The Electric Dream: Low Power Rates May 19, 2004

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The Electric DreamLow Power Rates!May 19, 2004
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OUTLINE

• Meralco consumers, electric bill, and the charges
  we pay
• The Generation charge and its components
• a. NPC PPA
• b. Meralco PPA
• The Transmission Charge
• System Loss
• Distribution charge
• Taxes
• Lifeline Subsidies

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HOW ELECTRICITY GETS TO CUSTOMERS
This slide is from a presentation by Federico
Lopez/VSantos
138kV/230kV/500kV Transmission Lines
Power Station
Step up Transformer
Industrial Customers
69kV/115kV Sub-Transmission Lines
Distribution Substation
Step down voltage to 13.8kV
Residential Customers
Industrial Customers
220V
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Commercial Customers
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Meralco electric bill for a consumer in the
101-200 kwh category
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Meralco electric bill for a consumer in the
101-200 kwh category
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Categories of Meralco residential consumers 1
-100 kwh 2,000,000 (lifeliners) 101
200 kwh 1,103,408 201 300 kwh
478,884 301 400 kwh 199,093 Over
400 kwh 265,138 Total
4,046,523
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The charges that we pay Cost item

Charged by 1. Generation charge
NPC and IPPs 2. Tax on
Generation charge
Govt 3. Transmission charge
TRANSCO 4. Tax on Transmission
charge Govt 5. System
loss
Meralco 6. Tax on System Loss
Govt 7. Distribution,
Metering and Supply charges Meralco 8.
Lifeline rate subsidies
- poorer consumers 9. Tax on
distribution, metering and supply charges
and lifeline rate subsidies Govt 10. Local
franchise tax
Govt 11. Tax on the local franchise tax
Govt 12. Universal charges
Govt/NPC
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Since we want to reduce our electric bill, let
us take a look at each Item 1. Generation
charge 53.1 2. Distribution, Metering and
Supply charges 15.2 3. Transmission charge
10.9 4. Taxes -10.2 5. System loss 8.9 6.
Lifeline rate subsidies -1.3 7. Universal
charges 0.4
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If we dispense with Items 4-6, 7 4. Taxes
-10.2 6. Lifeline rate subsidies -1.3 7.
Universal charges (missionary, envi) 0.4 we
immediately reduce our bill by 12. Thus, in the
particular April bill shown earlier, the consumer
would pay P979 instead of P1,113
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Before and after EPIRA

The charges in the pre-EPIRA Meralco bill 1.
Basic charge 2. CERA or Currency Adjustment 3.
PPA 4. Universal charges a. Missionary
electrification b. Environmental 5. Power
Act Reduction

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Charges in the bill after unbundling

• Generation charge cost of power generated and
  sold to Meralco by NPC and IPPs
• Generation charge P4.9073/kwh
• Included in the Generation Charge are the
  ff
• PPA of NPC
• PPA of NPC IPPs like Masinloc
• PPA of IPPs owned by or affiliated with the
  Lopezes who are also owners of Meralco

Rates are for customers in the 101-200kwh
category as of April 2008
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2. Transmission charge cost of delivering
electricity from generators, usually in the
provinces, to the distribution system of Meralco.
This is paid to TRANSCO. Transmission
charge P0.9922/kwh 3. System loss charge
cost of power lost due to technical and
non-technical losses. This is set at a
maximum of 14 for coops and 9.5 for Meralco as
provided for by RA 7832. System loss
charge P0.8075/kwh
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4. Distribution charge cost of building,
operating and maintaining the distribution system
of Meralco, which brings power from high-voltage
transmission grids to commercial and industrial
establishments and to residential end-users.
Distribution charge P0.5729/kwh 5. Supply
charge cost of rendering service to customers
such as billing, collection, customer
assistance and associated services.
Supply charge P0.5271/kwh
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• 6. Metering charge cost of metering, its
  reading, operation and maintenance of power
  metering facilities.
• Retail customer charge per month P5.00
• Metering charge P0.2435/kwh

