UNDERSTANDING ELECTRICITY PRICESFORTUNATO C. LEYNESChairman, Professional RegulatoryBoard of Electrical Engineering

Vice PresidentLocal Retail Electricity SupplierManila Electric Company

13th IIEE Central Luzon Regional ConferenceOctober 8, 2011

SOME KEY FACTORS THAT AFFECT THE PRICE OF ELECTRICITY

• Fuels — Nuclear is cheapest while coal is relatively inexpensive and natural gas tends to be more costly, bunker or diesel are the most costly.

• Power plants — Construction and maintenance costs vary for different kinds of power plants.

• Transmission and distribution lines — Maintaining and using the transmission and distribution systems to deliver electricity contribute to the cost of electricity.

• Weather conditions — Dry season and wet season where water for hydropower generation is a large variability. Extreme heat can increase the demand for electricity for cooling.

• Regulations — The prices for transmission and distribution are fully regulated by the Energy Regulatory Commission; generation cost recovery, whilst regulated for distribution utilities, is unregulated for bidding in the Wholesale Electricity Spot Market, only price a cap is set by the ERC.

Electricity Prices Vary by Type of Customer and Over Time

• Prices are usually highest for residential consumers• Industrial consumers also use more and can take their electricity

at higher voltages so it does not need to be stepped down.• These factors make the price of power to industrial customers

closer to the wholesale price of electricity.• The cost to generate electricity actually changes minute-by-

minute.• However, consumers may pay rates based on a flat rate based on

the dispatch of the generating plant or on the seasonal and time-based cost of electricity, as in the Time of Use (ToU) rates of NPC and Meralco.

• Changes in prices generally reflect variations in electricity demand, availability of different generation sources, fuel costs, and plant availability.

• Prices are usually highest in the summer because more expensive generation is added to meet the higher demand.

COMPONENTS OF ELECTRICITY BILL

Generation Charge accounts for large percentage of Bill

Generation

Transmission

Distribution & Supply

End-users

GENERATION CHARGES

GENERATOR PAYMENTS

• CAPACITY-BASED:• MONTHLY CAPACITY PAYMENT +

MONTHLY FIXED O&M + ENERGY FEE + VARIABLE O&M

• BASIC ENERGY RATE:• MONTHLY FIXED PAYMENT + ENERGY

FEE + VARIABLE O&M

LEVELIZED POWER PLANT COSTS AT 2009 COSTS

FOREX MOVEMENT

Source: http://nicknich3.posterous.com/

USA ANNUAL INFLATION RATE

PHL ANNUAL INFLATION RATE

HISTORICAL PRICES OF CRUDE OIL

HISTORICAL PRICES OF COAL

Source: http://www.infomine.com/

COMPARATIVE PRICE MOVEMENT OF COAL AND CRUDE OIL

Source: http://nicknich3.posterous.com/

HISTORICAL PRICES OF NATURAL GAS

Source: http://www.eia.gov/

NATURAL GAS

GEOTHERMAL

COAL

HYDRO

OIL THERMAL

DIESELD

eman

d (M

W)

0

2,000

4,000

6,000

8,000

T I M E12MN 2AM 4AM 6AM 8AM 10AM 12NN 2PM 4PM 6PM 8PM 10PM 12MN

STACKING OF POWER PLANTS

G4

Price(P/MWh)

Electricity Demand

Offers to Sell

Quantity (MW)Quantity

System Marginal Price

G1G2

G3

G3 sets the Market Price

G3

WESM OverviewDetermining Schedules and System Marginal Price

16Source:

LMPGeneration

Price(SMP)

= Cost ofLosses+

TransmissionCongestion

Cost+

Cost of supplying energy at a specific location, considering generation price, cost of losses and cost of transmission congestion

Metro ManilaTrading Nodes

Laguna/BatangasMarket Trading Nodes

ZambalesMarket Trading Nodes

Nueva EcijaMarket Trading Nodes

WESM OverviewLocational Marginal Prices (LMP) aka Nodal Prices

Source:

WESM HISTORICAL PRICES

Source:

NPC TIME OF USE RATES WITH SEPT 2011 ADJUSTMENTS

Dry Season Ave = 4.3066 Wet Season Ave = 4.0645

-

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

T I M E

P/k

Wh

Dry Weekday Dry Sun/Hol Wet Weekday Wet Sun/Hol

LOAD MANAGEMENT TO LOWER ELECTRICITY COST

LOAD FACTOR = 83%

AVERAGE RATE:

DRY = P5.4929/kWh WET = P5.1224/kWh

-

0.20

0.40

0.60

0.80

1.00

1.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURLY LOAD

LOAD MANAGEMENT TO LOWER ELECTRICITY COST

LOAD FACTOR = 64%

AVERAGE RATE:

DRY = P6.0794/kWh WET = P5.7114/kWh

-

0.20

0.40

0.60

0.80

1.00

1.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURLY LOAD

LOAD MANAGEMENT TO LOWER ELECTRICITY COST

LOAD FACTOR = 71%

AVERAGE RATE:

DRY = P5.7775/kWh WET = P5.3860/kWh

-

0.20

0.40

0.60

0.80

1.00

1.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURLY LOAD

LOAD MANAGEMENT TO LOWER ELECTRICITY COST

LOAD FACTOR = 89%

AVERAGE RATE:

DRY = P5.0445/kWh WET = P4.7014/kWh

-

0.20

0.40

0.60

0.80

1.00

1.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURLY LOAD

LOAD MANAGEMENT TO LOWER ELECTRICITY COST

LOAD FACTOR = 97%

AVERAGE RATE:

DRY = P5.2234/kWh WET = P4.8779/kWh

-

0.20

0.40

0.60

0.80

1.00

1.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

HOURLY LOAD

MERALCO TIME OF USE RATESDRY SEASON(JAN. – JUNE)

WET SEASON(JULY – DEC.)

WEEKDAY (MON. TO SAT.)PEAK RATE P6.4852/kWh P6.1053/kWhOFF-PEAK RATE P3.0925/kWh P3.0952/kWhWEEKEND (SUNDAY)PEAK RATE P6.4852/kWh P6.1053/kWhPEAK RATE P3.0925/kWh P3.0952/kWh

Peak Periods Monday to Saturday 8:00:01 a.m. to 9 p.m. (13 hours) Sunday 6:00:01 p.m. to 8 p.m. (2 hours)

Off-Peak PeriodsMonday to Saturday 12:00:01 a.m. to 8 a.m. & 9:00:01 p.m. to 12 midnight (11 hours) Sunday 12:00:01 a.m. to 6 p.m. & 8:00:01 p.m. to 12 midnight (22 hours)

MOVEMENT OF ELECTRICITY PRICES

-

2.0000

4.0000

6.0000

8.0000

10.0000

12.0000

Aug

-07

Oct-0

7

Dec

-07

Feb-0

8

Apr

-08

Jun-

08

Aug

-08

Oct-0

8

Dec

-08

Feb-0

9

Apr

-09

Jun-

09

Aug

-09

Oct-0

9

Dec

-09

Feb-1

0

Apr

-10

Jun-

10

Aug

-10

Oct-1

0

Dec

-10

Feb-1

1

Apr

-11

WESM

Generation Charge

Ecozone Rate

TRANSMISSION AND DISTRIBUTION CHARGES

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

BUILDING BLOCKS OF PBR

SOURCE: ERC TRAINING ON PERFORMANCE BASED REGULATION

ERC-APPROVED NGCP ESTIMATED TRANSMISSION RATES (UNSMOOTHED)

Source: NGCP Final Determination

ERC-APPROVED NGCP ESTIMATED TRANSMISSION RATES (P/kW/month, nominal)

Source: NGCP Final Determination

ERC-APPROVED NGCP TRANSMISSION CHARGES

FIRM (PhP/kW/Month) NON-FIRM (PhP/kW/Month)

17.10 0.5622

GRID (PhP/kW/month)2009 Average

(PhP/kW/month)2010 (w/out PIS)

Change 2010 from 2009

LUZON 314.90 355.94 13.02%VISAYAS 342.50 334.51 (2.32%)MINDANAO 323.78 330.97 2.22%

Source: ERC Case No. 2010-152RC

POWER DELIVERY SERVICE RATE

SYSTEM OPERATOR CHARGE

Note: Non-firm charge is calculated as Firm x (12 months / 365 days)

ERC-APPROVED NGCP TRANSMISSION CHARGES

Source: http://www.ngcp.ph/documents/7_27_2011_NGCP_RATE_SCHEDULE.pdf

Firm Non-Firm Firm Non-Firm Firm Non-Firm

2011 (PhP/kW/mo.) (PhP/kW/day) (PhP/kW/mo.) (PhP/kW/day) (PhP/kW/mo.) (PhP/kW/day)

January 355.61 11.69 370.50 12.18 381.75 12.55

February 352.56 11.59 367.55 12.08 380.49 12.51

March 354.81 11.66 368.30 12.11 379.41 12.47

April 354.96 11.67 369.75 12.16 374.88 12.32

May 355.14 11.68 368.67 12.12 375.33 12.34

June 355.51 11.69 372.97 12.26 374.25 12.30

POWER DELIVERY SERVICE (PDS) RATE*

LUZON VISAYAS MINDANAO

* Based on CY2011 Maximum Annual Revenue (MAR) of Php46,284.78 Mn

ERC-APPROVED NGCP TRANSMISSION CHARGES

Voltage Level(s)FULL METERING CHARGE(PhP/Metering Point/Month)

METER ONLY CHARGE(PhP/Metering Point/Month)

230 kV 25,140 9,866

138 / 115 kV 15,818 9,800

69 / 67 kV 10,503 4,150 34.5 / 23 kV 2,544 534

13.8 kV 1,182 478

Below 13.8 kV 384 224

Source: ERC Case No. 2010-152RC

METERING SERVICE PROVIDER CHARGE

(PhP/Metering Point/Month)

Common Asset Charge 2,297

ERC-APPROVED DISTRIBUTION RATES

Source: http://nicknich3.posterous.com/

IN CONCLUSION …

BILLING COMPONENTS OF ELECTRIC BILL PER CUSTOMER CLASS(JAN – AUG 2011)

SOURCE: MERALCO-UED

49.4%

6.2%9.8%

27.3%

7.3%

RESIDENTIAL

56.4%

5.7%

12.3%

14.8%

10.8%

COMMERCIAL

63.8%5.1%

12.5%

9.5%9.1%

INDUSTRIAL

GENERATION SYSTEM LOSS TRANSMISSION DISTRIBUTION TAXES, UNIVERSAL

ELECTRICITY RATE FOR RESIDENTIAL CUSTOMERS (SEPT 2011)

kWh Consumption Gen. Charge Ave. Rate(P/kWh)

50 5.2051 5.276670 5.2051 6.7534

100 5.2051 8.2134200 5.2051 10.2647300 5.2051 10.6753400 5.2051 11.0844500 5.2051 11.8248600 5.2051 11.8150700 5.2051 11.8151800 5.2051 11.8215900 5.2051 11.8264

1000 5.2051 11.83041500 5.2051 11.87563000 5.2051 11.99585000 5.2051 12.0438

SOURCE: http://www.meralco.com.ph/

In the US….

COMPARISON OF ELECTRICITY COST WORLDWIDE

SOURCE: http://www.powerengineeringint.com/

COMPARISON OF ELECTRICITY COST WORLDWIDE

SOURCE: http://www.powerengineeringint.com/