Here’s the official asset valuation study for Meralco as of June 30, 2006.
Go to page 4 and you can clearly see that the “Historical Depreciated Cost” of their assets is P48.8 billion.
And you can see that the “Optimized Depreciated Replacement Costs,” which is essentially what they are permitted to earn on – or their rate base – is about twice that value at P96.6 billion.
The first number is rooted in reality. It’s reflective of what is actually out in the field and reflects the investments they actually made but not yet compensated for through rates.
The second number is an accounting fiction. It represents not a single additional dollar spent or invested by Meralco. Nevertheless, ERC permits the utilities to earn a return on this fictitious number.
This magic process applies to all private utilities and to Transco (pardon me, NGCP). Except electric cooperatives.
Interesting. No?