Cutting the cost of electricity
July 27, 2020originally published July 27, 2020 in The Manila Standard
“How can we lighten the burden of consumers?”
I have learned to accept the reality that this pandemic is not going to go away soon. Like most households, we are constantly looking for ways to cut costs and consumption in anticipation of a prolonged economic slow down and the complex socio-economic challenges that will surely come. Adding to the anxiety in these difficult times is the rising cost of commodities that I am sure all consumers are feeling every time they go to the grocery store. This is a direct observation by my in-house price monitoring expert, my wife, who is so efficient in flagging every movement in grocery prices.
Several congressional hearings have been held to probe into the effects of the pandemic on the economy and how prices are moving since the lockdowns started. Most covered by media were the hearings that probed into the confusion in electricity bills which affected not just Meralco customers but many electricity cooperatives nationwide, which I said in an earlier column, was a case of how a faulty policy of the regulators caused unnecessary confusion for consumers and the whole power industry. As Meralco continues to handle each customer query one-on-one and billings are back to its normal cycle, disruption to meter readings can be avoided as this is a non-contact routine that can safely be done.
In the wake of this issue, another inquiry by the House Committee on Good Governance and Public Accountability probed into the Energy Regulatory Commission and Meralco’s efforts to lower the cost of electricity so as to lighten the burden of consumers.
Meralco officials presented the action they have initiated to ensure that electricity rates are at levels that have been constant for over 10 years. Cited were the current rates which are lower than 2018 levels. Meralco also invoked the “force majeure” claim allowed in power supply contracts. This reduced fixed charges for generation capacity that would have been charged by suppliers. This translated to P1.8 billion in savings which would have been otherwise added to the bills of Meralco’s customers.
Always targeted in these kinds of investigations is the process of procuring the power that will be distributed to the electricity consumers which according to Meralco’s franchise mandate, must go through the “Competitive Selection Process (CSP)” in compliance to Department of Energy policies. The process is overseen by a third-party committee and approved by the Energy Regulatory Commission (ERC). The CSP conducted in December 2019 resulted in a price cut of over P1.00/kwh resulting in cumulative savings of P4.6 billion for consumers.
A recurring issue raised is the system loss charge which I remember has been explained and even demonstrated by engineers during past congressional hearings to be an inherent reality when electricity is conducted through wires for long distances. Unlike in other countries where the system loss charge is incorporated in costs, our unbundled electricity bill clearly this cost which aside from the natural loss caused by the distance from source to consumer, is affected by pilferage from illegal connections.
In response, the ERC ensured that systems loss caps will continue to be adjusted by electricity distributors. The cap for private utilities now set at 7.5 percent will be cut to 6.5 percent in 2021. For electricity cooperatives, a reduction to 9.25 percent from 13 percent will be implemented in 2022. As for Meralco’s franchise areas, the system loss charge is now the lowest on record at 5.42 percent set last March. This is another P50 billion in savings for consumers since 2008.
If you recall, the sudden spike in generation costs in the months of November and December 2013 sparked several allegations of market abuse and collusion by some power generators. Meralco appealed for government intervention and supported the ERC’s decision to stop the increase bringing down the generation charges to more acceptable P5.93/kwh which is a whopping P3.17 lower than the P9.10 that generators wanted to charge. This became the basis for adjusting the January 2014 charge to P6.11/kwh from P10.22/kwh planned to be billed to consumers.
The Supreme Court recently affirmed the ERC’s order to adjust the Wholesale Electricity Spot Market (WESM) prices in the third and fourth supply months in 2006 which effectively saved customers from paying an additional P6 per kwh on the generation charge. This was prompted by Meralco calling for an investigation by the Philippine Electricity Market Corp. (PEMC) on suspected cartel-like behavior. Unchecked, this would have cost consumers P9 Billion in additional pass-on rates.
As a Meralco customer, I hope that there will be more cost-cutting measures to be initiated by the regulators and the power industry especially while we are all grappling to survive this global crisis.