erc regulation and electricity price...
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1
ERC Regulation and
Electricity Price Structure
Engr. Alvin Jones Ortega
Chief, Tariffs and Rates Division
June 23, 2015 Dist
Trans
Gen
ERC Regulation & Pricing
Republic Act No. 9136
Electric Power Industry Reform Act (EPIRA)
• Signed: 8 June 2001
• Effectivity: 26 June 2001
Implementing Rules & Regulations
• Signed: 27 February 2002
2ERC Regulation & Pricing
ERC Mandate
Sec. 38 of EPIRA
“There is hereby created an
independent, quasi-judicial regulatory
body to be named the Energy Regulatory Commission (ERC).”
3ERC Regulation & Pricing
ERC Major Functions
Promote competition
Encourage market development
Ensure customer choice
Set the transmission,
distribution and retail rates of the
captive market
Impose fines and penalties for any non-compliance
4ERC Regulation & Pricing
Electric Power Industry Restructuring
ERC Regulation & Pricing 5
Generation Transmission Distribution SupplyCaptive &
Contestable Customers
Generation & Transmission
Distribution & Supply
Captive Customers
Before After
Electric Power Industry Restructuring
• Generators
– NPC/PSALM
– San Miguel Energy Corporation
– Aboitiz Power
– FirstGen
– Filinvest Development Corp
• Transmission
– Previously, TRansCo
– Now, National Grid Corporation
of the Phils (NGCP)
• Distribution
– MERALCO
– Visayan Electric (VECO)
– Davao Light
ERC Regulation & Pricing 6
Generation Transmission Distribution SupplyCaptive &
Contestable Customers
FUEL IN THE FORM OF
COAL OR OIL IS
PURCHASED FROM
ABROAD
AND PAID FOR IN
FOREIGN CURRENCY
$$$
ELECTRIC POWER
PLANTS THEN
GENERATE
ELECTRICITY
ELECTRICITY IS THEN
CARRIED OVER LONG
DISTANCES BY
TRANSMISSION CABLES
THAT IS TAPPED INTO
BY LOCAL DISTRIBUTION
COMPANIES
YOUR LOCAL DISTRI-
BUTION UTILITY SETS UP
THE POWER LINES IN
YOUR COMMUNITY AND
SERVICES YOUR NEEDS
FOR ELECTRICITY
GENERATION
CHARGE
TRANSMISSION
CHARGE
DISTRIBUTION, SUPPLY.
& METERING CHARGES
HOW ELECTRICITY IS DELIVERED TO YOUR HOME?
HOW IS THIS REFLECTED IN YOUR ELECTRIC BILL?
Where does the peso in your electric bill go?
ERC Regulation & Pricing 8
10
Section 25, Chapter 2 of Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA)
RETAIL RATE. The retail rates charged bydistribution utilities for the supply of electricityin their captive market shall be subject toregulation by the ERC based on the principle offull recovery of prudent and reasonableeconomic costs incurred, or such otherprinciples that will promote efficiency as maybe determined by the ERC.
Regulatory Principle
ERC Regulation & Pricing
Generation Charge
The Generation Charge is a pass-through of prudent and reasonable costs, adjusted on a monthly basis
National Power Corporation (NPC) and Successor-Generating Company (SGC) – regulated rate based on a mix of different plant / technology as contained under the Transition Supply Contract (TSC)
Independent Power Producers (IPP) – ERC reviews the Bilateral Supply Contracts entered into by the Distribution Utility and IPPs
WESM Price – Distribution Utilities are allowed to pass-through their spot purchases (those not covered by supply contracts)
• can go up and down depending on market conditions (supply/demand)
11ERC Regulation & Pricing
Transmission & Distribution
Transmission and Distribution comprises about 15% and 10%, respectively
The Transmission Provider [Nat’l Grid Corp of the Phils] and Private DUs are regulated under Performance-Based Regulation (PBR) since 2003 and 2007, respectively
12ERC Regulation & Pricing
Rate-Setting Methodologies for DUs
Cash Base
Return on Rate Base (RORB)
Performance-Based Ratemaking (PBR)
• Rules for Setting Distribution Wheeling Rates (RDWR) -18 private utilities
• Rules for Setting Electric Cooperatives’ Wheeling Rates (RSEC-WR) – 98 on-grid ECs
ERC Regulation & Pricing 13
Distribution Rate Structure
Distribution Charge
• Covers the cost of developing, building, operating and maintaining the distribution system, which brings power from high voltage transmission grids to the end-users.
Supply Charge
• Covers the cost of rendering service to customers, such as customer assistance, billing, collection, power sourcing and other related services.
