Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Why Meralco rates are high

Posted by butalidnl on 13 April 2010

Philippine electricity rates are high, and Meralco’s is higher than most of the rest. If we take from the blogpost of Chuvaness , her consumption was 3120 KwH and her bill was PhP 41,902, making the net price of electricity in Manila at PhP13.46/kwH, or $0.30/KwH. This would make it among the highest in the world. (In the EU, only 3 countries have rates higher than that – the Netherlands, Germany and Denmark – and it is because of the high taxes they impose on electricity.)

Now, why is it that Philippine electricity prices are so high?

IPPs
The main problem with the electricity prices in the Philippines is the scandalous terms with which the Napocor buys electricity from Independent Power Producers (IPPs). Among these terms is the requirement that Napocor pay the IPPs based on their generating capacity and not on the  actual electricity delivered. So, for example, an IPP would have a rated capacity of 1000 MW, and the grid only required 100 MW. Napocor would still be obliged to pay the IPP the price for 850 MW, even if it only received 100 MW from that IPP. This meant that the Napocor, and by extension, the consumer, would pay way too much for electricity.
Now, with the coming of the so-called deregulation of the electricity market by the setting up of the WESM (Wholesale Electricity Spot Market), the market was deregulated all right, but not to the consumers’ benefit. The IPPs use the WESM to jack up the price of electricity. After all, in a system of monopoly, or rather oligopoly, prices rise to the level of maximizing the profits of the electricity providers.

Lopez-owned IPPs
Meralco sources 50% of its electricity from the Santa Rita and San Lorenzo power stations, both of which are owned by the Lopez family (note: but NOT by Meralco). And these two power stations sell electricity to Meralco at a relatively high price. And the only thing that the Energy Regulatory Commission can regulate are the distribution and other add-on charges on the electricity, leaving the generation charge to the “market”. Thus, the government cannot control the price by which these Lopez-owned IPPs sell electricity to Meralco. So now, with the Lopez’s selling most of their Meralco stake,the Lopez’s get to benefit from Meralco’s rates without having the obligations that Meralco has; since after all, most of their profits come from these IPPs. And everybody blames Meralco, when it is the IPPs that are causing the main rise in electricity rates.
Of course, Meralco itself is also making a lot of profit, through things like distribution charges, charges for “system loss” and other such things; but the main profit still goes to the Lopez’s owned IPPs.

And that is the main reason why Meralco’s rates are so high.

See also: Lowering Electricity Prices

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