esidential and small industrial users are about to pay more for electricity while manufacturers and large commercial users will see their rates drop. This is the effect of a decision by the Energy Regulatory Commission to remove inter-class cross subsidies for Meralco customers.
Inter-class cross subsidy refers to an amount charged by distribution utilities such as Meralco to industrial and commercial end-users and other customers in order to reduce electricity rates of other sectors which are deemed less capable of paying higher rates. Currently, customers who enjoy lower rates because of the subsidy include residential end-users, government hospitals, and local government units for their streetlights.

Marginalized electricity consumers will still enjoy a lifeline subsidy in their electric bills

The removal of the inter-class cross subsidy will have two phases. The first phase will begin in October 2004 when 40% of the subsidy will be removed. The second phase will begin in October 2005 when the remaining 60% of the subsidy will be removed.
The ERC decision is in accordance with the Electric Power Industry Reform Act (EPIRA) which mandates that all cross subsidies, including the inter-class cross subsidy, be phased out within three years from the time the ERC has established a universal charge.

At present, commercial and industrial customers are shouldering the P0.7130 per kilowatt-hour (kwh) inter-class cross subsidy being enjoyed by residential customers and government hospitals. The removal of the subsidy will result in electricity rate reduction for commercial and industrial customers resulting in a reduction of their total cost. This situation should make them more competitive. Electricity bills account for a major chunk of the operating expenses of a company.
However, the removal of the subsidy will shift the burden to residential customers and government hospitals. Ultimately, the subsidy removal will reflect the true cost of power being consumed by all sectors.
Nevertheless, despite the recent power rate hikes, residential and general service customers will continue to enjoy the mandated P0.30 per kwh power cost discount. Also, marginalized electricity consumers will still be given a lifeline subsidy in their electricity bills.


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