Achievable Power Cost Reduction in the NCR and Calabarzon Areas

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

MSK8 October 2014

Presented by: David Celestra Tan

Components of our Electric BillJanuary 2014

% of Gen % of total

Generation Charge 5.6673 45.8

Transmission Charge 0.9333 7.5

Systems Loss Charge 0.6062 10.69% 4.9

Distribution Charges including metering, and etc.

3.5152 2.5043+0.4066+0.6043

28.6

VAT Taxes 1.1842 9.5

Universal Charge

UC-ME Missionary Electrification 0.1561 0.0126

UC-PSALM 0.1938 0.0157

Other charges - lifeline 0.1173 0.009

Others

Total – residential 600kwh 12.3734 100%

Don’t fall off your chair!

• A Php 3 per kwh rectification of electric rates to residential and commercial consumers is achievable!

Let us find the ways!

It is not an impossible dream.

Singil na Pwedeng Ituwid sa Generation

• 1. Open the Generation Market to Competitive Bidding specially Base-Load plants and those intended to serve the captive markets.

Generation Rates in the NCR July 2014 Average P5.6352

July June 2013 Summer 2013

%

Coal Plants

SEM-Calaca DMCI 3.4881 3.3717 3.70 7%

San Miguel Sual 3.6371 4.1455 3.89 4.28 8.8%

Masinloc PPC 4.2152 3.7857 8%

Therma Luzon Pagbilao 4.3380 3.8216

Quezon Power Mauban 4.4301 4.5576 5.03

Natural Gas

FGP – Sta. Rita 5.5925 5.3121 5.07 18.4%

FGP- San Lorenzo 5.1672 5.4727 11.30%

South Premiere Ilijan 4.5419 4.7161 23.9%

WESM 13.3372 12.1216

Pagtuwid ng Generation 2• Rationalize the terms of current bilateral

contracts specially the SPP’s (Sister Power Producers)

• 1. Pay them only for energy and when they are providing service and not during their maintenance downtime.

• 2. Make IPP responsible for replacement power at the same price when they exceed their downtime allowance.

• 3. Improve consumer safeguards in fuel procurement and pricing

• Increase market share of cheaper sources

Pagtuwid ng Generation 3

• Rationalize Market Domination• Amend Rule 11 4(b) of Epira IRR• This anomalous provision must be aligned

with the Epira laws limits on domination of “ownership, operation, and control” of installed capacities. Not just “control” as provided by Rule 11.

• This loophole must be eliminated, pronto!

Pagtuwid ng Generation 4

• Revise WESM Trading Rules and Rule Making Bodies…..urgently.

• The current concept of “Market Settling Price” defined as the highest price of offer dispatched for the trading hour. This is so anti-consumer and a prescription for excessive and unnecessary high rates. Electricity is NOT a commodity.

• Rule Making was dominated by the IPPs themselves who would benefit handsomely from the rules.

• Create a Reserve Market system within WESM or ancillary services of NGCP.

Pagtuwid ng Generation 5

• Improve the generation mix by • 1} including hydro power among contracted

IPP’s at P3.25 per kwh instead of buying these hydros from the WESM at the “market settling prices” that in July averaged P13.00 per kwh.

• 2) truly encouraging the connection of RE’s like roof solar and distributed generation.

• 3) increase market share of cheaper IPP’s

Matuwid na Singil sa Generation

• The proper implementation of these five (5) reforms should result to a reduction of NCR’s generation charge to about P4.00 per kwh from the current P5.63 progressively within 3 to 4 years.

• Open bidding of bilateral power supply contracts will open the generation market to more investors and assure sufficient and affordable supply.

Pagtuwid ng Singil sa Transmission• Make Systems Operation independent from

NGCP, the transmission services concessionaire.

• The inherent conflict of interest in the two functions must be eliminated, urgently.

• Section 21 of the Epira Law did not include Systems Operation as a function of the concessionaire. Section 9 specifically provided Systems Operation to be a function of Transco.

• .

Pagtuwid ng Singil sa Transmission 2

• This will better assure that transmission rate base is cost and technically efficient and essential.

• This will improve chances of truly removing grid congestions and the resulting “line rental” charges.

• We estimate this will reduce TX rates by 15- 20% or limit future increases to only necessary levels

Pagtuwid ng Singil sa Distribution 1• 1. Improve transparency and integrity in systems loss

charge computations.• ERC Res 17 of 2008 set 8.5% as the limit that can be

passed on to the consumers.• Residential and Commercial Consumers are being

charged 11.5% . It had been 13 to 15% from 2009 to 2011.

• Industrial Consumers are charged anywhere from 1.5% to 7% systems loss.

• Current ERC rules only require the DU to self-declare the charges.

• Pwedeng Ituwid ang Systems Loss ng P0.10 to 0.20 per kwh. No one should be charged more than 8.5%

Pagtuwid ng Singil sa Distribution 2• Cancel PBR and Revert Back to RORB• PBR gives a return to a DU (and TX company) for

installed rate base PLUS projected investments not yet incurred and may not be made.

