Peso weakness, high fuel prices may raise Meralco generation cost

MANILA, Philippines — Peso depreciation and high international fuel prices could raise Manila Electric Co. (Meralco)’s generation charge for September, offsetting lower charges at the Wholesale Electricity Spot Market (WESM).

“While WESM charges look to be going down, its impact may be offset by the peso’s depreciation and high international fuel prices. We’ll have to see the final bills from the different suppliers to see what the final impact will be,”  Meralco VP and head of utility economics department Lawrence Fernandez told The STAR.

The generation charge, which accounts for more than half of the electric rate, is a pass-through charge which is paid to the power suppliers.

Meralco only earns from distribution, supply, and metering charges.

Fernandez said three main factors are generally considered that may influence the movement of generation costs.

These are the supply-demand situation and its effect on WESM prices, the exchange rate, and international fuel price.

In the past few weeks, Fernandez said the company has seen a marked improvement in the supply-demand situation and the secondary price cap has not been triggered as frequently.

“This can be expected to pull down WESM charges,” he said.

Fernandez said the exchange rate, meanwhile, affects the total prices of First Gas and Quezon Power, whose bills are more than 90 percent dollar denominated, and the fuel prices of San Gabriel and San Buenaventura.

“We’ve seen a depreciation of the peso in recent weeks and this will put upward pressure on the charges of the above-mentioned suppliers,” he said.

In terms of international fuel price, Fernandez said coal prices  remained elevated in the past weeks and would impact on charges from Quezon Power and San Buenaventura.

In August, Meralco rates went down for the second consecutive month due to lower generation and distribution charges.

Overall rate for a typical household dropped by P0.2087 last month to P9.5458 per kilowatt-hour (kWh) from July’s P9.7545 per kWh.

The generation charge for last month declined by P0.1944 to P6.5812 per kWh from P6.7756 per kWh due to the decrease in charges from power supply agreements, which more than offset increases in charges from independent power producers and the WESM.