Fact-Checking Meralco’s Generation Rate. Rates Should be Lower, and Would be Even Lower if QPL Mauban is Made Reasonable.

David Celestra Tan, MSK
21 June 2020

Meralco’s public relations trumpets are blaring that their power rates are lower in June and that it is the 3^rd straight month of rate reduction. Should consumers be consoled as Meralco obviously wants us to feel after devastating us consumers with May bills of four times our normal bill?

Meralco is our public service provider. We should be able to trust them with whatever they are telling us the public. But they seem to hoodwink even if they don’t have to.

The reduction in June is P0.0216 per kwh (big deal if I may say so compared to Meralco’s fanfare about it) and they claim that the total reduction for the 3 months is almost P1 per kwh. Meralco said that they had invoked force majeure to their power generation suppliers that avoided Fixed Charges totaling P614 million for June and a three month savings to consumers of P1.6 billion. Sounds impressive but given Meralco’s record of hoodwinking the public, there is always more than meets the eye.  Let us look closer at the numbers.

1.Meralco’s generation rates in the last six (6) months

a. Per Meralco’s own records, their generation rate went down in the last three months from P4.6632 per kwh in March to P4.3413 in June, or a reduction of P0.3219. This is nowhere near the P1 per kwh that they are claiming in their press statements. We consumers will still welcome the reduction but why exaggerate? Force of habit?

In fact for the last six months from January to June, the rate came down from December of P5.1967 to P4.3413 this June or a reduction of P0.8554 per kwh. Also not P1 per kwh. Just saying.

1) Are the generation rates lower really because of Meralco’s much publicized “force majeure” declaration to its power supply contractors? Let’s see.

a) Meralco’s Coal power supply

Meralco’s generation rates have been coming down because of falling fuel prices, both coal and LNG.

The New Castle benchmark coal prices came down from US$66.74 per ton in March to $53.40 per ton in June or a drop of 20%.  For June Meralco’s power supply will be about 35% coal.

For LNG that is mainly from Malampaya, the rates of First Gen group, came down from an average of P4.6679 in March to P4.19 per kwh in June or a drop of 10.23%. The other LNG supplier, Meralco PowerGen partner SPPC Ilijan San Miguel, had a level price of P4.0459 per kwh starting in February 2020. For June, Meralco expects 57.5% of its power supply from LNG.

Another curiosity is SPPC Ilijan’s price in January just before the start of the new contract was only P3.1773 per kwh. Now its price is 27% higher after the Meralco CSP.

b) Force majeure

Meralco’s generation rate had come down 7% from March to June which  Meralco had announced was a result of its “force majeure” assertion with their power suppliers. Should Meralco’s rate not be even lower?  Consider that on top of their “force majeure” gambit, coal prices went down 20% and LNG fed plants came down 10%?

c) Should Meralco’s generation rate reduction be P0.32 per kwh or P1.00 per kwh?

With the convergence of all those downward market forces,  it seems Meralco’s rate drop should really be closer to P1 per kwh in the last three months as their press release was saying?

2.Quezon Power of Mauban is Sticking Out like a Sore Thumb

Buried in Meralco’s “our generation rate is lower” narrative, is a power supply that is unusually highest that borders on the anomalous.

But first the good news. It seems from Mauban where Meralco has two power suppliers. The old QPL a 440mw coal plant that current owner and Meralco PowerGen partner EGAT of Thailand and the new 460mw coal plant using “super critical high efficiency and low emission” technology that is owned and operated by San Buenaventura Power Ltd.(SBPL). This company is owned 51% by Meralco PowerGen and 49% by EGCO.

This new power plant seems meeting its publicity of having cleaner and lower priced output. Its rate for June is P4.1389 per kwh. However, it is not beating the other coal plants with older technologies. The Therma Pagbilao of Aboitiz is only selling power at P3.5071 per kwh and San Miguel Energy’s Sual supply is at P4.0459 per kwh.  There goes its claim that this Super Hele Hele advanced technology will produce cheaper energy.

We are only calling SBPL a good news because it is not as bad as its sister company Quezon Power, whose rates have been atrocious. Its rate in June is P4.9534, P5.8233 in May, P7.1493 in April, a whopping P28.4416 per kwh in March, P10.2097 in February and P6.5819 per kwh in January.

Quezon Power is perennially the most expensive coal power in the country since the beginning. The 440mw plant was built at a cost of $810 million in late 1990’s and owned by Bechtel’s Intergen (68%), operator Ogden Power (30%), and local project promoter PMR 2%. It started commercial operations in May of 2000 with a 25 year Power Supply Agreement to expire in 2025.

In 2014 Intergen and Ogden Power sold out to EGCO a unit of EGAT of Thailand. In 2015, EGCO bought the remaining 2% of PMR at a published price of $15.027 million thus still valuing the company at $751.35 million. The valuation was based on the net present value of its projected cash flow for the 10 years remaining in its PSA with Meralco. The investment paid back well for EGAT since in addition to the sweetheart rate of the PSA it parlayed it into a partnership with Meralco PowerGen and access to the Meralco power demand of 6,000mw, 70% of the country’s total energy demand.

In 2019, QPL’s selling rate to Meralco continued to be the highest. From July to December, data show its rates were higher by 5% to 52% than the other Meralco coal suppliers. It is rare months that it is lower by a tad 1.5% than some coal generators.

The evidently juicy rates of QPL have been punishing Meralco consumers for the last 20 years.  Its original project financing of 75% must have been fully recovered long time ago at least since 2013. Their original equity of 25% (approximately $202.5 Milion) was sold for the equivalent of $751 million on top of what they earned in the first 15 years of its operations.

We actually don’t begrudge the owners for doing very well with that investment. Our concern is that Meralco’s consumers continue to carry the cross of QPL’s onerous rate structure that is enabling it to continue with the highest rates in the Meralco area. 

Hoping for ERC to take notice

In the public interest, it would not be too much to ask for the ERC to review the rate structure of QPL, its indexation, the continued forex adjustment of the capex recovery, the way they buy coal and pass on to the consumers, their current WACC, downtime allowances, and continued guaranteed capacity charges. How about the 31 kilometer transmission line? 20 years after it was built, should there be continued capital recovery?

Meralco as our electric distribution utility provider is franchised to provide power in the least cost manner. If their procurement of power are on arms-length basis and not negotiated with sister companies, they would be going for the lowest rates for the public. And the rate reduction for the last three months in power generation is closer to P1 per kwh instead of only P0.32 per kwh.

We are wondering what happened to the power supply from SEM Calaca and the Masinloc Power plants that used to supply power at lower rates to Meralco?

Meralco seems content with lowering its generation rates just enough to satisfy the media hoodwinked public.

Meralco of course cannot be expected to remove the onerosity of the rates of their own companies and partners. Our only hope is the ERC. And in that, hope springs eternal. It seems that’s all we consumers have got.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
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david.mskorg@yahoo.com.ph