Electricity without bill shocks

Households and businesses served by the Manila Electric Company (Meralco) may need to brace for higher power bills starting next month. With food prices remaining high and transportation costs increasing, the timing of these rate hikes could not be worse, directly affecting budgets that are already stretched thin.

The increase in electricity rates is not arbitrary; it is primarily due to higher generation costs. Specifically, it is related to the recovery of amounts that Meralco has previously paid to power producers but has not yet fully collected.

These under-recoveries occur because the rates in supply agreements are based on projected costs, while actual expenses — driven by factors such as fuel prices, foreign exchange fluctuations, and plant availability — are determined later. When actual costs exceed projections, the resulting gap is carried forward for recovery, pending regulatory approval.

In effect, consumers are now being asked to pay for electricity they have already used, after the true costs have been validated as higher than initially billed.

The magnitude of this adjustment is significant. The Energy Regulatory Commission (ERC) has recently authorized Meralco and its generation partners — PHINMA Energy Corp., South Premiere Power Corp., Sual Power Inc. and Panay Energy Development Corp. — to recover P31.34 billion arising from various changes in circumstances (CIC). These include spikes in imported fuel prices, peso depreciation that inflated dollar-denominated costs, and operational factors such as plant outages and shifts in dispatch priorities.

All these are real risks in power generation. Investors price them in, contracts allow for recovery, and regulators recognize that cost recovery is necessary to keep plants running and capital flowing. Without this, energy security would suffer.

There is a policy tension at play here. While generators face legitimate risks, consumers experience those risks as sudden increases in their bills. Volatility in generation costs can change rapidly, but consumer incomes do not adjust as quickly. Electricity is an essential expense, and families cannot significantly reduce consumption without endangering their health, productivity, or basic comfort. Small businesses, from restaurants to workshops, can see their profit margins disappear overnight.

This is precisely why the ERC’s role cannot be limited to validating pass-throughs after the fact. Its mandate is to balance the interests of power stakeholders with the protection of consumers, especially when cost volatility becomes frequent and severe.

Stronger regulation is not about hindering recovery. It is about managing rate determinations and timing recovery effectively. By increasing transparency in CIC claims and smoothing recovery schedules, sudden spikes can be prevented while fostering investor confidence. The tools exist to spread costs over time and reduce shocks; what is needed is the commitment to use them consistently.

As a Poll Starter, the long-term solution requires structural improvements such as increasing reliable baseload capacity, diversifying energy sources, and reducing reliance on volatile imported fuels. However, these measures will take time. In the short term, effective regulatory leadership is the only safeguard consumers have.

Electricity powers homes, livelihoods, and economic growth. If electricity isn’t optional, bill shocks shouldn’t be either. A stronger ERC — one that actively balances market realities with consumer welfare — is not anti-business. It is essential to a power sector that is fair, stable, and worthy of public trust.