7. Lifeline Rate Subsidy Amount
collected from residential consumers using more
than 100 kwh and also from commercial and
industrial consumers to subsidize consumers using
less than 100 kwh. Residential 0.1208/kwh
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8. Power Act Reduction Mandated by EPIRA
law to obtain immediate reduction in power bills
upon its implementation. Power Act
Reduction - P0.0689/kwh 9. Local franchise tax
0.057
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12. Universal charges a. Missionary
electrification charge P0.0373/kwh b.
Environmental charge
P0.0025/kwh c. NPC stranded debts
d. NPC stranded contract costs e. DUs
stranded contract costs f. Equalization
Taxes and Royalties
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I - The Generation Charge In March 2003, we paid
P3.2244. Now, we pay P4.9073 per kwh for the
electricity generated by the power plants and
delivered to our homes, an increase of about 10
annually. This is the biggest cost amounting to
53 of our bill. We must therefore take a hard
look at this. The items that are factored into
the present Generation Charge have their origins
in the PPA and embedded later when rates were
unbundled. So we make a brief review of the PPA.
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• PPA
• (Purchased Power Adjustments)
• Automatic cost recovery mechanisms approved by
  the ERB (now ERC) in 1996
• Collected by the Distribution Utilities (DUs)
  like Meralco, Davao Light, and electric
  cooperatives to recover costs of power purchased
  from NPC and IPPs, including systems losses and
  franchise tax of Meralco and electric cooperatives

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Cost items in the PPA of NPC

• PPCA (Purchased Power Cost Adjustment) amount
  needed to recover the change in operating costs
  due to the change in power purchased from IPPs
• FCA (Fuel Cost Adjustment) amount needed to
  recover the change in operating costs due to the
  change in fuel costs.
• FOREX Amount needed to recover the change in
  foreign disbursement due to the change in foreign
  exchange rates

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NPC power charges
PURPOSE
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PPCA (P0.40) Change in operating costs due to
the change in power purchased from IPPs
FCA (P0.4269) Change in operating costs due to
change in fuel cost
NPC PPA
FOREX (P0.3969) Change in foreign disburse- ment
due to change in foreign exchange rates
Data as of June 2002
ITEMS THAT GO INTO THE PPA OF NPC
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NPC Charges as of June 2002 BASIC
P1.8743 FCA
0.4269 PPCA 0.4000 FOREX
0.3969 --------------------
------------- Effective Rate
3.0981
ITEMS THAT GO INTO THE PPA OF NPC
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Many items were responsible for the high PPA of
NPC 28 IPP contracts were authorized during the
FVR administration and the IAC found provisions
in the contracts that were disadvantageous to
consumers.
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1. Take-or-Pay Provision in the Contracts
An Example

• ALSONS-TOMEN Consortium IPP managed the following
• generating plants
• 98-MW Iligan III in Iligan City - 11
  used
• 100-MW in Zamboanga City - 30 used
• 50-MW in General Santos - 20
  used
• Average utilization of the 4 plants - 10
• Annual loss that customers paid - P2.6
  billion

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2. Undelivered and Billed power
Annex B-4 page 1 of NPC petition for P1.87 rates
hike
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Undelivered and Billed power
EXTRAPOLATED
Undelivered Power but Paid for
Delivered Power
Billed Power
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Cost of Undelivered Power (Or how much we paid
for power not delivered and therefore not used)
Undelivered power in 2002 - 8.119 B
kwh Effective NPC rate in 2002 -
P3.75/kwh Total cost of undelivered power
P30.44 B
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Sample report of the Inter Agency Committee that
reviewed the IPP Contracts San Roque Hydro
Project
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Sample report of the Inter Agency Committee that
reviewed the IPP Contracts Mirant Sual
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Sample report of the Inter Agency Committee that
reviewed the IPP Contracts CBK (IMPSA) Project
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Sample report of the Inter Agency Committee that
reviewed the IPP Contracts CBK (IMPSA) Project
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Sample report of the Inter Agency Committee that
reviewed the IPP Contracts CBK (IMPSA) Project
1997 IMPSA offered to sell to NPC
P1.80/kwh Lopez FPPConsortium offer
P0.645/kwh IMPSA matched the offer with
P0.69/kwh FPPC filed a case vs IMPSA/NPC but
lost In 1997, NPC average selling rate
P2.1169 Project was undertaken by CBK Power
Company 50 - IMPSA (Argentina) 50 -
Edison Mission Energy (US)
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Sample report of the Inter Agency Committee that
reviewed the IPP Contracts CBK (IMPSA) Project
Computed basic rates (as of 1997) Kalayaan I
P0.7523/Kwh Kalayaan II
P0.7370/Kwh Caliraya -
P0.7337/Kwh Botocan - P0.7337/Kwh NPC
production cost -- P1.2083/kwh Average basic
rates of IPP hydro power plants --
P2.2196/kwh Among the seven IPP hydro plants,
the CBK power plants has the lowest levelized IPP
adjusted rates. The LCE ranges from P0.65/kWh to
P .88/kWh.
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The correct thing to do would have been to
rescind those contracts (which are the majority)
with onerous provisions, or at the very least,
renegotiate them. But the businessmen,
mostly foreigners, resisted. The government even
had to request them to allow amendments to the
contracts


