALAYA) ('Power users should also benefit from the breaks Meralco is enjoying.')
MANILA Electric Co. is being showered by an embarrassment of riches. This year, the country's biggest utility is expecting to earn a profit of P12 billion, double 2009's net of P6 billion, which again was a doubling of its net income of P2.8 billion in 2008.
Volume of sales over the last two years could have increased by 10 percent at the most. So how come Meralco's is experiencing a compounded growth in income of 100 percent yearly? Higher profits also could not have come from greater efficiency as the utility's systems loss continues to hover at 8 percent and which, in any case, is automatically charged to power users.
The embarrassing profits could only have come from higher selling prices. In 2008, Meralco's rate was around P1 per kilowatt-hour. In May 2009, it increased rates by around 25 centavos. The result, as we noted earlier, was a doubling of profit to P6 billion. At the start of 2010, it again was raised by 25 centavos, resulting in another expected doubling of income for the year.
If Meralco were not a regulated monopoly, its profits would be nobody's business, but its management, creditors, and stockholders. As a monopoly, however, its rates are supposed to be regulated. In other regulatory climates, a yearly profit growth of 100 percent for a utility would have resulted in regulators' heads rolling.
In the Philippines, nary a peep has been heard from the Energy Regulatory Commission.
The last two increases were granted by the ERC on the strength of the so-called performance-based rate setting. ERC uses fancy formulas but, at core, the computations center on the weighed average cost of capital, a fancy name for cost of borrowing.
Our suspicion is that the formula used starting with the May 2009 rate increase assumes a much higher cost of borrowing than what is prevailing in today's low interest regime.
Just this week, Meralco disclosed that it signed two loans totaling P7.5 billion, of which P2.5 billion came from the Philippine National Bank and P5 billion was arranged by First Metro Investment.
There was no mention about the interest rate carried by the loans, but we would hardly be surprised if it is much lower than the cost of borrowing used in Meralco's rate increase petitions.
Meralco management could be faulted for taking advantage of the hospitable financial climate for borrowing at low cost in order to retire expensive past debts.
But power users should also benefit from the breaks Meralco is enjoying. The ERB should revisit the assumptions that went into calculating the new rates and adjust the latter accordingly.
Chief News Editor: Sol Jose Vanzi
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