The Court of Appeals has upheld the decision rendered by the Energy Regulatory Commission in 2011 allowing the Manila Electric Co. to increase its rates by P0.0168/kwh, despite earlier findings by the Commission on Audit that Meralco overcharged its customers by as much as P7 billion in 2004 and 2007.
In a 16-page decision, the CA’s Seventh Division through Associate Justice Victoria Isabel Paredes denied the petition filed by National Association of Electricity Consumers for Reforms Inc. seeking to nullify the ERC’s order issued on June 21, 2011.
The energy regulatory body, in its ruling in 2003, granted Meralco’s application for the approval of its unbundled rates, appraisal of its properties and proposed increase in rates.
Meralco justified before the ERC that the rate increase was intended 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.
The Supreme Court affirmed the ERC’s May 30, 2003 order granting the petition of Meralco for an increase in rates, while at the same time directing the ERC to seek the assistance of the CoA in conducting a complete audit of Meralco’s books, records, and accounts to see to it that the rate increases are reasonable and justified.
Pursuant to the SC ruling, the ERC requested CoA to conduct 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.
In Nov. 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 appellate court seeking to stop ERC’s order.
In denying Nasecore’s petition, the appellate court stressed that even if the SC directed the ERC to request the COA to undertake a complete audit on the books, records and account of Meralco, it recognized that the power to fix the rates of electric distribution utilities primarily belongs with the ERC.
“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 CA stressed.
The appellate court noted that the COA audit is not a pre-requisite to rate fixing, and the ERC is not bound to accept and adopt any finding that a COA audit may come up with.
The CA did not give weight to the claim of NASECORE’s that the ERC erred in disregarding COA’s finding that Meralco’s operating expenses, which include employees pension and other benefits, amounting to 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.
It also found no merit to 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.
According to the appellate court, it would be unlikely for the COA report to come up with a conclusion similar to that used by the ERC when it approved the application for rate increase sought by Meralco given the use of different factors.
The appellate 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.
Associate Justices Magdangal M. de Leon and Elihu Ybanez concurred with the ruling.