Higher power rates loom

Consumers may pay higher electricity rates as power units of San Miguel Corp. (SMC) and Manila Electric Co. (Meralco) seek a temporary adjustment in their power supply agreements (PSAs) to recover fuel costs amid the unprecedented spike in fuel prices.

South Premiere Power Corp. (SPPC), San Miguel Energy Corp. (SMEC) and Meralco jointly filed an application with the Energy Regulatory Commission (ERC) for a temporary adjustment in the prices of their PSAs signed in 2019.

In seeking a temporary price adjustment, the SMC units are seeking to recover a portion of the actual fuel cost.

Hearing for the application is still ongoing.

Meralco regulatory management head Jose Ronald Valles said the SMC units claim they are incurring huge losses due to the continued increase in fuel prices at unprecedented levels.

“SMC wants to recover actual fuel cost without any margin,” Valles said. “As a power distributor, Meralco is concerned that its PSAs may be affected if the SMC units will continue to suffer huge losses, which could force them to stop delivering power to our customers.”

Meralco’s PSAs with SPPC and SMEC were a result of a competitive selection process (CSP) conducted in September 2019 that yielded the least cost compared with prevailing generation rates from three power generators.

The said CSP was for a supply of 1,200 megawatts of baseload power for 10 years. Under the deal approved by the ERC, SPPC and SMEC will provide 670- MW and 330 MW, respectively, from the Ilijan and Sual plants starting December 2019.

Based on the joint filings, the applicants said fuel prices have surged at unprecedented levels while the Ilijan gas-fired power plant has been operating on a derated capacity due to the gas restrictions from the Malampaya gas field.

Since their PSAs contained a hefty penalty for failing to provide the contracted capacity, the power generators were forced to source supply from the wholesale electricity spot market (WESM) in place of the capacity shortfall to sell to Meralco.

However, WESM prices have also been on an uptrend due to tight and aging supply while demand has been increasing steadily as the quarantine restrictions eased, thereby opening the economy further post-pandemic.

The applicants said the current situation – expensive fuel environment, elevated WESM prices and Malampaya gas restriction – were not seen at the time and could not have been contemplated by the parties to the PSA, leading to significant losses to SMEC and SPPC, which continue to provide electricity supply.

Meanwhile, energy advocacy group Power for People Coalition (P4P) said consumers should not be made to pay more by power companies and distribution utilities claiming to have lacked foresight in gas price and supply projections.

P4P said SPPC and Meralco are trying to recover losses incurred from January to May arising from the Malampaya supply restrictions from consumers over a three-month period.

“The depletion of Malampaya is something that has been expected for a long while. It’s not consumers’ fault that SPPC and Meralco conveniently failed to take that into account in entering a power supply agreement. SPPC made trouble for itself by committing to sell more power than it can actually provide at a price that is lower than what it will be in real life – why must consumers be forced to pay for that now?” P4P convenor Gerry Arances said.

He said the ERC should have denied the application outright.