FOR most of the past week, the Manila Electric Co. (Meralco), the country’s largest distribution utility, has been fighting a wildfire of complaints spreading on social media about high electricity bills. The volume of public grumbling has become loud enough that even some members of Congress have chimed in to call for inquiries into how bills are structured, and whether the charges that appear on them are fair and reasonable. We think that is a good idea, although it is unfair that public rancor is being directed toward Meralco, as most of the problematic costs incurred by electricity consumers are beyond its control.
That Meralco would be the target of the slings and arrows of a frustrated public is understandable. As the distributor, Meralco is the one that issues the bills, and is responsible for collecting the various line item charges being questioned; in effect, it serves as the public-facing entity of the entire electricity industry for its customers, and is thus the first in the line of fire. Meralco has on numerous occasions had to explain the various charges, and so what is happening this week is nothing new. The unbundling of electricity rates mandated by the Electric Power Industry Reform Act (Epira) of 2001 assured the transparency of billing information; it could not, however, assure that people would understand it, or be satisfied with the explanation for the charges even if they did.
A typical Meralco bill is divided up in the following manner: The largest part, 52.43 percent on the March bill we used as an example for this discussion, is the generation charge, the cost of the electricity purchased by Meralco from various power plants. That is a pass-through charge; Meralco simply charges us what it has to pay for the electricity to deliver to our homes and businesses. About 10.15 percent is the transmission charge, which is the cost billed to Meralco by the National Grid Corp. of the Philippines for delivering the power it has purchased through the national grid. That is also a pass-through charge, and beyond Meralco’s control to change.
The portion that is Meralco’s responsibility, and the only part from which it collects any revenue, is the distribution charge, which amounts to 18.35 percent of the bill. This is broken down into various line items representing operational costs, and might on some bills include “other charges,” which are usually bill deposits, a regulator-authorized charge to encourage timely payment by customers, and eventually refundable if certain conditions are met.
The one other charge that appears on the bill that is controllable by Meralco, although only indirectly, is the system loss charge, which represents the difference between power purchased by Meralco and the amount of electricity it is actually able to bill to customers. System loss occurs during transmission and distribution due to simple physics, as well as through electricity pilferage. A certain percentage charge is authorized by the Energy Regulatory Commission; if system loss exceeds that percentage, Meralco has to bear the difference. Meralco is allowed a 6.5-percent system loss charge; on the March bill, it was 4.97 percent. Crucially, Meralco, or any other electric distributor, is only allowed to charge the actual system loss; if it is lower than the allowed percentage, it cannot charge the allowable amount and pocket the difference.
The system loss charge is a bit of a sore point with consumers, and we think there is some justification for the point of view that it is a cost of doing business that a distributor should absorb. However, it remains a relatively small portion of the overall bill, and in Meralco’s case, is still less than it could be.
The rest of the electric bill comprises charges that are imposed by the government, and this is the area of energy costs that must be addressed. Various subsidies and taxes make up 14.1 percent of the monthly bill; the biggest (10.29 percent) are value-added taxes (VAT), while the rest are subsidies for renewable energy development (1.59 percent), and for low-income customers and to pay off old debts of the pre-Epira National Power Corp. (2.22 percent). As a final insult to consumers, these various subsidies are also mostly subject to VAT.
To address bill shock, we would recommend that the subsidies be removed from customer bills; it is unjustifiable to make consumers pay for subsidies that should already be funded through income and other taxes that they pay. System loss charges should also be reexamined, as should the application of VAT, which should only be applied to products and services actually used by consumers — the electricity they actually consume, and the service necessary to deliver it to them.
