Meralco’s 25-year franchise renewal passed on 2nd reading amid overpricing concerns

A lawmaker, along with current and previous Energy Regulatory Commission officials, have questioned whether Meralco’s rate of return used in calculating customer charges is set too high

MANILA, Philippines – The House of Representatives has approved on second reading the bill renewing the franchise of the Manila Electric Company (Meralco) for another 25 years.

House Bill 10926, sponsored by Albay 2nd District Representative Joey Salceda and Parañaque 2nd District Representative Gus Tambunting, was approved through voice voting on Tuesday evening, September 24.

Meralco’s current franchise is set to expire in 2028, but lawmakers aim to finalize its renewal ahead of the deadline. According to Tambunting, Congress traditionally begins deliberating on Meralco’s franchise within five years before its expiration.

Meralco services around 25% of the Philippine population. The electricity distribution giant operates under a congressional franchise, which covers distribution to the country’s economic center in Metro Manila, Bulacan, Cavite, Rizal, and parts of Batangas, Laguna, Quezon, and Pampanga.

Northern Samar 1st District Representative Paul Daza introduced an amendment requiring that Meralco’s platform for addressing consumer concerns and safeguarding consumer interests comply with the applicable rules and regulations set by the Energy Regulatory Commission (ERC), its successors, and other relevant regulatory agencies.

Alleged overpricing

ACT Teachers Party Representative France Castro also questioned whether Meralco has settled complaints of alleged overpricing in electric fees.

“Wala po bang violation ‘yung Meralco in the past 21 years that is detrimental to the customers? Kasi may mga naalala akong pinag-rerefund sila doon sa mga customers,” Castro said.

(Doesn’t Meralco have any violation in the past 21 years that is detrimental to the customers? Because I recall that they were asked to refund customers.)

In response, Tambunting said that Meralco has been refunding customers due to “alleged minor violations found by the ERC.”

“I would like to put on record that they have been given a certificate of compliance already by the ERC. So kung may mga infractions na maliliit ay pwede naman po nilang ibalik sa mga customers, pero kailangan pong patunayan (if there are small infractions, then they can refund customers, but it has to be proven),” the sponsor of the bill said on Tuesday.

In June 2022, the ERC ordered Meralco to refund more than P40 billion to consumers covering the lapsed period from July 1, 2015 to June 30, 2022.

But former ERC commissioner Alfredo Non claimed that Meralco should have refunded as much as P150 billion, arguing that the electricity giant’s weighted average cost of capital (WACC) was set too high. In a 2023 privilege speech, Sta. Rosa City Representative Dan Fernandez likewise questioned why the ERC has not recomputed the WACC being used by Meralco since it was set at 14.97% in 2010.

WACC is the rate of return a company expects to earn on its investments and is a key factor in the ERC’s calculation of Meralco’s rates, alongside the distributor’s projected capital expenditure, operating expenses, and taxes.

Meralco will continue to use these high distribution rates until June 2026, the next scheduled ERC review. This follows a 3-2 vote by the ERC commissioners to postpone the rate review for the fifth regulatory period, effectively freezing changes to Meralco’s distribution rates until that time.

Suspended ERC chair Monalisa Dimalanta, who dissented in that decision, argued that a rate reset should still be conducted before 2026. (READ: ERC chief Dimalanta appeals suspension)

Dimalanta stated that if the ERC had allowed the rate reset, the commission could potentially lower the WACC, which would lead to lower electricity bills for consumers.

“Hindi na nga po natin alam if this has been the correct rate because the rate of return has been stuck at 15%. So, hindi na nga yun ginalaw for the fourth regulatory period. Hindi mo pa rin gagalawin for the fifth regulatory period. That means the regulated entity, Meralco, will keep enjoying the 15%,” Dimalanta said during a meeting of the Monday Circle Financial Forum on Monday, September 23.

(We don’t even know if this is the correct rate because the rate of return has been fixed at 15%. It wasn’t adjusted for the fourth regulatory period, and now it won’t be changed for the fifth period. That means Meralco, the regulated entity, will continue to enjoy this 15% return)

When asked what the WACC should be if the ERC were to review it, Dimalanta said: “‘Yung recommendation na po ng consultants, (The consultants recommended) 9 to 10%. That’s the recommendation.” – Rappler.com