Concerns of Cebu Electric Consumers

David Celestra Tan, MSK
20 December 2018

We have a large consumer in Cebu who had been sending us his comments and questions on rates in his area. He also has apparently business operations in Manila and had been able to compare the rates between Meralco and VECO.

1. In reaction to our posting on high Meralco rates, he argues that Meralco’s rate under RCOA RES as offered by Meralco subsidiary MPower, has come down significantly. We agree and no question about Meralco’s reduction of rates to large industrial customers.

a. Our problem with Meralco’s rates is on excessive charges to Captive customers who are both larger residential customers and commercial customers. Meralco earns 60% of its revenue from these customer group, and we suspect about 80% of their annual profits. This comes from the PBR anomalous methodology, the high generation rates, and above the average legal limit systems loss charge.

b. The large industrial customers set at 750kw demand, also called contestable customers, are those who have the choice of moving to another generation supply provider. From the signing of the Epira Law in 2001, Meralco had already been realigning its rates so that they give very competitive rates to these large customers. They also offer them many sorts of “energy efficiency” and power cost reduction programs that they use in their media advertising. They even charge these large customers an unheard of 3.75% systems loss. But they charge captive customers 9 to 10% systems loss which is higher than the 8.5% limit. In a scheme concocted between the old ERC and Meralco, this is legalized by adopting a philosophy of system averaging.  MSK had petitioned ERC to declare 8.5% systems as the absolute limit and not averaging. We have yet to hear from them.

2. Meralco’s rate during the Lopez times were higher than VECO’S. But now VECO’s rate are much higher.

a. Meralco’s rates are about the same except for fluctuations in fuel and forex. In the case of VECO, we suggest you check the correlation of when VECO was taken over by the Aboitiz group from the GarciaVivant group. The VECO website shows its highest generation suppliers are consistently from three power generators, CPPC (diesel), Aboitiz, and VECO. The diesel 70mw CPPC is the most expensive reaching P18 per kwh in certain months although it is supposed to have been turned over to VECO in 2013 under the original BOT contract. VECO buys power from the Green Core geothermal but doesn’t appear to buy from KEPCO coal plant that is based in Cebu.

From what we can tell in VECO generation mix, the main reason they are able to keep their average generation rate lower than P6.00 per kwh is by maximizing their purchase of lower cost WESM prices reaching to more than 15% of their energy requirement.

b. On systems loss, how much VECO actually is charging is not clear although their website acknowledges that the ERC limit is 8.5%. VECO does not show systems loss charge separately in their website info. A year ago we got some VECO bills that showed systems losses of 12 to 14%.  You need to double check this. The way you compute is you divide the amount of the systems loss charge by the generation rate. That would be your actual systems loss charge. Meralco’s systems loss charge to captive customers now is about 9.5%.  While you are at it, maybe your association can ask VECO to unbundle their rate disclosures in their website for transparency.

We need to mention in fairness that in the same time frame we also got some electric bills of Davao Light and the systems loss was under 7%. Very good.  We don’t know why it is that high in Cebu.

3. Capacity Charge or Demand Charges

This is quite complicated and one reason even distribution utilities are complaining. It is also how many generators and NGCP are making more money on their capacity. In effect it is multiple selling of their capacities, knowing that not all the users will use their peak demand at the same time.

Both the generators and the NGCP transmission company tries to charge users a per kw per month charge based on the highest demand reached by the user for the month. Even if you reached say 1,000kw at anytime even for one hour, you are charged as if you used that for the whole month.

Both DU’s who also own generating companies and the NGCP tries to bill users for that maximum demand used on the theory that they have purchased that demand for the whole month.  Actually that is not true because not all users are reaching their maximum demand coincidentally or at the same time and for extended periods.

To explain, what NGCP does is they bill DU’s for the peak demand reached in each substation and just totals them even if the DU’s coincident demand never reached that total. Even if NGCP knows that the peak demand in the system is 2,500mw, by billing each customer for their individual peaks, their revenue could be based on 3,000mw. What is that way? Because for some reason NGCP as transmission operator is also now the rule maker and systems operator. This is also what happens when the DU and its sister company generator are billing the customers for the minimum guaranteed capacity charges. These are passed on charges to the customers.

If the DU and the Generator are not sister companies maybe they will make an effort to avoid the charges and make their customers happy. But since it is their sister company, they just say “sorry, that’s just the way it is in the industry”. It doesn’t have to be.

This is akin to the airlines overbooking their flights knowing that there is high probability that some people will cancel or will not make the flight.  The irony is when they cancel or rebook, the airline not only assures that it maximizes its occupancy but it generates additional revenue from rebooking charges and fare adjustments and “no show” fees.  Kawawa naman tayong mga consumers. And no one is protecting the public from these abuses.

4. Some solutions

For the steel mills and cement plants you are referring to that need a surge of power demand to start up ball mills and other machineries, they might consider “peak shaving” strategies either by buying the peak hours from wesm or other suppliers or acquiring your own “peaking” generator.

You are getting a good deal now that the Meralco Mpower group agreed to bill you only for metered quantity or energy. No more worries about capacity fees.  Please count your blessings because you are a contestable customer and theoretically can go to a competitor.  It is unlikely you will get the same deal in your residence or separate office.

See the magic of competition, even if it is only a possibility?

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph