UNDERSTANDING

ELECTRICITY PRICES
FORTUNATO C. LEYNES
Chairman, Professional Regulatory
Board of Electrical Engineering

Vice President
Local Retail Electricity Supplier
Manila Electric Company

13th IIEE Central Luzon Regional Conference

October 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

Transmission

Distribution &
Supply

End-users
Generation Charge accounts
for large percentage of Bill
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/
STACKING OF POWER PLANTS
8,000
DIESEL

OIL THERMAL

6,000 HYDRO

NATURAL GAS
Demand (MW)

4,000

2,000 COAL

GEOTHERMAL
0
12MN 2AM 4AM 6AM 8AM 10AM 12NN 2PM 4PM 6PM 8PM 10PM 12MN
TIME
WESM Overview
Determining Schedules and System Marginal Price

Price
(P/MWh)
Electricity Demand

Offers to Sell

System Marginal Price

G3 sets the Market Price
G4
G3
G3
G2
G1
Quantity Quantity (MW)

Source: 16
WESM Overview
Locational Marginal Prices (LMP) aka Nodal Prices
Cost of supplying energy at a specific location, considering generation price, cost of losses and
cost of transmission congestion

Generation Transmission
Cost of Congestion
LMP = Price + Losses
+
(SMP) Cost

Zambales Nueva Ecija

Market Trading Nodes Market Trading Nodes

Metro Manila
Trading Nodes

Laguna/Batangas
Market Trading Nodes

Source:
WESM HISTORICAL PRICES

Source:
 NPC TIME OF USE RATES WITH SEPT
2011 ADJUSTMENTS
8.000

7.000

6.000

5.000
P/kWh

4.000

3.000

2.000

Dry Season Ave = 4.3066 Wet Season Ave = 4.0645

1.000

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

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

1.20

1.00

0.80

0.60

0.40

0.20

-
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

1.20

1.00

0.80

0.60

0.40

0.20

-
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

1.20

1.00

0.80

0.60

0.40

0.20

-
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

1.20

1.00

0.80

0.60

0.40

0.20

-
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

1.20

1.00

0.80

0.60

0.40

0.20

-
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 RATES
DRY SEASON WET SEASON
(JAN. – JUNE) (JULY – DEC.)
WEEKDAY (MON. TO SAT.)
PEAK RATE P6.4852/kWh P6.1053/kWh
OFF-PEAK RATE P3.0925/kWh P3.0952/kWh
WEEKEND (SUNDAY)
PEAK RATE P6.4852/kWh P6.1053/kWh
PEAK 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 Periods
Monday 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)
 -
Au

2.0000
4.0000
6.0000
8.0000
10.0000
12.0000
g-
0
O 7
ct
-0
D 7
ec
-0
Fe 7
b-
0
Ap 8
r-0
Ju 8
n-
0
Au 8
g-
0
O 8
ct
-0
D 8
ec
-0
Fe 8
b-
0
WESM

Ap 9
r-0
Ecozone Rate

Ju 9
n-
0
Generation Charge

Au 9
g-
0
O 9
ct
-0
D 9
ec
-0
Fe 9
b-
1
Ap 0
r-1
Ju 0
n-
1
Au 0
g-
1
O 0
ct
-1
D 0
ec
-1
Fe 0
b-
1
Ap 1
r-1
1
MOVEMENT OF ELECTRICITY PRICES
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
SYSTEM OPERATOR CHARGE

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

17.10 0.5622
Note: Non-firm charge is calculated as Firm x (12 months / 365 days)

POWER DELIVERY SERVICE RATE

(PhP/kW/month) (PhP/kW/month) Change 2010

GRID
2009 Average 2010 (w/out PIS) 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

 ERC-APPROVED NGCP
TRANSMISSION CHARGES
POWER DELIVERY SERVICE (PDS) RATE*

LUZON VISAYAS MINDANAO

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

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

Source: http://www.ngcp.ph/documents/7_27_2011_NGCP_RATE_SCHEDULE.pdf
ERC-APPROVED NGCP
TRANSMISSION CHARGES
METERING SERVICE PROVIDER CHARGE

(PhP/Metering Point/Month)

Common Asset Charge 2,297

FULL METERING CHARGE METER ONLY CHARGE

Voltage Level(s) (PhP/Metering Point/Month) (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

ERC-APPROVED DISTRIBUTION RATES

Source: http://nicknich3.posterous.com/
IN CONCLUSION …
 BILLING COMPONENTS OF ELECTRIC BILL
PER CUSTOMER CLASS

(JAN – AUG 2011)

RESIDENTIAL COMMERCIAL INDUSTRIAL

7.3% 9.1%
10.8% 9.5%

14.8%
27.3%
49.4%
12.5%
56.4%
12.3% 5.1% 63.8%

9.8% 5.7%
6.2%

GENERATION SYSTEM LOSS TRANSMISSION DISTRIBUTION TAXES, UNIVERSAL

SOURCE: MERALCO-UED
ELECTRICITY RATE FOR RESIDENTIAL
CUSTOMERS (SEPT 2011)
kWh Consumption Gen. Charge Ave. Rate
(P/kWh)
50 5.2051 5.2766
70 5.2051 6.7534
100 5.2051 8.2134
200 5.2051 10.2647
300 5.2051 10.6753
400 5.2051 11.0844
500 5.2051 11.8248
600 5.2051 11.8150
700 5.2051 11.8151
800 5.2051 11.8215
900 5.2051 11.8264
1000 5.2051 11.8304
1500 5.2051 11.8756
3000 5.2051 11.9958
5000 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/