… many of the Philippines’ neighboring countries… appear to have cheaper electricity because their governments subsidize more than 50 percent of their tariffs.
Manila Electric Co.is not contesting a scholarly study that finds the Philippines as having one of the highest electricity rates in Asia. The Philippines, as noted by a 2016 Columbia University study, has not shed its notorious image of having one of the highest energy prices in this part of the world.
“The high cost and sketchy reliability of electricity supplies in the Philippines are now the main deterrents to investing in the country, according to foreign business leaders who see the problem as a persuasive reason to invest elsewhere,” the Columbia University study says, quoting research group, Enerdata.
Federation of Philippine Industries chairman Jess T. Arranza will not even dispute the observation. But he cautioned calls to split the Meralco’s franchise, saying it is “counterproductive” and sends a wrong signal to the business community that could even drive investors further away.
I’m giving equal space to Meralco’s discourse to contextualize the high power rates in the country. For one, Meralco concedes that it has natural monopoly over the National Capital Region (NCR) and nearby provinces, after obtaining the franchise to distribute electricity to these high growth areas, subject to regulation and oversight of government entities like the Energy Regulatory Commission (ERC).
But it could not unilaterally set its own rates, similar to other private distributors and other cooperatives, whose tariffs are subject to regulatory review and approval process.
Meralco also inferred that a more recent data from the 2018 Family Income and Expenditures Survey of the Philippine Statistics Authority (PSA) showed that water, electricity, gas and others (not just electricity) accounted for just 8.8 percent of expenditures of families in NCR, compared with the 2016 study’s assertion that 15 percent to 20 percent of household expenses go to electricity.
Electricity rates are a key item in the country’s inflation basket. Thus, Meralco said the reduced rates in December contributed to the easing of inflation for the month to 3.9 percent—the lowest in the last 22 months.
The utility firm, meanwhile, cited a study conducted by Australia-based International Energy Consultants that analyzed and compared 46 energy markets, including two American states. Its study showed that Meralco’s average tariff in 2022 is 3 percent below the global average and ranks 21st among those surveyed.
The IEC stressed that that many of the Philippines’ neighboring countries such as Thailand, Indonesia, Malaysia, Korea, Taiwan and Vietnam appear to have cheaper electricity because their governments subsidize more than 50 percent of their tariffs. The subsidies are in the form of cash grants, subsidized fuel or deferred expenditure.
The same study cited that Meralco’s overall tariff increased by 24 percent—about the same level of a 23-percent rise globally over the past five years—due to higher generation charge, a pass-through cost.
“Notwithstanding the increase, all of the components of the regulated tariff are judged fair and reasonable by IEC, based on comparisons with other markets versus the underlying cost of electricity supply in Luzon, the IEC study said. “Considering that the Luzon power market is unsubsidized, and the majority of the electricity is produced using imported fuel, Meralco appears to have done a very good job of minimizing tariff increases.”
Meralco cited other bill components or miscellaneous charges, which are non-revenue components, just like all other pass-through costs such as the generation charge, or the cost from power suppliers that generate electricity.
The utility firm finds assumptions that it profits from higher generation charge baseless. It says it only secures a small portion or about 7 percent of its energy requirement from its affiliates—way below what is allowed under the law. Meralco obtains majority of supply from contracted capacities covered by Independent Power Producers, or the so-called Power Supply Agreements.
The IEC attributed the resilience of Philippine electricity tariffs to Meralco’s ability to bargain for the lowest rates through open and transparent biddings and diligent management of power supply contracts.
The IEC study, it seems, provides the proper context on electricity pricing. For that matter, the entire energy industry, not just Meralco and the Department of Energy, should band together to provide context and explain the technical nature of the industry.