Meralco, San Miguel units want to adjust PSA prices

BY LENIE LECTURA – JULY 11, 2022
from Business Mirror

The staggering increase in fuel prices prompted two power units of San Miguel Corp. (SMC) and the Manila Electric Co. (Meralco) to seek regulatory approval for a temporary price adjustment intended for cost recovery under their 2019 power supply agreements (PSA).

Energy Regulatory Commission (ERC) Chairperson Agnes VST Devanadera confirmed that Meralco and South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC) filed a joint motion for a temporary price adjustment of their PSAs that underwent competitive auction process (CSP).

The motion is still under review. “This is not yet ripe for decision. We are taking note of the appeal. On the other hand, we are also looking at the value chain, what is equitable. The hearings are ongoing,” said the ERC chief.

SPPC is supplying Meralco 670 megawatts (MW) for 10 years starting December 26, 2019 until December 25, 2029. SPPC’s bid offer price stood at P4.6314 per kilowatt hour (kWh).

SMEC, meanwhile, is supplying 330MW to Meralco over the same period at a bid offer price of P4.6314 per kWh.

Aside from the two SMC units, Phinma Energy Corp., which is now ACEN Corp., also won a contract to supply Meralco with 200MW at a rate of P4.7450 per kWh for 10 years.

The resulting prices from the CSP held in September 2019 were significantly lower than Meralco’s average generation during that time of about P5.84 per kWh. Meralco said then that the new supply agreements could lead to savings of around P0.28 per kWh or P9.46 billion annually for a 10-year period.

Such CSP presented a massive step away from Meralco’s other power supply contracts at that time allowing fuel cost pass thru from the power generators.

However, commodity fuel prices have skyrocketed and at unprecedented levels mainly as a result of the war in Ukraine. Meralco said SMC units claim they are incurring huge losses due to the continued increase of fuel prices.

In addition, the Ilijan plant experienced unexpected deration in its 1200M capacity as a result of unilateral gas restrictions from the Malampaya gas wells. This forced SPPC to source from the Wholesale Electricity Spot Market (WESM)—which is already affected by tight and aging power supply sources in the face of a steadily increasing demand—to supply Meralco for its contract capacity. Their joint motion for price adjustment covers the months of January to May this year.

These unforeseen circumstances could not have been contemplated by the parties at the time of the execution of their power supply contracts which then led to significant losses from SMEC and SPPC endeavoring to supply their contract capacities under their respective PSAs.

“SMC wants to recover a portion of actual fuel costs without any margin. We are concerned that the continued implementation of our PSAs will be affected once SMC suffers huge losses, which could force it to stop delivering power to our customers,” said Meralco Head of Regulatory Management Jose Ronald Valles.

Valles said Meralco could not afford to lose these PSAs, which supply more than 1200MW baseload and mid-merit capacities. “If SMC decides to terminate our PSAs, our customers will inevitably suffer. Our PSAs provide any such claim will need regulatory approval. Hence, we have elevated the matter to ERC for their evaluation and consideration,” said Valles.