Coming in Third as a Point of Pride
By ESMI BARRERA
Meralco’s power rates rank favorably in a survey of several countries
It’s healthy to examine one’s neighbors now and then to see how everyone measures up, and this is particularly true for the Manila Electric Co. (Meralco), the Philippines’s biggest power distributor.
The company commissioned a Perth-based consulting firm to prepare an independent report comparing Meralco’s regulated retail electricity tariffs with those in selected markets from the Asia-Pacific region and worldwide.
The findings show Meralco’s 2016 rates dropped from being the second highest in Asia in 2012 to third highest in the region, fourth in Asia Pacific and 16th worldwide, due mainly to reduced power-generation costs over the past four years.
A welcome decline
A 2012 survey by the International Energy Consultants (IEC) showed Meralco rates were only lower than that of Japan and the ninth highest worldwide. Today, Meralco’s rates are “fourth highest in the region (if we include Australia), and the third highest in the region,” notes IEC Managing Director Dr. John Morris. He further qualifies that “the other Asian countries we looked at are subsidized.”
These countries include Indonesia, Malaysia, South Korea, Taiwan, and Thailand, which enjoy subsidies of up to 45 percent.
Estimated at US$50 billion in 2015 alone, government subsidies keep power rates artificially low in the aforementioned markets. IEC views subsidies through lower tariffs as a faulty economic policy that will ultimately prove unsustainable. If subsidies are added back to retail tariffs, the true cost of electricity in subsidized countries will rise to a level much closer to that of Meralco.
The IEC report focuses on cost drivers, and the reasonableness and affordability of Meralco’s tariffs. It updates a similar study by the IEC in 2012 and examines tariff changes over the course of four years.
IEC provides market-, development- and acquisition-related advisory services since 1999 to companies associated with the power industry in the Asia Pacific region. Morris has seven years of experience in the upstream oil and gas industry worldwide, and spent more than 10 years developing and managing projects among independent power producers.
Closer at parity
To ensure fair and reasonable rates for consumers, Meralco continuously negotiates for competitively priced Power Supply Agreements with its suppliers. Its sourcing strategy, along with reduced distribution charge and system loss, contributed significantly to the lower tariff rate in 2016 versus 2012; from these three factors alone, the IEC report finds, Meralco customers saved a staggering estimated P30 billion in power costs over four years, in contrast to marked increases among some neighboring countries.
Given the 2016 figures, Morris notes that the country’s electricity rates are now closer at parity with the surveyed markets. “Rates have come down,” he stresses. Although “most will say it’s still too high, you’re paying about the average around the world.”
He sees this as “an excellent outcome for consumers, considering that the Luzon power market is unsubsidized and the majority of electricity is produced using imported fuel.”
Meralco retail rates have gone down much faster than the world average; -28 percent for Meralco versus -19 percent for 44 markets. For Luzon, the main reason for lower power prices in 2016 is the lower cost of fuel. Luzon’s average electricity tariff is only 11 percent above the survey’s average rate, a massive drop from the 2012 IEC results that pegged it at 24 percent.
The survey also shows that in 2012, Meralco’s distribution charge was equal to the average for those markets. It concludes that the individual components of the regulated tariff are “fair and reasonable,” and suggests there is a critical need for the Philippines to allow additional investments in power generation. This will enable Meralco to maintain lower tariff rates and become a catalyst for increased competition.