MERALCO Allowed To Increase Rates

power-billThe Manila Electric Company (MERALCO), the country’s largest electricity distribution company, was finally allowed by Energy Regulatory Commission (ERC) to use Performance-Based Rating (PBR) scheme in place of the Rate On Return Base (RORB) scheme. Under the PBR scheme, MERALCO distribution charge will now be based on “inflation, cost of servicing, and cost of investments” with provision for “rewards and penalties for performance and non-performance respectively”.

In view of ever-increasing factors of inflation, servicing and cost of investment, the MERALCO distribution rate will increase . Initially, ERC approved an increase of twenty-five (PhP0.25) centavos per kilowatt-hour of electricity effective May 2009. PBR was approved by ERC in October 2008 but its implementation was delayed due to opposition by consumer groups.

The replaced RORB scheme that governed the MERALCO distribution charge disallowed the company from charging rates exceeding twelve (12%) percent of the worth of its total assets. As such, the electricity distribution charge to MERALCO consumers was kept at PhP1.08/kw-hr since 2003. The shift to PBR is a welcome relief for MERALCO as its shares are expected to rise with the approval of the new rate formula.

You must understand that the MERALCO distribution charge of a little over one peso is just a small portion of the electricity bill that you pay every month. It is not even fifteen (15%) percent of your total power bill. The bigger portion of what you are paying is the cost of generating the electricity. As such, power bills may fall despite higher distribution rate depending on the cost of fuel used in generating it.

The good news is that MERALCO lifeline customers consuming less than 20 kilowatt-hours per month will still enjoy 50% discount on their electric bill. They will still pay the subsidized rate of PhP5.30/kw-hr. Another would-be good news is that PBR provides for reduction of distribution charge if the power company performed below par. But who would want brown-outs and power outages?