power and water

Higher electricity rates seen as San Miguel ends deal with Meralco

Ralf Rivas
Higher electricity rates seen as San Miguel ends deal with Meralco

Linemen installed new Meralco line along Agham Rd. in Quezon City on Thursday, February 7, 2019. Photo by DARREN LANGIT

With San Miguel unilaterally terminating the power supply agreement, Meralco is now likely to turn to the open market

MANILA, Philippines – San Miguel Corporation (SMC) subsidiary San Miguel Global Power (SMGP) terminated its power supply agreement (PSA) with the Manila Electric Company (Meralco) due to losses caused by higher fuel costs.

SMGP’s move would mean that Meralco would have to source 670 megawatts from the open market, which has higher rates and price fluctuations. 

SMC, its subsidiaries, and Meralco earlier filed a joint petition before the Energy Regulatory Commission (ERC) seeking a temporary power rate hike due to the “extraordinary” rise of coal and natural gas prices in the world market.

The ERC rejected the petition in October, noting that the PSA provided “no room” for price adjustments.

SMC found relief from the Court of Appeals, which granted a temporary restraining order that stopped the PSA deal with Meralco.

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The SMGP said it will continue to offer its available and uncontracted capacity to qualified off takers and to the spot market.

It also offered to make the entire 1,200 megawatts of its Ilijan Plant available to Meralco at a capital recovery fee of P1 per kilowatt hour.

The ERC has yet to issue a statement regarding the PSA’s termination as of posting.

Negotiations

In a statement on Wednesday, December 7, Meralco said it is negotiating with other generation companies to secure 670 megawatts of supply and shield its customers against volatile and potentially higher prices in the Wholesale Electricity Spot Market (WESM).

Meralco is currently sourcing the supply covered by the PSA from the WESM.

“Our priority is to ensure continuity of stable, reliable, and adequate supply for all our customers. We are exhausting all efforts to mitigate any impact of these developments on our customers’ electric bills,” Meralco said.

No choice?

SMC president Ramon Ang said that they did not want to have to terminate the PSA.

“From the very start, we were very transparent and clear with the ERC: We were not asking for a permanent increase, we did not want to be relieved of our contractual commitments, we were just asking for temporary, equitable relief, given the undeniable and unforeseen circumstances that affect not just us, but all Filipinos and many economies worldwide,” Ang said. 

“Unfortunately, despite being shown that granting our petition would have been the cheapest option for consumers, the ERC still denied our petition, fully aware that this would force us to either continue absorbing significant losses – which no company can sustain – or terminate the PSAs, which would ultimately lead to higher electricity costs for consumers: much, much higher than what we were asking for,” he added. 

SMC added that their rate hike petition would have been the “least cost” option for consumers.

‘Not surprised’

In a statement, consumer group Power 4 People Coalition said they expected SMC to terminate the deal with Meralco.

“We are not surprised nor are we surprised that SMC continues to gaslight the ERC by saying they did not want to do this, and that there were better ways. We stand firm: there was only one legal, moral, and ‘least cost’ way to deal with this matter – to obey the PSA,” said P4P convenor Gerry Arances.

“We hope that SMC will reap what it has sown and be punished for breaking the PSA and be met with fines and a ban from supplying power to any distribution utility in the country,” he added – Rappler.com

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author

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.