Meralco enters the spot market to meet electricity needs
Manila Electric Co. (Meralco) has begun purchasing from the Wholesale Electricity Spot Market (WESM) supplies held by SMC Global Power Holdings Corp. (SMCGP), which was the subject of a recent 60-day Temporary Restraining Order (TRO) issued by the Court of Appeals (CA).
At a press briefing on Wednesday, Meralco officials said the utility company had received notice to shut down power generation from conglomerate San Miguel Corp. (SMC) covering a 670 megawatt (MW) power supply agreement (PSA) with South Premiere Power Corporation (SPPC), a division of SMCGP.
Currently, the power supply company receives supplies subject to the PSA from WESM.
“Based on the notice the SPPC sent to Meralco yesterday, they will stop accepting nominations from Meralco starting at midnight today. This morning, Merlaco began purchasing raw materials from the spot market,” said Lawrence Fernandez, head of Meralco’s economic division.
He said the price of electricity Meralco buys from SPPC under the PSA is about 4.3 pesos per kWh, about 12 percent of Meralco’s supply over the past month.
“In terms of spot market pricing, we don’t have prices yet today, but they are based on IEMOP. [Independent Electricity Market Operator of the Philippines] reports for Monday and Tuesday, it ranges from P7 to 9 per kWh.”
Meralco officials are yet to say categorically whether electricity rates will soon rise as a result of its decision to supply electricity from WESM. However, WESM prices are now higher than SPPC prices.
“We may see prices stay where they have been in the last two days, but again, we need to see what the supply situation is like in the next couple of weeks. At the same time, we need to anticipate what the other 90 percent of Meralco’s supply sources will be, how they will move, before we can say what the total generation costs will be in January,” Fernandez said.
Over the past two days, WESM prices have reached P7-P9 per kWh. Spot electricity market prices have been impacted by a yellow alert issued by the grid operator over the past few days.
“We still have about two weeks left for the delivery month, and we also do not know what the price trend in the spot market will be in the coming days. The last two days when WESM prices reached 7 to 9 cents per kWh were days when NGCC [National Grid Corporation of the Philippines] declared a yellow alert on the Luzon network. Hopefully today, after the yellow warning is lifted, prices will be lower,” said Fernandez.
Based on Meralco’s November billing reports from the Energy Regulatory Commission (ERC), the 670 MW PSA SPPC accounted for 13.4 percent of Meralco’s supply and cost 4.2455 pesos per kWh, while the average WESM price for the same period was 8 .47 pesos per kWh.
In the meantime, Meralco is in talks with other generators to secure 670MW of supply and protect its customers from volatile and potentially higher WESM prices.
“Our priority is to ensure the continuity of stable, reliable and adequate supplies for all our customers. We are working hard to mitigate any impact of these events on our customers’ energy bills,” the company said.
Fernandez said Meralco is currently evaluating two proposals from manufacturers but is unable to finalize the deal yet. “We are considering two proposals. One is from GNPower and the other is from Ilijan. They have different rate structures, so we need to evaluate them together to see what works best for the lowest cost.”
It may be recalled that SMCGP and Meralco submitted a joint application for a temporary rate increase, which was rejected by the ERC, despite the fact that it turned out to be the least costly for electricity consumers.
Subsequently, the Court of Appeal (CA) issued a Notice of Decision and the TPO directing ERC and Meralco to comply with the ERC’s ruling to deny the joint application filed by SPPC and Meralco for a 60-day interim relief period.
Recently, SMCGP announced that it will cut power supplies to Meralco effective December 7th. Termination of deliveries, provided for by the resolution and TPO, is subject to immediate execution.
ERC Chair Monalisa Dimalanta said her office has yet to receive formal notice from Meralco to cut off 670 MW deliveries.
“At this point, it is not yet clear whether SPPC has served a notice to terminate the PSA or simply to suspend supplies, given that the case filed by SPPC with CA regarding said PSA is still in final resolution,” the head of the ERC said. says in the statement.
She added that her office is awaiting action from the Solicitor General’s Office (OSG) after the case has been referred to OSG for appropriate remedies.
Dimalanta said the termination of the Bilateral Contract or PSA supply does not exempt distribution companies from “delivering electricity at the lowest cost to their market…” under Section 29 of the Electricity Reform Act.
She also indicated that the termination of the SPPC PSA was widely discussed in the panel “as she noted the application filed by Meralco on the day she received the notice to terminate the SPPC on August 4, 2022.”
Meanwhile, the ERC has moved to address complaints related to transit fees in the PSA.
Dimalanta said the agency sent out letters to private utilities or electric cooperatives and their respective PSA partners to justify the generation fee. “This batch consists of 63 letters that have been given priority by the ERC based on written complaints filed with the Commission or received through the Department of Energy and the Office of the President,” the ERC chief said.
She said an investigation had been launched into the accuracy and validity of the electricity generation tariffs that distribution companies pass on to their customers. The review aims to confirm whether the fees charged to consumers are only eligible costs and that there are no hidden or additional normal charges.
“In the course of ERC monitoring of monthly submissions from PU/EC of their electricity generation fees, we have identified the need for a more thorough review of the transferred or transit fees in accordance with certain PSAs,” Dimalanta said.
The audit requires submission, among other things, of documents confirming the detailed calculation of the fuel charge, which accounts for a large part of the increase in electricity tariffs since January.