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3. Excessive Electricity Rates


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First Gas Invoice for Dec 2000


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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Excessive Electricity Rates


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NPC bill for Meralco to pay Power Bill No.
304-02-2004 Dated March 4, 2004
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Details of NPC bill

For Billing period Jan. 25 to Feb. 25,
2004 Contract Energy 1,636,086,109 Kwh Total
Energy 1,084,609,615 Kwh Difference
between the Contracted Energy and the Total
Energy actually purchased by Meralco
551,476,494 kWh

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Because Meralco did not buy from NPC as per their
contract NPC imposed a penalty computed as
follows 551,476,494 kWh _at_ P2.3887 or a total
of
P1,317,311,901.22 Meralco should have not
purchased from the Lopez IPPs without first
fulfilling its contracted energy from NPC to
avoid the penalty Since Meralco sells about 2 B
kwh per month, that penalty of P1.3B for the
month February 2004 was worth about 65 cents/kwh.


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Since the Generation Charge is 53 of our
electric bill, there would be big savings if this
could be reduced. Although the Generation
sector is already deregulated by EPIRA the IAC
recommendations on the IPP contracts should be
looked into again, and checked if they have been
implemented.


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• Recent cases vs NAPOCOR/WESM filed by BAYAN,
  Anakpawis, Gabriela, AGHAM and POWER
• 1. Overpricing of coal purchase
• 2. WESM price manipulation
• Details are in the complaints filed with
  Ombudsman

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Meralco also had its own PPA
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Items that go into the PPA of MERALCO

• PPA of Meralco-affiliated IPPs like First Gas
  Power.
• System loss and company use
• Subsidy reduction on high load factor customers
• Franchise tax

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PPA Formula

• A Cost of electricity during a supply month
  from NPC and all other supplier less amount
  recovered from pilferages
• R ab-c Recoveries/Discount from the Basic
  Charge/Rate
• a Subsidized Consumptions defined as subsidized
  kWh for the billing month x P0.884 x (1-FT)
• b Subsidizing Consumptions defined as
  Subsidizing kWh for the billing month x P2.274
  x P2.274 x (1-FT)
• c High Load Factor discount, if any, x (1-FT)

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• B Total kWh purchased during the supply month.
• C The actual system loss or the cap imposed by
  law, whichever is lower.
• Cl The actual company use in kWh but not to
  exceed 1 of total kV/h purchased and generated
• FTPrevailing National Franchise Tax

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NPC PPA
PPA of Meralco-affiliated IPPs
SYSTEM LOSS OF MERALCO
MERALCO PPA
MERALCO USE OF ELECTRICITY
Subsidy reduction on high load factor clients
FRANCHISE TAX
ITEMS THAT GO INTO THE PPA OF MERALCO
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Various items that go into the Meralco PPA
PPCA from IPPs
NPC PPA
FCA
PPA of Meralco-affiliated IPPs
FOREX
SYSTEM LOSS OF MERALCO
MERALCO PPA
JUAN
MERALCO USE OF ELECTRICITY
Subsidy reduction on high load factor clients
FRANCHISE TAX
THE PPA THAT JUAN PAYS
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PPA-Basic Charge, 1997 to 2002
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In the unbundled bill PPA does not appear
anymore.What happened to the PPA?Where did it
go?

