An evaluation of the Impact of MERALCO's Bright and Right Time of Use (TOU) Rate Program to the Electric Power Industry's Stakeholders / Solomon Lloyd Flores Lobregat III

Year : 2009

Number of Pages : 106 leaves

Adviser : Prof. Glen A. Imbang

Executive Summary

Electricity is a basic service which enables one to experience the pleasure and convenience of living in a modern society. It is not enough, however, that our homes gain access to electric service its price should be reasonable, for us to sustain our everyday living. Unfortunately in our country, electric power rates are high. Our authorities then, are in constant search for the solution to this problem. In 2001, the Electric Power Industry Reform Act (EPIRA) was put into law, aimed at instituting specific reforms in the industry including the creation of the Wholesale Electricity Spot Market (WESM) as a means to reflect the true cost of power depending on the time of use. In 2004, the Energy Regulatory Commission (ERC) provisionally approved National Power Corporation's (NPC) application for time-of-use (TOU) rates and directed distribution utilities (DUs) to submit their proposed TOU rates at the retail level. In 2007, MERALCO launched its Bright and Right Time-of-Use Rate Program as a response to NPC's application for TOU rates, likewise, in preparation for competition at the distribution level. This technology management project extends its evaluation of the impact of MERALCO's Bright and Right Time-of-Use Rate Program to determining if the program has been successful at least during the initial phases of its implementation. If the program is deemed successful, it may be implemented throughout the country. On the contrary, if the project is proven to have minimal benefits, MERALCO may either focus on other activities that are value-adding to consumers or study the factors that contributed to its failure and provide the necessary corrective actions. For this technology management project, concepts such as marketing strategies, technology innovation, technology push, technology diffusion, and impact assessment will be borrowed. Analytical approach will be used as it will describe not just the impact of the implementation of the TOU rates scheme among the electric power industry's stakeholders, but will also try to explain why those impacts have happened. This technology management project yielded the following findings : MERALCO's Bright and Right Time-of-Use Rate Program is not just an innovation its implementation was politically driven. It was a response to NPC's application for TOU rates and to ERC's directive to DUs to submit their proposed TOU rates at the retail level. Overall, it is MERALCO's strategy to gain competitive advantage in case new players come in at the distribution level. MERALCO's Bright and Right Time-of-Use Rate Program followed the typical stages of innovation : scientific findings, laboratory feasibility, operating prototype, commercial introduction, widespread adoption, diffusion to other areas and social and economic impact. MERALCO's Marketing Department works hand in hand with Business Centers (formerly called branch offices) in the implementation of the program. Subscription to MERALCO's Bright and Right Time-of-Use Rate Program is voluntary among qualified residential customers. MERALCO's Marketing Department employed a direct marketing approach. The program rolled out initially in two phases which cover customers whose 12-month average consumption is at 2,000 kWH and at 1,000 kWh respectively, prior to application. At present, it is being offered to consumers whose 12-month average consumption prior to application is at 500 kWh.

Instead of gathering the market and discussing how to look for a solution to a problem (market pull), MERALCO's Bright and Right Time-of-Use Rate Program is a technology push it is a solution looking for a problem. Hence, it was targeted to a certain market who would most likely benefit from this program. In 2008, MERALCO's management set the required number of TOU customers which each of the business centers should attain at the end of the year. Hence, business centers should meet their quota as it was a performance indicator. MERALCO's management measured individual business center's performance partly if each of them obtained the required number of TOU customers in their area. To this date, ERC has only granted MERALCO provisional authority to implement TOU rates scheme. Thus, there is still a slim possibility that ERC withdraws its approval. Generally, the respondents in the survey questionnaire perceived that their satisfaction level with MERALCO's pricing improved after they have subscribed to the company's TOU rate program. Some have asserted that they were able to incur savings upon enrolling to this program. Likewise, there were those who attributed the reduction of their electric bills to their subscription to TOU rates scheme. MERALCO's Bright and Right Time-of-Use Rate Program is revenue-neutral. However, if customers maximize their benefits of the TOU rate program by extending use of appliances and/or use of additional appliances during off-peak hours, MERALCO can obtain additional revenues. Increase in kilowatt hour consumption for a certain billing period will mean a higher distribution charge to be collected from the customer. MERALCO's Bright and Right Time-of-Use Rate Program has an impact to the company's operations and computer systems. Instead of using ordinary analogue or digital type of meter, a special TOU-capable meters will be used, which also has a technology impact. Ideally, TOU pricing scheme can lower power rates in the long run. This can also contribute to improvement of system efficiency and more efficient use of electricity resources. Thus, it helps in easing environmental stress. At the customer level, however, benefits from TOU program still depends on the load characteristics of a customer. If most consumption occurs during the peak periods and there is no way of shifting consumption to off-peak periods, then a customer will incur higher costs with TOU rates.