CANE POINTS: Transmission Rates Set To Increase (again!)

With the announced increase in the NGCP’s (National Grid Corporation of the Philippines) transmission wheeling charges, the electric bill for the August billing period is likely headed towards an increase.

The transmission charge, which NGCP charges for transmitting power from the power producers to the distribution utilities (DU) like Negros Power, is one of the three major components of the power bill.

The other two components are the generation charge, which goes to power producers who supply electricity to DUs, and the distribution charge, which goes to the DUs as payment for the cost of distributing or delivering power to the consumers.

The transmission and generation charges are called “pass-through” charges, because the DUs act simply as collecting agents for these charges. Once the consumer has paid the power bill, the DUs forward the collection for the transmission and generation charges to NGCP and the power producers, respectively. Thus, the consumer’s payment for the transmission and generation charges are not retained by but only “pass through” the DUs.

In the case of Negros Power, the distribution charge, or the portion of the electric bill which goes to Negros Power, has remained the same at Php1.1866/ kilowatt-hour (kWh) since 2010. This translates to a little over 10% of the rate per kWh. Only a little over 10% of what consumers pay for their electric bill goes to Negros Power for its operations.

Negros Power’s July power rate registered a slight Php0.23/kWh increase, from Php11.14/kWh in June to Php11.3727/kWh in July. The increase was caused by the increase in the transmission and generation charges.

For August, NGCP announced that it will implement the Energy Regulatory Commission’s (ERC) decision on ERC Case No. 2022-089 RC, titled: “In the Matter of the Application of the Maximum Annual Revenue for the Fourth Regulatory Period (2016-2020) of the National Grid Corporation of the Philippines in Accordance with the Alternative Form of Rate Setting Methodology under the Rules in Setting the Transmission Wheeling Rates with Prayer for Confidential Treatment of Information”.

In layman’s terms, NGCP applied to the ERC for a possible rate adjustment last December 22, 2022. The application was for the correct transmission rate, either higher or lower, which NGCP should have charged to consumers for the period 2016-2020.

Upon the ERC’s review and evaluation of NGCP’s actual performance and operational expenses for 2016-2020, the ERC discovered that NGCP should have charged a slightly higher rate than what it actually charged for the period 2016-2020.

The under-recovery, or the difference between what NGCP should have charged the consumers and what it actually charged during the five-year covered period, amounted to Php29.3 billion!

The good news is that the Php29.3 billion under-recovery will have minimal effect on consumer’s electric bills, because it will be charged to consumers starting August billing at only P0.0384/kWh for a period of seven years or 84 months. However, there will also be an average increase of PhP0.0629/kWh in the basic transmission charge, resulting to a total average increase of P0.1013/kWh effective August until further notice.

The ERC explained: “The under-recoveries and the increased MAR will result in an increase in transmission charges effective in the billing month of August. The Commission set a seven-year recovery period for the PhP28.29-Billion under-recoveries. The total average increase of PhP0.1013 per kilowatt-hour (kWh) in transmission charges is the sum of the average increase of PhP0.0629/kWh in the basic transmission charge resulting from the higher MAR and PhP0.0384/kWh for the under-recovered portion (to be collected over 84 months).”

The term “MAR” stands for Maximum Allowable Revenue in power industry parlance. For consumers, it simply means the reasonable rate, including a fair return on investment, which a power industry stakeholder, such as NGCP and DUs, can charge consumers.

Under the ERC’s Performance-Based Regulation (PBR), the NGCP or the DUs should perform efficiently and, at the same time, reduce their operating costs, so that ERC will grant them a reasonable rate, with fair return on their investments for efficiency and improved operations.

Aside from this increase in transmission charge, there also looms an increase in Ancillary Services (AS) charge, which is the other component of the transmission charge.
The shutdown of a total of 25 power plants in the Visayas and Mindanao has resulted to a critically “low” power supply level, prompting NGCP to declare a “Yellow Alert” during the past days. Low supply amid high demand, of course, translates to higher prices.

Instead of berating Negros Power in case your electric bill increases next month due to the increase in transmission wheeling charge, Ancillary Services charge and generation charge, you’ll fare better if you conserve your electricity use, particularly during peak hours, so that your electric bill will be more manageable.*