ERC approves cross subsidy removal for Meralco customers
The Energy Regulatory Commission (ERC) approved in its regular Commission meeting on October 4, 2004 the removal of inter-class cross-subsidies for customers of Meralco. The removal will take two phases beginning in October 2004 when forty percent (40%) of the subsidies will be removed and in October 2005 when the remaining sixty percent (60%) will be taken out.
The initial removal of 40% cross-subsidy which will be effective October 2004 will result in the reduction of rate to large non-industrial service commercial customers of Php0.2783/kWh and extra large industrial service customers by Php0.2522/kWh. Medium non-industrial service commercial customers' rates will also be reduced by Php0.2312/kWh, small non-industrial services customers by Php0.1266/kWh, large industrial service customers by Php0.1095/kWh and medium industrial service customers by Php0.0357/kWh. Residential and general service customers' rates, on the other hand, will increase by Php0.2852/kWh, small industrial customers by Php0.4062/kwh and government hospitals by Php0.4356/kwh.
The remaining 60% cross-subsidy shall be removed commencing October 2005. The reduction in rate will be Php0.4175/kWh for large non-industrial service commercial customers, Php0.3784/kWh for extra large industrial service customers, Php0.3468/kwh for medium non-industrial service commercial customers, Php0.1899/kWh for small non-industrial services customers, Php0.1643/kWh for large industrial service customers, and Php0.0535/kWh for medium industrial service customers. The rate of residential and general service customers consuming more than 100kWh per month will go up by Php0.4278/kWh while that of small industrial customers and government hospitals will adjust upward by Php0.6093/kWh and Php0.6533/kWh, respectively.
The P0.7130/kWh inter-class cross subsidy that is currently enjoyed by residential customers is shouldered by commercial and industrial customers. “This means that the residential customers are paying less than the electricity they are using while commercial and industrial customers are paying more for their power service than the actual cost to serve them. The removal will make commercial and industrial customers more competitive. Moreover, the Electric Power Industry Reform Act (EPIRA) requires the removal of the rate relief,” ERC Chairman Rodolfo B. Albano, Jr. explained.
"It is expected that industries will be able to pass-on the savings from lower electricity bill to residential customers in the form of lower product and service prices. Export-oriented industries will be able to expand capacities and generate more jobs in the process. Dollar inflows will also be increased and will contribute to a healthier economy," the ERC chief said.
Pursuant to Sec. 73 of R.A. 9136 (EPIRA), cross subsidies shall be phased-out in a period not exceeding three (3) years from the establishment by the ERC of a universal charge. Cross subsidies exist within a grid, between grids and between classes of customers. These are the: (1) Inter-Grid Cross Subsidy which is charged to customers located in viable regional grid to reduce rates in less viable regional grid; (2) Intra-Regional Grid Cross Subsidy which is charged to utilities with higher load factor and/or delivery voltage to reduce rates of utilities with lower load factor or delivery voltage located in the same regional grid; (3) Inter-Class Cross Subsidy which is charged to industrial and commercial end-users to reduce rates of residential end users, hospitals and streetlights; and (4) Lifeline Subsidy which is charged to all classes of customers to reduce rates of marginalized/low-income captive market end-users who cannot afford to pay at full cost.
The ERC, in NPC’s unbundling decision last June 26, 2002 already phased-out the inter-grid cross subsidy. The intra-grid cross subsidy, on the other hand, is being removed in three (3) stages: 1st stage was in October 2003 billing (1/3 removal), 2nd stage on October 2004 billing (2/3 removal) and 3rd stage on October 2005 billing (complete removal). Moreover, the Commission is in the process of removing the inter-class cross subsidy. In fact, a total of seventy (70) electric cooperatives and two (2) private utilities were already ordered to implement the removal of inter-class cross subsidy in various phases.
The lifeline subsidy, a subsidy being enjoyed by electricity users below the threshold set by ERC, however, is exempt from the phase out for a period of 10 years pursuant to Sec. 73 of the EPIRA. This means that for Meralco customers, residential end-users consuming < 50 kwh, 51-70 kwh and 71-100 kwh will still be given 50%, 35% and 20% discounts (on generation, transmission, distribution, supply, metering and systems loss), respectively.
“Rest assured that all decisions of the Commission are within the mandate of the law. We are also doing our best to balance the interests of consumers and other players in the industry”, the Chief Regulator commented.
ERC
Case Nos. 2001-646 and 2001-900
October 8, 2004