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The PPA has been hidden in 5 charges
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ERC admits The current PPA is allocated
between the generation and transmission rates.
The generation component shall be periodically
updated through the Generation Rate Adjustment
Mechanism (GRAM).
-ERC Order dated 30 May 2003, page 9
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What the ERC says about GRAM The Commission
ERC has developed a new recovery mechanism
designed to replace the purchased power
adjustment PPA clauses being used by the power
utilities. The Commission has promulgated the
Implementing Guidelines on the Generation Rate
Adjustment Mechanism GRAM effective February
24, 2003. -ERC Order dated 20
March 2003, page 86
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GRAM, or Generation Rate Adjustment
Mechanism Will be charged to take into account
new cost adjustments by IPPs
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The Supreme Court decision on the unbundling
case filed by Bayan et al required a COA audit of
the Meralco books to verify that the data on
which the unbundled rates are correct and
justified. As far as we know ERC has not yet
ordered an audit of Meralco.
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II - The Transmission Charge In March 2003 we
paid P0.9540/kwh. Now, we pay TRANSCO
P0.9920/kwh to transport the electricity from the
power plant to our distribution utility
(Meralco), an increase of 4.. This Is 10.9 of
our bill TRANSCO has been privatized. It was won
by the Monte Oro consortium which includes
business groups owned by Enrique Razon, a person
believed to be close to Malacañang
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Meralco says it has been incurring significant
under-recoveries in the collection of
transmission charges. It has a pending
petition at the ERC to recover under-recoveries
in transmission from June 2003 to July 2007
amounting to P5.55 billion and its attendant
carrying cost of P1.09 billion. Consumers will
be made to shoulder the amount
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• From August 2007 to March 2008, Meralco claims to
  have incurred under-recoveries in transmission
  charges.
• These under-recoveries have amounted to P2.5
  billion and will be passed on to consumers
  eventually.

When does an under-recovery occur? An
under-recovery happens when the amount collected
by Meralco based on the ERC-approved transmission
rate is less than what TRANSCO actually bills
Meralco.
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When does an under-recovery occur? An
under-recovery happens when the amount collected
by Meralco based on the ERC-approved transmission
rate is less than what TRANSCO actually bills
Meralco.
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III - The System Loss Charge In March 2003 we
paid P0.5307/kwh. Now, we pay P0.8075/kwh), an
increase of 10 every year. This Is 8.9 of our
bill
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• Two kinds of system loss
• Technical (conductor loss, core loss in
  transformers, loss due to technical metering
  error.
• Non-technical
• 1. Pilferage, meter-reading errors,
  meter tampering
• 2. Power used for the proper operation
  of the system (company use) and unbilled power
  for community-related activities. This is
  also called Administrative Loss.

Kwh sold
Kwh purchased
System loss
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System Loss
RA 7832 allows Meralco to pass on to its
customers its system loss of up to 9.5 of the
net power that it sends to the distribution lines.
June 2001 212,000,000 kwh or P724 M Or
about P8 billion for Year 2001 of which only 1/3
or P2.6 billion is due to pilferage
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From Memo of World Banks Mr. Sopher to DOE
Sec. Delfin Lazaro in 1993
Meralcos technical losses are higher than they
need be and that a figure of around 6 to 6.5
might be a reasonable target for Meralco to
achieve. Technical losses of selected Asian
utilities China Light Power (HK) -
5.5 Hongkong Electric Company - 4.5 MEA
(Bangkok) - 4.8
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Power used by MERALCO
     
Meralco is allowed to pass on to its customers
the cost of electricity that it uses in its
offices and facilities of up to 1 of the net
power that it sends to the distribution
lines. In 2007, Meralco used 72 million kwh for
its own use, amounting to P427.5 million. This is
0.27 of the allowed. The law says it can use up
to about 216 million kwh based on the 1
cap. The cap is too high and should be reduced.
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"The actual system loss or cap of 9.5 plus 1 of
company use (which should not include personal
consumption of Meralco's officers and employees,
if applicable) or actual whichever is lower shall
be deducted from total power cost and be
reflected as System Loss Charge, a separate item
in the customers's bill" - ERC decision

• Should Meralco and other DUs be allowed to
  continue charging to consumers
• the technical loss?
• the non-technical loss?

