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Napocor Overcharging MERALCO by 2.98 Percent?

It seems that, based on the Senate investigation today, and as I was also expecting, MERALCO is not the only one “responsible” to this, so called, “high cost of electricity” in MERALCO franchise area, which covers Metro Manila. Napocor (NPC) and TransCo are also “involved”, as well. High transmission charges, generation adjustments and stranded cost are some of the issues that were brought about to these two government corporations.

And speaking of Napocor, here is an issue that seems remained silent and may only be known to some industry participants for almost two years now – Napocor (may be) overcharging its bilaterally contracted consumers through 2.98% system loss charge. I think no one has ever brought this out to the public before, so let’s take a look at it. Here is the history and how it works;

The NPC rate (Now, it’ s TOU rate)
When the NPC rate was formulated, that is, when WESM and, of course, WESM rules and protocols was not yet in place, the agreed settlement point with the distribution utilities (DU’s), that NPC has contracted with, is at the customer or load metering point.To consider the system loss of the line, NPC’s generation rate factor-in the system loss charge that NPC is going to pay to Transco. Thus, NPC’s rate is;

TOU effective rate = (TOU base rate) x 1.0298.

Where; 2.98% is the assumed transmission line loss

For example, if the true generation rate of NPC is Php 3.777 per KWh, he billed its costumers by Php 3.8896 per Kwh for him to be able to pay for the 2.98% system loss charged by TransCo.

This scheme is fare and reasonable for both parties – generator and distributor, BUT only during pre-WESM time.

WESM Era
When WESM started on June 2006 in Luzon, the system and protocol of system loss allocation, billing and settlements, and charging also changed. TransCo does not anymore collect system loss charge from generators, besides; charging of system loss is already settled in the Spot Market. Based on WESM protocol, they collect Line Rental Fee (which includes system loss charge) from participant load customers, which is equivalent to Metered Energy Quantity (load side) multiplied by the nodal price difference between the load customers and its contracted NPC plant/s.

If the load customer is not a WESM participant, NPC or other plants, which is a direct participant is the one that will pay for the line rental (system loss) fee of its bilaterally contracted DU to the WESM. If this is the case, there is no need to change the NPC rate formula.

However, if a DU is also a WESM participant, like MERALCO, who pays line rental (system loss) on its own to the WESM, NPC has to adjust its rate such that it will only bill its customers with the base rate, or in today’s case, the TOU base rate. And if, NPC still continuously charging its customers using the effective rate, as some of the industry participants might attest, NPC is obviously double charging its customers by system loss charge. Well, that’s equivalent to almost Php 0.113 per Kwh.

Therefore, aside from low load factor, this could be the other reason why the system loss component of NPC’s generation rate to MERALCO is relatively high compared to MERALCO’s IPPs.