January 28, 2023

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Meralco taps spot market for electricity requirement

5 min read

The Manila Electric Co. (Meralco) has started sourcing from the Wholesale Electricity Spot Market (WESM) the supply withheld by SMC Global Power Holdings Corp. (SMCGP) which was the subject of the recent 60-day Temporary Restraining Order (TRO) issued by the Court of Appeals (CA).

In a press briefing on Wednesday, Meralco officials said the utility firm has received the notice of cessation from the power generation arm of conglomerate San Miguel Corp. (SMC), covering the 670megawatts (MW) power supply agreement (PSA) with South Premiere Power Corporation (SPPC), a unit of SMCGP.

Currently, the utility firm is sourcing the supply covered by the PSA from WESM.

“Based on the notice that SPPC sent Meralco yesterday they will stop accepting nominations from Meralco beginning midnight today. Beginning earlier this morning, Merlaco started sourcing from the spot market,” said Meralco economics utility head Lawrence Fernandez.

He said the price of power purchased by Meralco from SPPC under the PSA stood at around P4.3per kwh and accounted for around 12 percent of Meralco supply for last month.

“For spot market price, we don’t have prices yet today but based on IEMOP [Independent Electricity Market Operator of the Philippines] reports from Monday and Tuesday, it ranges from P7 to 9 per kwh.”

Meralco officials could not yet categorically say if power rates will go up soon as a result of its decision to source supply from WESM. However, WESM prices are now higher than the rates of SPPC.

“We might see prices remain where they were last two days, but again, we need to see what the supply situation will be for the next couple of weeks. At the same time, we need to anticipate what the other 90 percent of Meralco supply sources, how they will move, before we can say the overall gen cost will be for January,” Fernandez said.

In the last two days, WESM prices reached P7 to P9 per kWh. Electricity spot market prices were affected by the yellow alert notice issued by the grid operator for the past few days.

“We  still have around two weeks remaining for the supply month and we also don’t know the trend  of spot market  prices will be for the coming days. The last two days–when WESM  prices reached P7 to 9 per kwh– those were days when NGCP [National Grid Corporation of the Philippines] declared a yellow alert on the Luzon grid. Hopefully today, with the cancellation of yellow alert, prices will be lower,” 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 supply and priced at P4.2455 per kWh while average WESM price for the same period stood at P8.47 per kWh.

Negotiations

Meralco, meanwhile, is negotiating with other generation companies to secure the 670 MW supply and shield its customers against volatile and potentially higher WESM prices.

“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,” the company said.

Fernandez said Meralco is currently evaluating two offers from generators but could not yet finalize a deal. “We’re evaluating two offers. One from GNPower and other one is from Ilijan. They have different rate structures so we need to evaluate them together, to see what’s the best that will lead to the lowest cost.”

It can be recalled that the SMCGP and Meralco filed a joint petition for a temporary rate hike–which was rejected by the ERC, despite proving to be the least costly for power consumers.

Thereafter, the Court of Appeals (CA) issued a Notice of Resolution and a TRO enjoining the ERC and Meralco from implementing the ERC order denying the joint petition filed by SPPC and Meralco for temporary relief for a 60-day period.

The other day, SMCGP announced it would cease to supply power to Meralco effective December 7. The cessation of supply, covered by the resolution and the TRO, is immediately executory.

ERC Chairperson Monalisa Dimalanta said her office has yet to receive a formal notice from Meralco on the cessation of 670MW supply.

“It is not It is not yet clear at this point if SPPC served a notice of PSA termination or merely a suspension of supply considering that the case before the CA filed by SPPC involving the said PSA is still for final resolution,” the ERC chief said in a statement.

Her office, she added, awaits action by the Office of the Solicitor General (OSG) after the matter was referred to OSG for undertaking appropriate legal remedy.

Dimalanta said the cessation of supply from a bilateral contract or PSA does not excuse distribution utilities “to supply electricity in the least cost manner to its captive market…” under Section 29 of the Electric Power Industry Reform Act.

She also pointed out that the termination of the SPPC PSA were discussed extensively within the commission “as it noted the manifestation filed by Meralco on the day it received the notice of termination from SPPC on August 4, 2022.”

Generation fees

Meanwhile, the ERC has moved to address complaints related to pass-through charges in the PSAs.

Dimalanta said the agency sent letters to private utilities or electric cooperatives and their respective PSA counterparties for the substantiation of the generation charges. “This batch comprises of 63 letters which the ERC prioritized based on written complaints filed in the Commission or received through the DOE and the Office of the President,” said the ERC chief.

She said a probe has been launched on the accuracy and reasonableness of the generation rates being passed on by the distribution utilities to its consumers. The probe aims to confirm whether the charges pass-on to consumers are only eligible costs and there are no hidden or extra ordinary charges.

“In the course of ERC’s monitoring of monthly submissions from PUs/ECs of their generation charges, we have identified the need to conduct a more through validation of the passed-on or pass through charges under certain PSAs,” said Dimalanta.

The validation requires submission of, among others, documents to support the detailed calculation of fuel charges that account for a significant portion of the increases in electricity rates since January.