Meralco: No money for refund now

Citing severe lack of cash, power distributor Manila Electric Co. (Meralco) is urging the Energy Regulatory Commission (ERC) to allow it to defer the P3.9-billion refund to its customers until February.

In a motion for reconsideration, Meralco said it had no cash at all at this time to accommodate the refund, which relates to the “currency exchange rate adjustment” (CERA) item in its billing to customers.

It said it had yet to recover almost P7.5 billion in under-recoveries related to transmission cost, “lifeline” rates and the interclass cross-subsidy removal, as the ERC had not yet approved these applications.

Meralco said it was also still recovering generation-related costs for the supply months from August 2006 to May 2007.

“While Meralco advanced payment of these costs to its power suppliers in 2006 and 2007, recovery thereof was allowed on a staggered basis over a period of two to three years,” the motion said. “For the amount of P8.8 billion initially allowed for recovery under the Dec. 10, 2007 order, the full collection of the same will only be completed by around January 2010.”

In that order, the ERC allowed Meralco to recover more than P8.8 billion worth of generation-related costs, resulting in an increase of P0.1662 per kilowatt-hour in the generation charge component of customers’ bills.

The impact of this was hardly felt as, in the same order, the ERC also ordered Meralco to refund its net settlement surplus from the wholesale electricity spot market (WESM), translating to a 16.14-centavos-per-kWh reduction in the generation charge.

The net settlement surplus refers to excess payments made by WESM customers to power sellers. This is passed on to end-users, but is later refunded upon recalculation.

The ERC in September approved P1.9 billion in additional generation cost-related under-recoveries, the remaining amount that had not been confirmed for collection from Meralco’s 10 petitions for unrecovered costs from August 2006 to May 2007.

This was P2.7 billion short of what Meralco was expecting, the company said.

“The under-recoveries place a substantial financial burden on Meralco,” the motion said. “To avoid the heavy penalties on late or delayed payments, Meralco was constrained to pay or advance payments to its suppliers in behalf of its customers, resulting in under-recoveries.”

“Because of the delay in the recovery of these costs, Meralco was left with no recourse but to avail of short-term financing from financial institutions to meet its payment obligations to its suppliers, as well as finance its capital and operating expenditure program,” it added.

To finance the P3.9-billion refund, Meralco said, it would have to obtain additional financing.

It added it had started giving P2.8 billion worth of meter deposit refunds to customers, also in line with an ERC order issued earlier in the year.

This was on top of an ongoing P30-billion refund for income tax-related overcharges incurred from 1994-2003, it said. For 2008, more than P3.1 billion has been given as rebates to its large commercial customers and industrial customers—the only customer groups that have yet to receive their refunds.

Liabilities falling due

Meralco likewise had more than P5 billion in outstanding liabilities falling due next month.

“The maturing obligation, coupled with other obligations of Meralco falling due at the same time, such as its timely payments to its power suppliers, severely limits Meralco’s capacity to implement the CERA refund within the coming months,” Meralco said.

“However, to address this matter, Meralco is hoping to refinance and roll over these maturing obligations to remove significant cash deficits. It is expected that the refinancing will be completed by January 2009,” it added.

Even without the CERA refund, Meralco has projected negative cash flows for December 2008 and January 2009, of P3.1 billion and P4.9 billion, respectively.

Citing these reasons, Meralco urged the ERC to allow it to start the CERA refund not earlier than February 2009.