Metering Charge
• Covers the cost of reading, operating and maintaining power metering facilities
14ERC Regulation & Pricing
Senior Citizen Discount
• RA 9994 – Expanded Senior Citizens Act of
2010
– Senior citizens under residential rates whose monthly
consumption does not exceed 100kWh are eligible to
a 5% discount on their electricity bill
– Resolution 23, series of 2010 – A Resolution
Adopting the Rules Implementing the Discounts to
Qualified Senior Citizen End-Users and Subsidy from
the Subsidizing End-users on Electricity Consumption
16ERC Regulation & Pricing
Lifeline Rate
• Section 73 of EPIRA provides that:
– “A socialized pricing mechanism called a lifeline rate
for the marginalized end-users shall be set by the
ERC, which shall be exempted from the cross-
subsidy phase-out under this Act for a period of ten
(10) years, unless extended by law …”
• RA 10150 (June 2011) – An Act Extending the
Implementation of the Lifeline Rate
17ERC Regulation & Pricing
18
Lifeline Level and Discount
kWh Consumption Discount
1 – 20 100%
21 - 50 50%
51 – 70 35%
71 – 100 20%
• In MERALCO: ERC Decision dated November 10, 2008 under
ERC Case No. 2008-016RC
ERC Regulation & Pricing
19
Value Added Tax
Section 6 of R. A. No. 9337 provides that “Section 108 of the NIRC of 1997, asamended, is hereby further amended to read as follows:
Section 108. Value Added Tax (VAT) on Sale of Services and Use or Lease ofProperties.
“(A) Rate and Base of Tax. – There shall be levied, assessed and collected, avalue-added tax equivalent to ten percent (10%) of gross receipts derived from thesale or exchange of services, including the use or lease of properties: Provided, Thatthe President, upon the recommendation of the Secretary of Finance, shall, effectiveJanuary 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any ofthe following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)of the previous year exceeds two and four-fifth (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 ½%).
ERC Regulation & Pricing
20
Value Added Tax
The phrase ‘sale or exchange of services’ means the performance of allkinds of services in the Philippines for others for a fee, remuneration orconsideration, including those performed or rendered by xxx xxx xxx,sales of electricity by generation companies, transmission, and distributioncompanies; services of franchise grantees of electric utilities, xxx xxx xxx.”
xxx xxx xxx.
“(B) Transactions Subject to Zero Percent (0%) Rate. - The followingservices performed in the Philippines by VAT-registered persons shall besubject to zero percent (0%) rate:
(1) xxx xxx xxx.; and
(7) Sale of power or fuel generated through renewable sources of energysuch as, but not limited to, biomass, solar, wind, hydropower, geothermal, oceanenergy, and other emerging energy sources using technologies such as fuel cellsand hydrogen fuels.”
ERC Regulation & Pricing
22
UNIVERSAL CHARGES
• Section 34 of the EPIRA
Within one (1) year from the effectivity of this Act, a universal charge to be
determined, fixed and approved by the ERC shall be imposed on all electricity
end-users for the following purposes:
(a) Payment for the stranded debts in excess of the amount assumed by
the National Government and stranded contract costs of NPC and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;
(b) Missionary electrification;
(c) The equalization of the taxes and royalties applied to indigenous or
renewable sources of energy vis-a-vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per
kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund
to be used solely for watershed rehabilitation and management. Said fund shall
be managed by NPC under existing arrangements…
The universal charge shall be non-bypassable charge which shall be passed on
and collected from all end-users on a monthly basis by the distribution utilities
ERC Regulation & Pricing
23
UNIVERSAL CHARGES
• Section 4(l), Rule 7 of the IRR of the EPIRA
A Distribution Utility shall collect on a monthly
basis from all End-users a Universal Charge set by
ERC, to be remitted to PSALM on or before the
fifteenth (15th) of the succeeding month, net of any
amount due to the Distribution Utility.
ERC Regulation & Pricing
FIT-All for CY 2014 and 2015 –ERC Case No. 2014-09RC
RA9513 or the Renewable Energy Act of 2008
On July 30, 2014, as designated by the Commission, the National Transmission Corporation (TransCo) filed the application for the FIT-All for calendar years 2014 and
2015
On October 10, 2014, the Commission granted provisional approval of the FIT-All at a rate of
PhP0.0406/kWh effective the January 2015 billing of all On-Grid electricity consumers
ERC Regulation & Pricing 24
Meralco Rates by Bill Component
25
*Graph is
cumulative
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Jun-0
3
Oct-
03
Feb
-04
Jun-0
4
Oct-
04
Feb
-05
Jun-0
5
Oct-
05
Feb
-06
Jun-0
6
Oct-
06
Feb
-07
Jun-0
7
Oct-
07
Feb
-08
Jun-0
8
Oct-
08
Feb
-09
Jun-0
9
Oct-
09
Feb
-10
Jun-1
0
Oct-
10
Feb
-11
Jun-1
1
Oct-
11
Feb
-12
Jun-1
2
Oct-
12
Feb
-13
Jun-1
3
Oct-
13
Feb
-14
Jun-1
4
Taxes
Generation
UniversalChargeSystem Loss
Subsidies
Transmission
MeralcoCharges
ERC Regulation & Pricing
Generation Mix
26ERC Regulation & Pricing
Coal, 42.6%
Oil, 6.0%
Natural Gas, 25.0%
Geothermal, 12.8%
Hydro, 13.3%
RE, 0.4%
Movement of Fuel Prices
• Prices of Coal, Bunker and Diesel
• Steam and Natural Gas, based on existing contracts,
indexed to coal and oil, respectively
27
US
D/M
T
ERC Regulation & Pricing
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
US
D/B
BL
Coal
Diesel
Bunker
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