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What Meralco has been charging its customers

By Ronnel Domingo
Philippine Daily Inquirer
First Posted 02:01:00 05/26/2008

Filed Under: Electricity Production & Distribution

(First of two parts)

MANILA, Philippines?Customers of a distribution utility like Manila Electric Co. (Meralco) used to see only three items on their monthly bills?the basic charge, purchased power adjustment (PPA) and current exchange rate adjustment.

As a result, customers did not know how much they were paying for each type of service that Meralco rendered. They had no idea how much went to the cost of producing the electricity and of transmitting it to their homes, which were part of the ?basic charge.?

As mandated by the Electric Power Industry Reform Act (EPIRA) of 2001, Meralco, which has more than 4.3 million customers in 25 cities and 86 municipalities in Metro Manila and nearby areas, started issuing an unbundled bill in May 2003.

A customer now counts some 20 items on the menu of charges under eight main headings?generation, transmission, systems loss, distribution, subsidies, taxes, universal charges and other charges.

? ?Generation Charge? accounts for the cost of power bought from state-owned National Power Corp. (Napocor), Meralco?s independent power producers (three companies, including two owned by the Lopezes whose management control of Meralco is being challenged by the Government Service Insurance System), and other sources.

The charge is prorated according to the share of supply from producers that have different prices.

In an average month or billing cycle, Meralco says it buys about 30 percent of its supply from Napocor through a transition supply contract signed in November 2006 and amended in July 2007.

At maximum capacity, independent power producers (IPPs) account for about half of Meralco?s supply needs, while the wholesale electricity spot market (WESM) accounts for 10 percent.

Other Meralco sources are Napocor?s customer choice program, ?which allows customers with an average monthly peak demand of at least 750 kilowatts to take advantage of Napocor?s lower rates at off-peak hours,? and Napocor?s one-day power sale.

? ?PowerAct? reflects the mandatory 30-centavo per kWh reduction in Napocor rates as provided for in the EPIRA. Prorated billing shows this as 7.57 centavos in Meralco?s May billing cycle.

? ?Prev Mos Adj on Gen Cost? means ?previous months? adjustment on generation cost.? Pegged at 16.62 centavos per kWh, this appeared on the bill only in February following an order of the Energy Regulatory Commission (ERC) allowing Meralco to recover from customers over a two-year period P8.8 billion in generation and system loss charges.

Meralco originally sought to recover P21 billion under 10 separate applications to account for generation rate adjustments from August 2006 to May 2007.

Supreme Court ruling

This was the period covered by the ERC order for Meralco to stop its implementation of the automatic generation rate adjustment in compliance with a Supreme Court resolution dated Aug. 16, 2006.

The Supreme Court was acting on a petition filed by the National Association of Electricity Consumers for Reforms to stop Meralco from automatically adjusting its generation charges without prior ERC approval.

? ?Net Stlment Surplus-Refund? refers to a rebate to customers of the accumulated surplus payments that Meralco made to Philippine Electricity Market Corp., operator of WESM. This is pegged at 16.14 centavos per kWh and is effective for only four months from February 2008.

? ?Transmission Charge? refers to the cost of delivering power from production plants to distribution utilities. It may include services that are necessary to support such transmission.

? ?System Loss Charge? accounts for the recovery of the cost of power lost when it dissipates along the wires or through pilferage. The law allows Meralco and other distribution utilities to pass on to consumers the cost of system loss?up to 9.5 percent of the company?s total purchased supply.

Included in the system loss charge is the cost of electricity that Meralco uses for its offices and facilities. [P531 million in 2007.]

? ?Distribution Charge? is what goes to Meralco. It covers the cost of building, operating and maintaining the utility?s distribution system.

? ?Retail Cust Chrg? or retail customer charge is fixed at a monthly P5 per customer. The customer pays this amount even if he or she did not use a single watt in a particular billing period.

? ?Metering Chrg? or metering charge covers the cost of measuring a customer?s power consumption, the reading of the meter, and the operation and maintenance of power metering facilities.

? ?Supply Charge? pays for the cost of Meralco?s services, like billing, collection, customer assistance and related services.

? ?Lifeline Rate Subsidy? refers to a discount given to a residential customer who uses up 100 kWh a month or less. Customers who use 50 kWh and less pay only half the actual cost. Those who use 51-70 kWh get a 35-percent discount while customers who use 71-100 kWh get a 20-percent discount. Those who use more than 100 kWh shoulder this subsidy.

? ?Local Franchise Tax? represents 0.5 percent of the sum of the generation, distribution and subsidy charges. Under the Local Government Code, the amount goes to cities and provinces.

? ?Value-Added Tax? (VAT) is levied on the generation charge, previous months adjustment on the generation cost, net settlement surplus refund, transmission charge, system loss charge [the electricity that customers did not use!], Power Act rate reduction, distribution revenues (including retail customer charge, metering system charge, supply charge and the local franchise tax), and the lifeline rate subsidy.

The government started imposing VAT on electricity on Nov. 1, 2005.

Prorated are the VAT on generation- and transmission-related charges. The prorate depends on the ratio of power produced using nonrenewable fuel and power generated from renewable fuel like geothermal and hydro, which are VAT-exempt. The VAT charge may be less than 12 percent based on the share of renewable fuel in the energy mix.

Two items are VAT-exempt?the charge for ?missionary (electrification),? which is pegged at 3.73 centavos per kWh and the environmental fund, which is set at 0.25 centavos per kWh.

The charge for missionary electrification covers the cost of government efforts to bring electricity to far-flung areas that are not commercially viable to be connected to the main power grids.

The ?Environmental Fund? is to be used for the rehabilitation and management of watershed areas, which help in the generation of electricity through hydro power plants.

? ?Universal Charges? are to be collected from all kinds of customers?residential, commercial and industrial.

There are three items under this heading?the cost of Napocor?s debts and contracts that were left unsettled ?or stranded? in the course of industry reforms under the EPIRA; the cost of distribution utilities? stranded contracts; and the equalization of taxes and royalties between indigenous or renewable energy resources and imported fuels.

These charges depend on petitions that Napocor, Meralco and generation companies have filed or yet to file in the ERC.

Take or pay

In the old system, the ?basic charge? lumped together charges for generation, transmission, distribution, metering, supply and franchise tax.

The much-hated purchase power adjustment (PPA) is now spread among the generation, transmission and system loss charges, and the franchise tax. It reflected fluctuations in the cost of fuel used to produce power and implemented the take-or-pay provision of Napocor?s contracts with IPPs.

Under this provision, Napocor and by extension taxpayers and users of electricity will still have to pay whether or not they used the power generated by the IPPs.

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