erc regulation and electricity price...

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).”


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


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


Generation Transmission Distribution SupplyCaptive &

Contestable Customers

Reformed Power Sector


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?


Unbundled

Electric Bill

- Industrial


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


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)


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


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


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



Unbundled

Electric Bill

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


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


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


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%).


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.”



Unbundled

Electric Bill

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


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.


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


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


Generation Mix


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


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

THANK YOU!

Regulatory Operations Service

[email protected]

634-8641

www.erc.gov.phERC Regulation & Pricing 28

erc regulation and electricity price...

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