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Electrifying Issues of the MERALCO Refund

(Article published in the May12,2003 issue of TODAY, Business Section)

 The Supreme Court has spoken and with finality.  Whether right or wrong, its decision in  the case of Republic of the Philippines, represented by the Energy Regulatory Board v. Manila Electric Company, G.R. 141314, promulgated November 15, 2002 (reconsideration denied with finality on April 9, 2003), must be respected.  Consequently, MERALCO must either refund to its customers or credit in their favor for future consumption the excess average amount of P0.167 per kilowatthour starting with MERALCO’s billing cycles beginning February 1998.   

The legal logic of the Court is impeccable.  Given the premise that, on account (a) of the inclusion of the income tax as one of the operating expenses and (b) of the use of the “trending method” of valuing the assets used in the business for the purpose of determining the rate base (extremely esoteric terms which need not be understood for purposes of this piece), MERALCO overcharged its customers starting February 1998 by an average of P0.167 per kilowatthour, then the inexorable conclusion is that MERALCO must return to its customers what it has overcharged.  It is but only meet and just that the customers who were overcharged be given back what was wrongfully (not necessarily with malice) taken from them. 

Unfortunately, like most syllogistic conclusions derived from abstract majors and minors, the order to refund is most simple in theory but extremely complex in practice.  The thrust of this piece is to identify three major issues which render it most impracticable, if not almost impossible, to comply with the Court’s order to either refund or credit P0.167 per kilowatthour and to suggest a more doable method of righting the scales which the Supreme Court, rightly or wrongly, has ruled to have been unbalanced. 

Issue 1:  How do you determine the amount of the overcharge for each customer? 

The first difficulty with the refund order is suggested by the tenor of the order itself.  The Court recognizes that the P0.167 per kilowatthour overcharge is simply an “average”.  It is the ratio of MERALCO’s “Excess Revenue” (which is that part of MERALCO’s income that was due to the inclusion of the income tax as part of its operating expenses and the use of the “trending method” in determining the amount that it can charge per kilowatthour in order to enable MERALCO to attain the statutorily allowed 12 percent return on invested capital) over (or divided by) the money it received from the total kilowatthour it sold.  During the “test year”, i.e. the year which the Commission on Audit, on instructions of the Energy Regulatory Board, examined, the “Excess Revenue” was calculated at P2,448,378 and the money from the total kilowatthour used was shown to have been P14,640,094,000.  Divide the first by the second and you get the “average” per kilowatthour of the overcharge. 

The problem is that the “excess average amount”, which is just a mathematical construct is very much like the “common man” which is a mere figure of speech.  It is just as impracticable to find in flesh and blood the customer who was made to pay this “average”  as it is to find a “common” man.  Not all of MERALCO’s customers pay the same amount for every kilowatthour used.  There are residential users paying residential rates.  There are industrial users paying industrial rates.  Moreover, the so-called “socialized pricing” of electricity results in some customers who are paying less than others while others are paying more than some.  Thus, it is quite possible that the subsidized users were overcharged less than the average and those customers who were shouldering the subsidy were paying more than the average.  If this is so, then it is clearly unduly benefiting the subsidized user if he were refunded an amount based on the “average” when in fact he, if at all, was overcharged less, and it is obviously unjust to the one who bore the cost of the subsidy to receive a refund based on the “average” overcharge only when in fact he paid more. 

Issue 2: Who are the MERALCO’s customers to be given refunds, the present or the previous? 

The Court’s order was to give a refund to or credit against the future consumption of, in the Court’s own words, “MERALCO’s customers”.  The period covered is from the billing cycle that started February of 1998 to, I assume, the day on which the resolution denying MERALCO’s plea for reconsideration with finality becomes final.   

The problem is that those who were customers in, say 1999, may not be the same customers when the refund is paid.  In fact, some may be customers in 1999, but not in 2000 (because they went to the province covered by a different franchisee), a customer again in 2001 and, because he sought and got employment abroad, ceased to be a customer in the middle of 2002.  The point I am making is that while “customers” may be  changeless conceptually, it refers in reality to a continuously changing mass of people.  It is thus like a river, which appears to be one and the same for ages, but which in reality is made up of different biological, chemical and ecological elements from moment to moment.  Obviously, the Court did not intend to refund to a new customer in 2003 what was overcharged against one who was a customer in 1998 but who is no longer a customer beginning in 2002. 

Even assuming the individuals and entities comprising the “customers” are constant (or at least identifiable throughout the refund period) a further question arises with respect to current practice, tolerated and even encouraged, which allows for one person to be the registered subscriber to the service of MERALCO and another to be the person who actually uses and pays for the electricity.  An example is the situation of a lessor and a lessee of a residence.  Ordinarily, the MERALCO meter is registered in the name of the lessor; but in practice, the lessee is the person who uses and pays for the electricity.  Clearly, the refund should be to the person who was overcharged and that is the lessee.  But MERALCO has no record of the lessee’s identity (and often does not even know of his existence).  Is the refund to be made to the lessor who is the “customer” of record and not to the lessee who, in equity, ought to be the one made whole? 

Issue No. 3:  Who really bore the burden of the overcharge? 

The ordered refund is founded on the logic of restitution: he who was wrongfully deprived of some property must be given back what he lost.  The above described situation of the lessor-customer-of record-and the lessee-actual-user-and-payor raises the broader issue of the incidence of the overcharge.  Most electricity brought from MERALCO was and still is bought by businesses which, in the natural order of things, pass on the cost of the electric power to other people.  Power is an input of production and distribution that is imbedded in the cost of the goods and services purchased by the consumers.  In instances where the market is unwilling to absorb the cost of power as part of the purchase price, the managers of businesses pass it on to other stakeholders, such as, the labor group (which, for instance, absorbs the cost in the form of lower salaries and lesser benefits), the providers of other inputs, such as the suppliers who were asked for greater discounts to off-set the power cost, or the bank creditors, who, in the particular case of major enterprises, have had to cut their interest rates, or even the shareholders who by the same token receive lesser dividends. 

In the final analysis, most of the real payors of the overcharge were those who could not have shifted the burden to others.  They are the economically poor and the financially disadvantaged, the many who could not even get, on the basis of their income and asset profile, a connection to MERALCO’s transmission lines.  These are the ones who ought to benefit from the refund since they are MERALCO’s  real “customers”, the ones who bore the brunt of the overcharge because they were powerless to pass it on to others. 

My Suggestion 

Quae cum ita sint (to use what may have been an inaccurately spelled phrase, “sint”? or “sunt”?, from my latin teacher, meaning “since this is so”), the proper recipients of the MERALCO refund, ought not to be limited to the recorded “customers” but should include, if not primarily be, the public in general.   The most practicable way, in my mind, of paying back the overcharge to public is to keep the amount due in MERALCO’equity, but in the concept of a charitable trust for the benefit of the public.  An independent trustee should be chosen in an appropriate democratic process to represent the public’s interest (as distinguished from the government’s interest) in the company, to ensure that the company makes, over the years,  full restitution, in terms of better and more pro-poor service, to the public that really bore the brunt of the overcharge.  Should the other owners of MERALCO’s equity decide to close the company, then the trust fund, as is the rule in charitable trusts, should be devoted to purposes as near as that for which it was originally intended.