ERC explains unbundling of electricity rates

“The purpose of unbundling is to make the billing items clear and transparent to the consumers, not to hide PPA in the electric bill,” said Energy Regulatory Commission (ERC) Chairman Manuel R. Sanchez.

The unbundling of rates is the identification of the individual cost of providing each electric service to consumers. In simple terms, it is the itemization or breaking down of the specific components of electricity bill to make the pricing of electricity more transparent and understandable.

Republic Act 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001, provides that the National Power Corporation (NPC) and all distribution utilities shall file with the ERC its revised rates, which must be reflective of the cost of providing electricity service.

Components of a typical “bundled” electric bill

Before the unbundling of rates, the components of a typical electricity bill include the Basic Charge, Currency Exchange Rate Adjustment, Purchased Power Adjustment (PPA), and Power Act Reduction.

The Basic Charge allows the utility firm to recover its operating expenses and attain a reasonable return on its investment.

Currency Exchange Rate Adjustment covers the increases and decreases in the operation of and maintenance expenses and foreign debt principal payments due to changes in the peso-dollar exchange rate.

Purchased Power Adjustment (PPA) covers the increases and decreases in the cost of power bought from the NPC and other power suppliers such as the Independent Power Producers (IPPs), if any. Included in the PPA are (1) recoverable System Loss, (2) actual company used power or 1% of total kWh purchased/generated, whichever is lower, and (3) 2% Franchise Tax, if any. PPA charges are revenue-neutral. PPA is merely cost recovery mechanism. Adjustments made in PPA computation do not in anyway generate additional income/loss to electric utilities.

Power Act Reduction refers to the mandated rate reduction of PhP0.30 per kWh pursuant to section 72 of R.A. 9136 and ERB Resolution No. 2001-04.

Components of a typical “unbundled” electric bill

After the rates of the electric utilities have been unbundled pursuant to the Power Act, the electricity bill will have a longer list of items showing how much goes to Generation, Transmission, System Loss, Distribution, Metering, Supply, Lifeline Rate Subsidy, Interclass Subsidy, Power Act Reduction, Currency Exchange Rate Adjustment, Franchise Tax, and Universal Charge (Please click on the link below to see the accompanying chart). A peso-value will be placed for each component to arrive at the amount the consumer is going to pay to the electricity service provider.

Generation Charge refers to the cost of power generated and sold to the distribution utility by the NPC as well as the IPPs.

Transmission Charge refers to the regulated cost or charges for the use of a transmission system, which may include the availment of Ancillary Service.

System Loss Charge represents recovery of the cost of power lost due to technical and non-technical losses currently pegged at 9.5% for private distribution utilities and 14% for electric cooperatives. The System Loss Charge also includes company-used power.

Distribution Charge is the regulated cost of building, operating and maintaining the distribution system, which delivers power from high-voltage transmission grids to commercial and industrial establishments and to residential end-users.

Metering Charge is the cost of metering, which includes meter reading, operating and maintaining power metering facilities.

Supply Charge includes the cost of rendering service to customers, such as billing, collection, customer assistance, and related services.

Lifeline Rate Subsidy refers to the subsidized rate given to marginalized/low-income captive market end-users who can not afford to pay at full cost. For Meralco, the subsidy extends to residential customers consuming 100 kWh or less per month.

Interclass Subsidy is a reduction in the bill of subsidized customer classes, specifically residential and general service customers, government hospitals and streetlight services, and an upward adjustment in the bill of subsidizing customer class; i.e., commercial and industrial customers.

Universal Charge refers to the charge, if any, imposed for the recovery of stranded debts, stranded contract costs of NPC, and other mandated purposes. It is a non-bypassable charge, which shall be passed on and collected from all end-users on a monthly basis by the distribution utilities. At present, this consists of Missionary Electrification and Environment Charges.

Missionary Electrification Charge refers to the cost associated with the provision of basic electricity service in unviable area, with the ultimate aim of bringing the operations in these areas to viability levels.

The Environmental Charge of PhP0.0025 per kWh is a charge to be used for the rehabilitation and management of watershed areas.

What happens to PPA?

What happens to PPA in the unbundled bill? PPA is no longer reflected in the electricity bill as a single component. PPA’s System Loss Charge and Franchise Tax become major components of the unbundled electricity bill, while the cost of purchased power becomes part of Generation and Transmission Charges.

The increase in the consumer’s electric bill depends on the level of consumption of the end-user and on the adjustments in each of the items of the unbundled bill.

Filing and processing of unbundled rate case with ERC

Section 36 of R.A. 9136 provides that within six (6) months from the effectivity of said Act (which is on or before December 26, 2001), NPC and each distribution utility shall file with the Commission its revised rates.

It must be noted that the test year prescribed under the Uniform Rate Filing Requirements (UFR) in determining utility revenue requirements was fiscal year 2000 to obtain a closer estimate of the cost of providing electricity service to consumers since the passage of the Act in 2001.

ERC conducts a comprehensive review of the rate filings to determine if the utilities have substantially complied with the prescribed filing requirements of the Act, and if the resulting rates are just and reasonable.

Public hearings on the unbundling cases are being held to allow all parties concerned to air their views and clarify issues with the distribution utility petitioning for revised rates. These public hearings are conducted with the petitioner and designated representatives of all other parties concerned in attendance. The schedule of hearings of unbundled rates applications is published in newspapers and posted in the ERC website (www.erc.gov.ph), and/or announced through radio and television.

For more information on unbundling of electricity rates, call ERC at 631-5816, send inquiry to info@erc.gov.ph, or send text message to 2920 by keying in ERC (space)(message).

From Bundled Residential Bill to Unbundled Residential Bill (PDF Chart)

September 03, 2003