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IV Distribution Charge This Is 8.9 of our
bill The item has 4 components in the bill A.
Distribution charge in March 2003 -
P0.5853/kwh Now
P0.5729 (decreased by 2.1) B. Retail customer
charge (used to be part of metering charge
P5/month (no change) C. Metering system charge
In March 2003 - P0.2102/kwh Now
- P0.2435/kwh (increased by
16) D. Supply charge In March 2003 -
P0.4888/kwh Now -
P0.5271/kwh (increased by 7.8) Overall
increase 22
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When the components of the Distribution
charge are added up, the rate is P1.34/kwh plus a
fixed amount of P5 per customer per month.
This is the 2nd biggest item next to the
Generation charge. The whole amount goes to
Meralco.
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V Government taxes A. Local franchise tax of
0.57 imposed on a) Generation charge
b) Transmission charge c) System loss (!)
4) Distribution 5) Subsidy to lifeliners
(!) It is already a tax, but the EVAT is slapped
on the local franchise tax as per ERC/BIR
instruction. B. Royalties on natural gas of
about P1.75/kwh or 25 of the generation rates of
First Gas.
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C. VAT March 2003, there was no VAT In Jan.
2006, VAT was slapped on power because the
government said it needed the money to help the
poor via more social services. That immediately
increased power rates by 10 and increased the
burden on the 2 million poor lifeliners. P0.93/kw
h the VAT on electricity paid by the 101-200
kwh customer class. This pocket loss is even
bigger than the system loss rate by 12 centavos.
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Taxing the bunch of electrons called electricity
all the way from the power station to your home
NPC/IPPs
TRANSCO
DUs Meralco, etc
Consumer
Tax on Distribution, Lifeline subsidy Franchise
tax P22.72, or P0.19/kwh.
Tax on system loss P10.33, or P0.08/kwh.
Tax on Generation P62.50, or P0.51/kwh.
Tax on Transmission P12.94, or P0.11/kwh.
All data here are for the 101-200 kwh customer
class.
Local franchise tax of 0.57
Think twice before you flick on that switch!
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VAT based on consumption
P18 billion/year VAT income in Meralco franchise
areas
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The VAT on system loss is around P4 billion
from 2006 to 2007. Why tax electricity lost to
pilferage and inefficiency and free use of the
DUs of electricity?
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The Meralco Bill Equation Total Bill 1.1044G
1.1069T 1.1049SL 1.12DMS 1.12LLS
1.12LFtx UC where G Generation charge Gtx
Tax on Generation charge T Transmission
charge Ttx Tax on Transmission charge SL
System loss SLtx Tax on System Loss DMS
Distribution, Metering and Supply charges LLS
Lifeline rate subsidies DMSLLstx Tax on
distribution, metering and supply charges and
lifeline rate subsidies LFtx Local franchise
tax UC Universal charges With tax component
segregated Total Electric Bill G T SL
DMS LLS UC Gtx Ttx SLtx DMSLLstx
LFtx Where Gtx 0.1044G Ttx
0.1069T SLtx 0.1049SL LFtx
0.0057G T SL DMS LLS
DMSLLstx 0.12DMS LLS
LFtx The multiplying factors vary from month to
month except the 12 of the Distribution charge
tax
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VI Lifeline Rate subsidy In March 2003 we paid
P0.0679/kwh Now, we pay P0.1208/kwh, Increase of
78.
Meralco customers using 100 kWh or less monthly
enjoy subsidized rates However, the subsidy is
paid for by other consumers, those using 101 kWh
and more The subsidy scheme is supposed to be
revenue neutral Meralco however claims it has
under-recoveries of close to P1 billion since
2003, meaning, it wasnt able to collect enough
to subsidize the lifeline consumers
84
The 101 Kwh and above consumers donate
P0.1208/kwh to subsidize the lifeline rate
consumers. And they are also taxed 12 for
donating!
85
Proposal of BAYAN and POWER to lower rates 1.
The removal of the VAT on electricity
(generation, transmission and distribution)., In
the interim, the VAT on systems losses, lifeline
subsidies and franchise taxes can already be
removed by the Bureau of Internal Revenue and the
Energy Regulatory Commission. 2. The removal of
the systems losses component covering electricity
pilferage. This is a demand addressed to the
Arroyo government and should apply for all
distribution utilities nationwide, not just
Meralco. 3. Immediate refund of P10 billion in
over-recoveries by Napocor from 2006 up to the
present. Interest on the over-recoveries should
also be computed. 4. Rejection of the P14
billion Napocor-Meralco settlement that aims to
pass on bad debts to consumers.  The petition has
been pending before the Energy Regulatory
Commission for four years now. 5. Rejection of
the Napocor-PSALM petition that allows the
recovery of P9 billion in generation charges that
resulted from Napocors market power abuse in
the WESM from August to November 2006. This
petition is currently pending before the ERC.
86
6. Stricter regulation and monitoring of Napocor
fuel procurements to prevent overpriced emergency
coal purchases which raise generation rates.
Possibility of long-term contracts should be
considered to protect consumers from rising coal
prices.7. Review of all Independent Power
Producer contracts of Napocor and other
distribution utilities and disallowing
take-or-pay provisions that are usually
disadvantageous to consumers. 8. Scrapping of
the EPIRA and an immediate stop to the
deregulation and privatization of the power
sector in favor of a more regulated environment
where rates can be thoroughly scrutinized.
Articles on various power issues can be found in
these sites www.agham.org www.bayan.ph
www.monram.wordpress.com www.natoreyes.wordpress.
com
87
Thank you!