Overall power rates are mostly comprised of pass-through costs like the generation charge, which is the largest among all components.
Payments for the generation charge go to power suppliers—independent power producers (IPPs), participating plants in the power supply agreements, state-run National Power Corp. (Napocor) and the Wholesale Electricity Spot Market (WESM).
In December 2013, there was a controversial increase in the rates of Manila Electric Co. (Meralco) due to a hike in generation charge which was attributed to the scheduled and forced outages of power plants all over the country and the maintenance shutdown of the Malampaya natural gas field.
Amid the tight supply, Meralco was forced to buy supply from WESM where prices have surged, and pass on the higher generation charges to consumers, leading to record increases in overall power rates.
Noting the impact of the Malampaya maintenance shutdown and WESM price spikes, Meralco sought a rate increase of P4.15 per kilowatt-hour (kWh).
The hike would have resulted in a P830 rise in the monthly bill of households using 200 kWh while households using 300 kWh would have had an increase in their monthly bill of P1,245 and those consuming 400 kWh would have had an increase of P1,660.
Price surge
Several groups, however, including the Makabayan bloc in Congress questioned the rate surge and on Dec. 23, 2013, the Supreme Court issued a temporary restraining order (TRO) that in effect kept generation rates steady at P5.67 a kWh for the billing month of December 2013.
In April 2014, the high court sitting en banc issued a new TRO that prevented Meralco from collecting increased power charges. It extended indefinitely the previous TRO.
Also among pass-through costs are the universal charges.
In February 2013, the Energy Regulatory Commission (ERC) allowed the state-owned Power Sector Assets and Liabilities Management Corp. to collect P53 billion in universal charges to cover stranded contract costs from all power consumers.
Stranded contract costs are the transition costs incurred when the government deregulated the power sector to create a more competitive environment and which Napocor is allowed to recover. They refer to the difference between Napocor’s contractual payment obligations with IPPs and the revenue earned from the sale of the contracted energy from these same IPPs.
Unbundled bill
Before Meralco started using an unbundled bill in May 2003, there were only three components in consumers’ bill and one of them is the much-hated purchase power adjustment (PPA).
The PPA was an automatic cost recovery mechanism set up by Napocor and distributor utilities like Meralco to cover fluctuations in fuel prices, electricity bought from IPPs and the foreign exchange rate.
It allowed producers and distributors to recoup their losses, with consumers bearing the brunt in higher bills.
Some IPP contracts with the government, most of them signed during the Ramos administration, provide that they would get to be paid even if they did not produce electricity, or even if their production was not actually used.
Superficial solution
Amid a widespread clamor for the scrapping of PPA charges, then President Gloria Macapagal-Arroyo ordered Napocor in May 2002 to lower its PPA and be pegged at 40 centavos per kWh.
The reduction led to lower electricity rates but critics have said that this provided a superficial solution to the high power rates as it made the rates artificial.
In 2003, the generation recovery adjustment mechanism (GRAM) replaced the PPA fee. Depending on the actual purchased power costs for a particular quarter, the Gram could mean either a cost recovery from, or a refund to, electricity consumers.
However, Bagong Alyansang Makabayan (Bayan) said the GRAM would result in even more rate increases as it creates new charges.
Unlike the PPA, which is implemented automatically each month, the collection of the GRAM fee would be deferred for at least three months to a maximum of six months. Utilities would have to seek the ERC’s approval before they could reflect the Gram in customers’ bills.
Bayan spokesperson Renato Reyes Jr. claimed that the GRAM carried an added charge that consumers would shoulder—the interest on loans that Meralco would use as advances for the deferred GRAM. Inquirer Research
Sources: Inquirer Archives