February 8, 2023

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Meralco uses the spot market for electricity needs

The Manila Electric Co. (Meralco) has begun acquiring the power of SMC Global Power Holdings Corp. (SMCGP) on hold that was the subject of the recently issued 60-day injunction (TRO) to obtain from the Wholesale Electricity Spot Market (WESM) by the Court of Appeals (CA).

In a press briefing on Wednesday, Meralco officials said the utility company received the announcement of the closure of conglomerate San Miguel Corp.’s power generation arm. (SMC) covering the 670 megawatt (MW) power supply agreement (PSA) with South Premiere Power Corporation (SPPC), a unit of SMCGP.

Currently, the utility sources PSA-covered supplies from WESM.

“Based on the notification SPPC sent to Meralco yesterday, they will no longer be accepting nominations from Meralco as of midnight today. As of this morning, Merlaco has started sourcing on the spot market,” said Lawrence Fernandez, head of Meralco’s economic utilities.

He said the price of electricity purchased by Meralco from SPPC under the PSA is about Pta 4.3 per kWh and accounts for about 12 percent of Meralco’s supply last month.

“We don’t have prices for the spot market price today, but based on IEMOP [Independent Electricity Market Operator of the Philippines] Reports from Monday and Tuesday range from P7 to 9 per kWh.”

Meralco officials have not yet been able to say categorically whether electricity prices will soon rise as a result of the decision to source supply from WESM. However, WESM prices are now higher than SPPC prices.

“We could see prices staying where they have been for the last two days, but again we have to see how the supply situation will be over the next few weeks. At the same time, we need to anticipate what the other 90 percent of Meralco’s sources of supply will be, how they will move before we can say what the total cost of generation will be in January,” Fernandez said.

In the last two days, WESM prices reached P7 to P9 per kWh. The spot market prices for electricity were influenced by the yellow warning message from the network operator in the past few days.

“We still have about two weeks left for the delivery month and we also don’t know how the spot market prices will develop in the coming days. The last two days – when WESM prices hit P7 to 9 per kWh – these were days when NGCP [National Grid Corporation of the Philippines] declared a yellow alert in the Luzon grid. Hopefully prices will be lower today with the lifting of the yellow alert,” Fernandez said.

Based on Energy Regulatory Commission (ERC) records of Meralco billings for November, the 670MW SPPC PSA accounted for 13.4 percent of Meralco’s supply and cost P4.2455 per kWh, compared to the average WESM price was 8.47 P per kWh for the same period.

negotiations

Meralco, meanwhile, is negotiating with other generation companies to secure supply of 670 MW and protect its customers from volatile and potentially higher WESM prices.

“Our priority is to ensure continuity of stable, reliable and adequate supply to all our customers. We are making every effort to mitigate the impact of these developments on our customers’ electricity bills,” the company said.

Fernandez said Meralco is currently reviewing two offers from generators but has yet to secure a deal. “We are considering two offers. One by GNPower and the other by Ilijan. They have different tariff structures so we need to evaluate them together to see what is the best that results in the lowest cost.”

Recall that the SMCGP and Meralco submitted a joint petition for a temporary rate hike – which was rejected by the ERC despite proving to be the most cost-effective for electricity consumers.

Thereafter, the Court of Appeals (CA) issued an Order Notice and TRO prohibiting ERC and Meralco from implementing the ERC Order denying SPPC and Meralco’s joint request for temporary relief for a period of 60 days.

SMCGP recently announced that it would no longer supply power to Meralco effective December 7th.

ERC Chair Monalisa Dimalanta said her office has not yet received any formal notification from Meralco that the 670MW supply will be halted.

“It is not clear at this point whether SPPC has served a notice of termination of the PSA or merely a suspension of supply, given that the case filed by SPPC with the Competent Authority containing said PSA is yet to be finally resolved must,” the ERC chief said in a statement.

Her office, she added, is awaiting action from the Office of the Solicitor General (OSG) after the matter was referred to OSG for appropriate appeal.

Dimalanta said stopping supply under a bilateral contract or PSA does not excuse utilities to “supply electricity to their own market in the most cost-effective manner…” under Section 29 of the Electric Power Industry Reform Act.

She also noted that the termination of the SPPC PSA was discussed at length within the Commission “as it took note of the statement submitted by Meralco on the day it received the notice of termination from SPPC on August 4, 2022.”

generation fees

In the meantime, the ERC has been addressing complaints related to pass-through charges in the PSAs.

Dimalanta said the agency sent letters to private utility companies or electricity cooperatives and their respective PSA counterparties to provide evidence of generation fees. “This batch includes 63 letters that the ERC has prioritized based on written complaints filed with the Commission or received through the DOE and the Office of the President,” said the ERC chief.

She said an investigation has been launched into the accuracy and adequacy of generation rates being passed on by utilities to their consumers. The investigation aims to confirm whether passing on the fees to consumers is only an eligible cost and whether there are no hidden or exceptional fees.

“During ERC’s monitoring of monthly submissions from PUs/ECs to their generation fees, we identified the need to conduct a more thorough validation of passed-through fees under certain PSAs,” said Dimalanta.

Among other things, the validation requires the submission of documents to support the detailed calculation of fuel charges, which account for a significant part of the electricity tariffs, which have increased since January.