• Epira Law said the adoption of an alternative rate setting methodology must be in the “public interest”. PBR is not in the public interest.

• It is a violation of Section 25 which provided that retail rates must be based on investments INCURRED. This means not projected.

• The rightful Reverting back to RORB will reduce DU charges by P0.30 to P0.50 per kwh.

Pagtuwid ng Singil sa Distribution 3

• Similarly Impose strict Competitive Bidding rules for procurement and contracting of rate base assets.

• You will be surprised by the Rate Impact in the Distribution and Transmission services sector.

• A 10% overprice in rate base assets is a 10% overcharge in allowable revenue.

• This can mean a 0.20 to 0.40 per kwh reduction

VAT Taxes

• The Epira Law of 2001 declared power generation as zero-vat rated.

• This was amended by a VAT law passed in 2004 when the government depleted its finances after the elections of 2004.

• Power is a primary input for production.• The 12.5% VAT must be reduced or progressively phased

out.• No more VAT on Malampaya Gas. Review Shells capital

recovery formula. • Lets assume a possible reduction of 0.25 to 0.40 per kwh

Ituwid ang Missionary Electrification Charge

• This charge is unnoticed because it is “out of sight and out of mind”.

• From 0.035 per kwh a few years ago it has creeped up to 0.1561 per kwh.

• 1. Make definitive the missionary electrification role of NPC-SPUG. “privatization” is hanging over their heads in isolated islands resulting to them only using “temporary” generation – normally expensive rental generators.

• Give Napocor a clear and long term mandate so that they can plan and install cost efficient solutions to missionary electrification.

Missionary Electrification Subsidies

• 2. Provide better guidance to the EC’s in planning their power requirements. Many are contracting for way more than their needs and no one at DOE, NEA, and the DMC of ERC is truly rationalizing it.

• 3. The “Competitive Selection Process” (CSP) rules of the DOE and the issuance of the certifications need to be updated and made more judicious. PSA’s are being signed for way more than the openly bidded prices under the CSP up to P15 per kwh. Resulting to billions of unnecessary subsidies.

• These reforms can bring down the UC-ME by 0.10 per kwh.

Ituwid ang Universal Charge ng PSALM

• The stranded costs that PSALM is allowed by the EPIRA law to pass on as Universal Charge should be limited to NPC Assets and IPP contracts and not continuing losses of NPC and transition assets.

• Reports that the proceeds of NPC asset privatizations were commandeered by the National Government under PGMA must be audited and insured that they are not made part of PSALM recoveries from the consumers.

Summary

• Pagnatuwid ang Singil sa Kuryente, the total reduction should be at least P3 per kwh to the residential and commercial consumers.

Summary of Achievable ReductionsCurrent low High Target

Generation charge 5.66 1.00 1.66 1.66

Transmission Charges 0.9333 0.15 0.25 0.20

Systems Loss 0.6062 0.10 0.20 0.15

PBR 0.30 0.50 0.40

Distribution Charges 3.518 0.10 0.15 0.10

VAT 1.1842 0.25 0.40 0.34

UC ME Missionary 0.1561 0.08 0.10 0.08

UC Psalm 0.1938 0.10 0.20 0.15

Totals 12.3734 2.08 3.46 3.00

It is not an impossible dream…

if we all work together as a nation to treat ourselves rightfully and make the country competitive.

Plus 2 for Sustainable Power Supply and lower costs

• Amend Section 71 and make it a Security of Supply provision, allowing the government to undertake or retain strategic power generation facilities to assure back-up reserves or lower rates as in the Agus-Pulanggi for Mindanao. Limit this to 10 to 15% of the grid installed capacity except Mindanao where Agus is at 700mw.

• Strengthen the power planning and enforcement capabilities of DOE or form a more permanent National Power Planning Commission that can plan and oversee the biddings for needed generating capacities.

Proposed Amendments to the EPIRA Law RA 9136

Hehe, that’s another matter and for another day.

To the DU’s, TX Co., and Generators

• It is to your long term interest that the system also works for the consumers for a sustainable provider-user relationship.

• Advances in technology, the realistic finiteness of fossil resources, horrors of environmental damage, and the forces of necessity might make retail consumers seek other options for their power cost reduction.

• Listen to this message and heed the call for lowering of these atrocious rates and unfair pass-on system.

To the DOE, ERC, and Pres. Pnoy

• You have the power under the current law to make these reforms happen.

• Please don’t turn away from this chance to save the people and country from this run-away power costs. Put the country on the path towards national competitiveness and make this part of your enduring legacy.

• PDAF and DAP are nothing in magnitude compared to this P10 billion a month overcharge.

To all of us

• Do we have in our hearts to make things right for the people, consumers, and country?

• If not us, who? If not now, when?

• Let us not look back at this time and know in our hearts and souls that we abdicated in this defining moment.

God Bless…… the electric

consumers!

MSK

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

We invite you to support the…..

Ibaba ng P3 Campaign!

Salamat po!

MSK