SMCGP warns of higher electricity rates by October

MANILA, Philippines — SMC Global Power Holdings Corp. is looking to terminate its power supply deals with the Manila Electric Co. (Meralco) by October if no relief is given to the SMCGP, which could result in an increase of as much as 30 percent in electricity prices in Metro Manila and nearby provinces.

In a statement, SMCGP president Ramon Ang said South Premiere Power Corp. and San Miguel Energy Corp., administrators of the Ilijan and Sual plants, respectively, had already issued notices of termination to Meralco of their power supply agreements (PSA), citing unexpected and unprecedented “change in circumstance,” including sky-rocketing global fuel prices brought about by multiple factors, such as the war in Ukraine.

The termination is effective Oct. 4 if no relief is given, according to Ang.

Should the Energy Regulatory Commission (ERC) fail to act on the company’s joint petition with Meralco for a temporary rate hike on its two power supply agreements and the termination pushes through, SMCGP expects electricity prices in Metro Manila and nearby provinces to go up by as much as 30 percent starting October.

The petition, which was filed last May, seeks a temporary increase for six months for the combined capacities supplied by SMCGP’s Sual Coal Plant and Ilijan Natural Gas plant to Meralco, following the record rise in global fuel prices that were driven by economic and geopolitical forces.

“With much regret, we have to admit to the public that the current situation is seriously jeopardizing our other critical operations, projects and financial obligations,” Ang said.

“We are only seeking partial adjustment in price so we can continue supplying to Meralco and minimize the impact of termination on industries and consumers, particularly those from the lower-income households who will get hit harder,” he said.

SMCGP said that if granted, the temporary relief would increase electricity prices in Luzon by P0.30 centavos per kilowatt-hour (kwh) over a period of six months.

However, without it and with a termination of the PSA, Meralco has estimated an increase of P0.80 up to P1.30 per kwh in the price of electricity over the next three to four months, as it will have to find alternative sources that will most likely be costlier, including the Wholesale Electricity Spot Market (WESM).

Should Meralco opt for emergency power supply procurement, SMCGP said the increase is expected to further go up with the weakening peso and surging global fuel prices.

Hefty price increases over the term of the contracts until 2030 are likewise seen if the temporary relief intended for partial cost recovery is not acted upon.

SMCGP said the temporary rate hike is meant to allow the Sual and Ilijan facilities to not only to recover some P5 billion in losses, but also ensure their fixed-rate PSAs are maintained over the longer term, and continue to mitigate the soaring cost of electricity for consumers.

According to Ang, its current PSAs actually help keep electricity low for consumers, as they are among the last of the fixed-rate power supply agreements that do not pass on any additional costs to consumers.

He said the facilities had been softening the impact of record fuel prices on consumers, which other generation companies have been passing on to them.

If these supply deals are terminated, consumers would no longer enjoy such benefits under new PSAs, he said.

Ang said the company continues to hold the door open for further discussions with relevant government agencies, and would work with Meralco to ensure supply through October, when the termination takes effect.

“We know any price increase is unpopular, and normally we never ask for one--which is what we did for all of last year, when we absorbed expanding costs that we do not pass on to consumers,” Ang said.

“The war in Ukraine has taken prices far beyond what we and Meralco, could have even imagined in 2019, when we signed the PSAs. At the time, the forecast for coal was only $65 per metric ton for 10 years. Now it is already at $400 per MT,” he said.

Ang is asking the ERC for a fair and objective assessment of its petition, noting that no company or business can sustain operations with these unprecedented and continuing rise in costs.

“We just hope the ERC will not merely try to prevent a temporary increase, but will take a whole-of-industry approach. These power plants account for 25 percent of the net reliable capacity of the Luzon grid. They are a major part of the country’s already fragile power supply. We ask that in this time of extraordinary circumstance and difficulty, please, let’s not cripple them,” he said.