Consumer Group MSK Seeking P3 per kwh Power Cost Reduction

The consumer group Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK) is seeking a reduction in residential and commercial rates in the Meralco area by P3 per kwh. This is achievable according to their proposals that were presented to the Department of Energy’s Task Force to Find Ways to Reduce Electricity Rates during its multi-sectoral meeting last October 8, 2014.

Half of the P3.00 reduction can come from the generation rate in the National Capital Region which can be lowered to P4.00 per kwh from the current P5.66 per kwh being passed on by Meralco, according to David Celestra Tan, co-convenor of MSK in his presentation.

1. This can be achieved by subjecting the bilateral contracts for supply to open competitive bidding instead of self-negotiating and monopolizing them. MSK presented statistics showing Meralcos generation supply from various suppliers range from P3.47 to 6.00 per kwh. The higher ones are from what MSK calls as sister power producers or SPP’s.
2. Meralco can also improve its energy mix by directly contracting for hydro power at P3.50 per kwh instead of buying them through the WESM market at the average rate of P13.00 per kwh. The people should continue the benefits of cheaper hydro power, the water of which should be public domain.
3. The pricing method of the Wholesale Electricity Spot Market (WESM) must be changed specially the Market Settling Price which is currently defined as the highest price of power dispatched for the trading periods. Power suppliers must be paid only for the price they bid not the highest market price. The current trading and pricing rules of WESM are so anti-consumer.
4. Systems loss charges to all residential and commercial consumers should not be more than 8.5%. It had been ranging from 11 to 15% in the last few years. Meralco only charges 1.5% to 6% to industrial customers. A reduction in generation rate will also reduce the systems loss charge. This can reduce the rate by 0.10 to 0.20 per kwh
5. Transmission rates of NGCP can be reduced or at least controlled if the function of Systems Operation is returned to the Transco for more independent transmission policy and planning decisions. MSK said Section 9 of the Epira Law specifically designated Transco as the systems operator and not the transmission services concessionaire. More objective planning can truly reduce transmission grid congestion and reduce the “line rental” charges that add a lot to the power cost of consumers.
6. Distribution charges would be lower by about 0.40 per kwh if the rate setting methodology called “performance based rate” or PBR is cancelled and returned to the old RORB where distribution utilities like Meralco are allowed, as is proper and fair, a return on their actual investments and not on projected or promised investments in the future. According to the consumer alliance, PBR is a violation of Section 25 of the Epira Law which require that the retail rates must be based on investments incurred. PBR allows recovery of projected future investments not yet incurred.
7. Distribution utilities should be required to undertake truly competitive bidding in its purchases of materials, equipment, and services. A 10% overprice in capital investments results to a 10% overcharge in rate base and retail rates.
8. Value Added Taxes on power should also be reduced or phased out. The original Epira Law exempted power from the 12% VAT because power is a primary input for manufacturing and commerce. Additionally, MSK said the government should no longer tax power generated from Malampaya gas because it is already making a lot of royalties in that indigenous resources. The government must do its share in mitigating the power cost in the country and should not itself engage in double charging the consumers.
9. Universal Charges for missionary electrification should be controlled. It has reached 0.19 per kwh and will continue to rise if nothing is done. NPC should be given a clear mandate to provide long term power in smaller missionary areas so that they can install cost effective permanent facilities instead of renting expensive generators. DOE and NEA should provide guidance in the power supply planning of electric coops because many of them are either not contracting or contracting more than what they need. This results to high true cost of generation that is subsidized by the government. DOE must assure that electric coops award contracts at the open bidding price and not mysteriously at much higher rates that add hundreds of millions a year in improper missionary subsidies.
10. PSALM should be allowed to recover only stranded contract costs as originally envisioned in the Epira Law. If the proceeds of NPC asset privatization is commandeered by the national government, those amounts should no longer be added to universal charges.

These reforms will result to at least a P3 per kwh reduction in the residential and commercial rates which comprise 60% of the NCR and Calabarzon area, the industrial and commercial hub of the country.

The lower rate will also strengthen the competitiveness of the Philippines in the call center and BPO industries.

Under the Task Force to Find ways to Reduce Electricity Rates in the country, the Department of Energy has received recommendations from the Philippine Chamber of Commerce, Philippine Independent Power Producers Association, the Philippine Institute of Development Studies, Meralco, Other consumer groups. The DOE is expected to consolidate these recommendations into a strategy for power cost reduction.

A copy of MSK’s presentation to the DOE Task Force can be downloaded at the Reference Archives.

Matuwid na Singil sa Kuryente Consumer Alliance, Inc.