“… Meralco’s monopoly and the absence of competing retailers in its same franchise area are being blamed for steep electricity rates that are among the highest in Asia.”
Electricity distribution in the Philippines, especially in the urban capital and nearby regions, is a monopoly that has to be reined in or broken up to benefit Filipino consumers.
The case of Manila Electric Co., or Meralco, the biggest retailer of electricity in the Philippines, is a classic example of a monopoly that sometimes results in unfair consumer practices―like overbilling. The retailer has no competition at all and sets its own terms and prices despite regulation. This is the simple formula for registering huge profits.
But Meralco’s monopoly and the absence of competing retailers in its same franchise area are being blamed for steep electricity rates that are among the highest in Asia.
High energy prices, according to a 2016 Columbia University study, are reflected in the costs of doing business in the Philippines “which make it difficult to attract new investments in the country.”
“Energy prices in the Philippines remain one of the most expensive compared to its Asian neighbors. An overall comparison among selected cities in Asia shows that Manila has the second highest overall residential electricity tariff next to Tokyo,” it says.
“Furthermore, Manila has the third highest generation cost and the highest grid cost in Asia based on residential electricity tariffs. These costs associated with producing energy combined with a 12 percent Value Added Tax make energy prices in the Philippines one of the most expensive in Southeast Asia.”
Manila has not shed its notorious image since that study was made.
“The high cost and sketchy reliability of electricity supplies in the Philippines are now the main deterrents to investing in the country, according to foreign business leaders who see the problem as a persuasive reason to invest elsewhere, ” the Columbia University study says, quoting research group, Enerdata.
Quoting another research by Lantau Group’s “Global Benchmark Study of Residential Electricity Tariffs” that compared energy costs in selected world cities, “Manila’s generation cost is only third highest in Asia yet Manila has the second, if not the highest, overall residential electricity tariff.”
Nearly half of the Philippine economy’s production of goods and services are based on the National Capital Region, where there is a heavy concentration of commerce and industry.
All these economic activities depend on a reliable supply of electricity supplied by Meralco, which has a total customer base of nearly 8 million, both commercial and household.
Rates are different for commercial and household users. Commercial customers factor in their electricity expenses in their overall finance numbers. Whether they succeed or fail depends so much on what they spend on electricity.
Big businesses, or those on the list of the country’s top 100 companies, can offset their expenses on electricity by using their own small power plants or renewable facilities that they can afford to build.
But the effect of these electricity rates on the goods or services that these big companies provide is consequential, even if largely unseen by the consumers.
Businesses that are not big enough to wean themselves away from Meralco are reliant on the utility and their fortunes could rise or fall, depending on power supply.
The impact on households is greater. A recent survey showed that a family of five devotes 15 percent to 20 percent of its regular expenses on keeping their homes connected to the Meralco grid. It also showed that at least 70 percent would drop expenses on food and medicines if confronted with the threat of disconnection and use the money to pay Meralco.
Meralco, as a distribution utility, is clear beneficiary of high power rates. While it says only 17 percent of the total consumer bill goes to it, the Columbia University study reveals that between 11 percent and 12 percent is labelled as “miscellaneous.”
Miscellaneous components of Meralco’s electric billing, says the Columbia University study, encompasses a range of costs―subsidy for poor households, information campaigns and other incremental expenses that are not fixed.
Meralco’s share in consumer billing depends on how high or low the rates are. Meralco, thus, would not intentionally inflict harm on itself by absorbing losses. Add to it the allowable rate of return that Meralco currently enjoys―14 percent from just 9 percent several years ago. It is no surprise then that Meralco confidently estimated that it would post a full-year consolidated core net income of P37 billion in 2023, after profit jumped 53 percent in the first three quarters to P30 billion from a year ago.
Another audacious arrangement benefiting Meralco is the sale of electricity by its own power generating units. The Columbia University study says generation charge has the lion’s share―at least 45 percent―of consumer billing. Meralco’s main power generation arm, Meralco PowerGen Corp., is a major electricity producer that relies mainly on coal and a fraction of natural gas.
A higher generation charge would naturally boost Meralco’s profit further.
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