[Market Rider] Quick fixes to relieve hurting households from high power costs

Average residential electricity rate nationwide reached P12.43 per kilowatt hour (kWh) in June this year following intense summertime demand, compounded by the extensive power plant outages in the Visayas at the time. Power cost rose once more in July owing to geopolitical tensions and rising global fuel prices. Typical residential rate within this time hit P14.82 per kWh. This slightly fell to P14.74 per kWh in September. But in October, standard residential rate peaked again to P15.0615 per kWh. These rates dwarfed the cost structures of power prices in Thailand, Vietnam, and Malaysia from double to even triple depending on their reported respective prices of P7.41, P5.17, and P3.34 per kWh. This situation has left the common Philippine household hurting sorely with the highest power rates in Southeast Asia in the last five months. The math behind the price The Philippine power sector was entirely privatized and deregulated under the Electric Power Industry Reform Act of 2001 or more commonly referred to as the EPIRA Law. Like Singapore, the country does not artificially subsidize electricity. Instead, it passes the full economic cost of production, transmission, and delivery to consumers. In other words, Philippine consumers pay the “actual, unbundled market cost” of electricity. In Malaysia, Indonesia, or Thailand, their governments heavily subsidize power costs. This structural policy for power in these countries enable their common households especially to enjoy lower electricity rates. Based on the power rates implemented in the five-month period between June to October, the typical bill for a 200 kWh per month consumption would have been from P2,486.00 to P3,012.00, making the common household suffer as much as 21.15% increase in power billing. Bundled into the common household’s electric bill are several cost items. These include the costs for generation, transmission, distribution, allocation for system loss, and charges for subsidies and taxes. Generation charge is the cost of producing the electricity and buying it from the power companies. This often amounts to about 55% to 57% of total power cost. Between June and October, it swung from P6.84 per kWh up to P8.58 per kWh. Transmission charge is the amount paid to the National Grid Corporation of the Philippines (NGCP) for its role as the “highway” for high-voltage power across the country. It usually amounts to about 10% of total electric bill. It scaled up from P248.60 to P349.20 for the period between June and October. Like generation cost, it can fluctuate depending on grid stability requirements and ancillary service costs. Distribution cost is the actual share kept by the electric utility distribution company like Meralco and the electric cooperatives. It’s the money dedicated to operate, build, and maintain the poles, wires, transformers, and customer service lines in our neighborhood. This is about 15% of the electric bill. It added up to about P435.05 to P451.80 between June and October. This cost barely changes. It’s because distribution rates are strictly regulated by the government and do not fluctuate with global fuel prices. Allocation for system loss is the cost of electricity lost during delivery due to old wires, transformers, or electricity theft. This is capped to 5% by law. This amounted to P124.30 up to P150.60 between June and October. Subsidy is about 1% of the electricity bill. It’s called the “lifeline rate” share. This is a government-mandated socialized pricing mechanism and discount granted to low-income households and marginalized electricity end-users who struggle to pay power bills at full cost, as provided under Section 73 of the EPIRA Law and further strengthened by Republic Act No. 11552 or the Expanded Lifeline Rate Law. This added up to P24.86 up to P30.12 between June and October. Taxes are roughly14% of the electricity bill. This includes the 12% value added tax (VAT) applied directly to the generation and transmission components, alongside the feed-in tariff allowance (FIT-All) used to fund renewable energy projects. This mandatory pass-through component charge amounted to approximately P430 to P450 between June and October. On the average, generation, transmission, and distribution charges account for nearly 80% of the total electric bill of the common household. Current government intervention measures There are several legislative initiatives the government has triggered to lower household electricity bills, all of which are pointed to aggressively reform the country’s 25-year-old power policy framework. One is House Bill No. 10430 otherwise called the “System Loss Charge Abolition Act.” This legislation seeks to completely amend the EPIRA law to prohibit distribution utilities from passing on these operational failures to household consumers. By removing the system loss charge from the monthly electric bill of the common household, this is projected to reduce total electricity costs by 5% to 10%. Another is House Bill No. 10602. This legislative initiative is designed to legally exempt consumers from paying the 12% VAT on top of the system loss charge component. Congress is furthermore fast-tracking the Sariling Kuryente Act or Self-Generated Power Act. This bill guarantees that households capable of generating and storing their own electricity are free to invest under uniform, highly simplified rules. The bill also mandates standard net-metering nationwide. This forces our utility companies to buy back our excess daytime solar power at fair market rates, allowing middle-class families to wipe out their daytime consumption bills entirely and see a return on their solar investment in less than 5 years. The Senate is also prioritizing the “ERC Strengthening Bill.” This bill aims to fundamentally alter how the ERC operates, shifting it from a reactive auditor into a proactive consumer-protection agency. It grants the ERC expanded teeth to dynamically freeze pass-through generation charges during severe economic downturns, heatwaves, or unexpected “bill shocks”. To bypass legislative delays, the Bureau of Internal Revenue (BIR) already stepped in by issuing Revenue Memorandum Circular No. 97-2026, which actively removes the 12% VAT on allowable system loss charges within the cap approved by the ERC. This provides immediate, minor relief to household bills while Congress finishes codifying the permanent statutory ban. Crucial to quick relief Crucial to these efforts is to first cut red tape. Bureaucratic hurdles remain intense. The government should further simplify the bureaucratic process for residential as well as commercial solar installations. Getting a solar system approved still involves navigating a mountain of paperwork aside from being subjected to long waiting periods for building permits, complex zoning laws, and slow utility company inspections. The government could skirt this issue with the “one-stop-shop” approval process. It cuts red tape, making permits faster and cheaper to get. While waiting for formal legislative passage, the government could already speed up standard net-metering nationwide under existing laws. Under this method, when your energy system produces more than you can use, it enables you to send your excess energy into the grid and earn kilowatt-hour credits which you can use to offset future electricity bills. Based on present costings, this will also enable you to realize massive savings that can completely cover your upfront cost of purchasing and installing your solar equipment in just 4 to 6 years. After this point, the electricity generated is practically free profit. The Department of Energy (DOE) must aggressively penalize maintenance and grid-connection delays by NGCP. Dozens of completed power generation plants remain stranded simply because NGCP has failed to physically link them to the main transmission lines. Next, during the dry summer months when supply squeezes hit the Wholesale Electricity Spot Market (WESM), the Energy Regulatory Commission (ERC) can deploy more rigid, temporary price mitigation caps to stop opportunistic price-gouging when plants experience un-scheduled outages. Ruling out all the other options, the least the government can do to lower the equation in the electricity bill without disrupting the generation supply chain is to remove the 12% VAT specifically on the system losses, environmental fees, and cross-subsidies within the unbundled bill. That way, the common household may enjoy an immediate reduction in the electricity bill by at least 15%. – Rappler.com A veteran stock market analyst, Den Somera has long years of professional experience in investment banking and stockbroking and founder-convenor of The Monday Circle. You may reach the writer at kapitaltek@gmail.com Below are some Market Rider columns you might have missed: