Lower power rates are always welcome

"If prices of commodities have been rising, why are power rates going down?"


Data from the Philippine Statistics Authority reported that the country’s Consumer Price Index surged 121.90 Index Points in December 2019 from 119.1 points at the start of last year.

As per the PSA definition, “the Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of goods and services.” The figures reflect a weighted average of goods and services such as food, transportation, education, health care. Calculating the price changes results in an average that would show whether we are in a period of inflation or deflation.

For the regular consumer, the increase by 2.8 index points confirms that prices for consumer goods and services are increasing.

According to PSA’s summary on inflation rate, “The Philippines’ annual inflation rate increased to 2.5 percent in December 2019 from 1.3 percent in the previous month and beating market estimates of 2.1 percent. This was the highest inflation rate since June, driven by prices of food & non-alcoholic beverages (1.7 percent vs flat reading in November), mainly reflecting seasonal effects of higher demand during the Christmas season and the impact of recent typhoons on crops. Additional upward pressure came from cost of transport (2.2 percent vs -2.4 percent), namely domestic pump prices (17.1 percent); housing, water, electricity, gas & other fuels (1.9 percent vs 1.2 percent); furnishings (3.1 percent vs 2.8 percent) and alcoholic beverages & tobacco (18.4 percent vs 17.6 percent). Meanwhile, inflation was steady for education (at 4.6 percent); recreation & culture (at 1.4 percent); restaurant, miscellaneous goods & services (at 2.7 percent) and communication (at 0.3 percent). On a monthly basis, consumer prices rose by 0.7 percent in December, the highest since September 2018, after a 0.25 percent gain in November.”

Reviewing data from 2012 to 2019 shows a 20-percent increase in CPI. For us regular consumer and most especially breadwinners, this is a daily burden that hits us whenever we pay for the food, drinks, fuel, and all the cash draining expenses we must fork out to support our family.

An interesting contrast is the lower power rates recently reported by Meralco. Compared with the 20 percent CPI increase in the same period, Meralco power rates decreased by 10 percent.

This was revealed following Meralco’s announcement of a 41-centavo-per-kilowatt-hour rate reduction for January 2020. Compared with the same period last year, the overall rate is even cheaper by approximately 39 centavos per kilowatt hour.

Typical households would see a lower electricity bill, by about P82.

So, if prices of commodities have been rising, why are power rates going down?

Meralco explained that the lower overall power rates are because of its “superior sourcing strategy,” particularly the lower generation charges in their power supply agreements (PSA) – a bilateral agreement between a Generation Company (GenCo) and a Distribution Utility (DU) for the purchase and supply of power.

According to Meralco public information office head Joe Zaldarriaga, “Lower PSA charges were brought about by a reduction in capacity fees as a result of the annual reconciliation of outage allowances done at the end of each year under the PSAs approved by the Energy Regulatory Commission (ERC). The early completion of annual capacity payment for Sual Unit 1, Ilijan, Pagbilao Unit 1 and Panay Energy resulted in savings immediately passed on to consumers by way of lower electricity rates.”

Power Supply Agreements account for 49.4 percent of the generation charge. The December 2019 billing was at 4.8420 and decreased to 3.9761.

Looking at the rates from January 2019 to January 2020, the total net reduction is 73 centavos per kilowatt hour. Further review of the rates for the last ten years, in terms of average rate for 200-kilowatt hour customers, the 2019 rate at 9.90 pesos per kilowatt hour is even lower than the 10.03 pesos per kilowatt rate in 2010.

Just to review where our money goes whenever we pay our Meralco electricity bills, the biggest bite is the generation charge which goes to generation companies (GenCos) that supply power (power plants) at 55 percent of the total electricity bill. Taxes (Value Added Tax, Energy Tax Local Franchise Tax, Universal Charge and subsidies) account for 11.7 percent. The transmission charge or the cost that goes to the National Grid Corporation of the Philippines for transporting power from the GenCos to Meralco subsidiaries takes 10 percent. System loss and the feed in tariff subsidizing operations of renewable energy companies take 5.7 percent. Meralco’s distribution charge is at 17.5 percent and has not changed for the past 54 months.

On the other hand, demand for electricity in 2019 grew by 4.3 percent to 11,344 MW, an increase of 468 MW. As per the DOE list of existing power plants dated June 2019, only one power plant started commercial operations. The 968 MW expected to come online from private sector-initiated projects failed to meet their target operation date. This resulted 51 days of Yellow alerts and 15 days of Red Alerts in 2019.

The DOE has stated that Luzon demand in 2020 will increase by 942 MW, higher by 8.3 percent than 2019 peak demand of 11,344 MW. These figures should already raise red flags of a looming power shortage that will be debilitating to all of Luzon.

Topics: Philippine Statistics Authority , power supply agreements , Consumer Price Index , Index Points
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