The generation cost in power bills

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By Delmar Carino

The Recloser

Thursday, January 16, 2014

THE monthly bill received by consumers of electricity is often compared to a list of items to be purchased from the grocery. But it was really intended that the power bill will be unbundled so that consumers will be able to see what they are paying for in terms of kilowatt hour. A good grasp of it will enable consumers to understand in context the ruckus created by Meralco’s aborted power rate increase. It will take a lot of space if we will discuss the components of the bill one by one. But allow me to concentrate first on the so-called generation and DSM (distribution, supply and metering) charges. I hope our consumers in Baguio and Benguet can follow.

The generation charge is the cost of power the distribution utility acquires from its power supplier. The cost of procurement will pass through the utility, be it a private distributor like Meralco or an electric cooperative like BENECO, and end on the lap of consumers for payment. The generation cost is thus automatically passed on to consumers but technically, the cost is actually a “pass through” charge since the generation cost only passes by the distribution utility onward to the consumers. The distribution utility though is given the task of a collection agent since it must get the payment from consumers and submit the same to the power suppliers. Please take note that electric cooperatives are barred from adding a margin to the cost of power acquired from the power suppliers. If the electricity distributed to the consumers was bought at P4.10 per kilowatt hour, the same price will be collected from consumers and remitted to the company that supplied the power.

The distribution, supply and metering (DSM) charges are the components of the power bill which the electric cooperative will retain for its daily operation. The distribution charge is the cost of building, operating and maintaining the distribution system that brings electricity from the high-voltage transmission grid to commercial and industrial establishments and to residential end-users. The supply charge includes the cost of rendering service to customers such as billing, collection, customer assistance and related services. The metering charge is the cost of metering, reading, operation and maintenance of metering facilities. The DSM costs are what the electric cooperative passes on to consumers as its retail charge. That’s why the DSM charges are collectively called as “pass on” costs since they are imposed by and come from the distribution utility itself.


Now, let’s distinguish. The generation cost is unregulated. The DSM charges are. If the generation cost increases, the electric cooperatives are mandated to collect them from consumers. The cooperatives cannot decrease the said cost. The DSM, meanwhile, is regulated. This means that the electric cooperative must file a petition before the Energy Regulatory Commission (ERC) to secure approval of its DSM rates. And the approved rate cannot be amended or increased unless approved by the ERC. Any application for an increase in DSM must thus pass the scrutiny of public consultation and public hearing.

If you look at your bills from Jan. to Dec., 2013, the generation cost varies from time to time while the DSM charges are constant for every customer class. The generation cost is not static since this would depend on the cost incurred by the power supplier in generating the electricity to be supplied to the distribution utilities. The cost of fuel used to run the turbines, the foreign exchange rate and the cost of power taken from the trading market, the Wholesale Electricity Spot Market (WESM), are to be factored in determining the cost of generation. Any spike in the generation cost will then be shouldered by the consumers. It is not the distribution utility that decides and imposes the generation charge. It has neither the power to decrease what the power supplier charged. The trouble is when the generation charge increases, the distribution utility, being directly interfaced with consumers, will naturally bear the brunt of public dislike. Of course, we are not discounting the fact that any utility may have committed lapses of its own that helped trigger the hike in generation charge.

For BENECO, its generation charge for Nov. 2013 was P4.8264 per kilowatt hour. Its total per kilowatt hour for residential consumers was P8.8330 including the DSM and all the other legally mandated charges. For Dec., 2013, the generation charge was P4.9713 per kilowatt hour or for a total of P9.0958 per kilowatt hour including the DSM and other legally mandated charges for the same customer type. Thus, the announced P0.26 increase for BENECO in Dec. covers all the charges but for generation cost, the increase is P.15 per kilowatt hour. In the meantime, BENECO’s DSM charges remains at P0.99 per kilowatt hour. The price was the same since 2010.

The electric cooperatives are thus not required to seek ERC approval for the increase in generation cost because the cost is a “pass through“ charge. (

Published in the Sun.Star Baguio newspaper on January 17, 2014.


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