Decreasing electricity tariffs narrow gap between Luzon and other countries’ power rates

by Elinando B. Cinco October 13, 2016

http://www.mb.com.ph/decreasing-electricity-tariffs-narrow-gap-between-luzon-and-other-countries-power-rates/

This column piece is an assessment of an independent report undertaken by the highly esteemed energy consultants of international caliber to dispute once more unsubstantiated claims that Luzon power rates were the most expensive in this part of Asia.

Since results of this kind of autonomous effort are often not available to biased observers, ironically, including those in government, I have taken it upon myself to open up the findings to the public at large, newspaper readers, and most especially to energy consumers in Luzon.

The last similar tariff survey covering the same geographical regions was conducted in 2012.

Successive declines in retail power tariffs in Meralco’s franchise areas over the last four years have narrowed the gap between its electricity rates and those of other countries, an international study showed.

According to a survey done by the International Energy Consultants (IEC), an Australia-based consulting firm specializing in Asian power markets, Meralco’s average tariff (excluding VAT) has declined 28 percent since January, 2012, versus an average decline of 19 percent across 44 countries covered by the survey.

In local currency terms, this translates to a 22 percent decrease in the power utility’s average tariff versus an average decline of only one percent across all markets.

IEC Managing Director Dr. John Morris, who led the study, said that electricity rates in Luzon and selected markets in the Indo-Pacific region and other parts of the world are now at closer parity than before.

Luzon’s average electricity tariff is only 11 percent above the survey’s average rate, which reflects an improvement from a similar survey done by IEC in 2012 which showed that electricity rates in the island were 24 percent above the average rate of surveyed countries in that year.

“This is an excellent outcome for consumers,” Morris said, “considering that the Luzon power market is unsubsidized and the majority of electricity is produced using imported fuel.”

Morris emphasized the role government subsidies continue to play to make power rates artificially low in markets like Thailand, Indonesia, Malaysia, Korea, and Taiwan. He estimated that subsidies in those countries amounted to almost US$50 billion in 2015 alone.

During the period under study, IEC found that lower fuel costs, mainly coal, was a major contributor to the lower Luzon power prices in 2016. However, IEC added that a lower distribution charge, lower system loss, and the power utility’s sourcing strategy were also major contributors to the decline. Due to these three factors alone, Morris said Meralco customers were able to save around P30 billion in power costs. Since 2012, Meralco has been aggressively negotiating competitively priced Power Supply Agreements (PSAs) with new suppliers.

“Electricity tariff in Luzon will further go down should investment in new power generation be made to meet rapid demand growth, and competition at retail level is promoted such that wholesale electricity cost reductions are fully passed on to customers,” Morris said.

To cap this report, here is one of the most misunderstood notions by a large segment of the energy consuming public:

Morris explained that the distribution charge, which accounts for 17 percent of the average tariff, is the only charge that accrues to Meralco. All other charges are collected by Meralco on behalf of third parties.