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Business

Higher electricity rates

EYES WIDE OPEN - Iris Gonzales - The Philippine Star

Expect electricity rates to go up in addition to already high gasoline prices, transport fare, and grocery items – from vegetables to toilet paper to wheat.

This is what’s going to happen now that the Energy Regulatory Commission (ERC) has denied the joint plea of conglomerate San Miguel Corp.’s (SMC) power units and the Manila Electric Company (Meralco) for an increase in their previously approved power rates, as stipulated in a fixed-rate 2019 to 2029 power supply contract.

The plea was to recover for the losses incurred from January to May 2022, in the form of a rate increase on contract capacity under the power supply contracts. SMC said the losses since last year have swelled to P15 billion because of the extraordinary circumstances brought about by the pandemic and worsened by Russia’s war against Ukraine, which dramatically pushed up coal prices in the world market. At one point, coal prices breached $400 per metric ton (MT) compared to the $60 to $65/MT price range that was factored in SMC’s contract.

Electricity prices will go up whichever way the decision was made, but for sure, the costs will be higher because with the petition denied, Meralco will have to find alternative sources of power in the spot market, and which will likely be more expensive now.

The scenario painted by Meralco is that if ERC granted the temporary relief, electricity prices in Luzon will increase by 30 centavos per kilowatt hour (kWh), but without the relief, Meralco has estimated an increase of at least 80 centavos up to P1.30/kwh in the price of electricity over the next three to four months.

Finding the right balance

ERC’s decision wasn’t surprising. SMC president and CEO Ramon Ang must have expected it as did most energy stakeholders.

But questions remain.

1) Is fixed pricing really viable in power supply contracts?

2) Will SMC be allowed to terminate the contract without penalties in consideration of the extraordinary circumstances it now finds itself in?

When I read the bulk of the ERC’s 40-page decision, the discussion on termination seemed unclear. It seems the ERC did not recognize SMC’s situation. It also noted that the termination was not included in the petitioners’ plea.

3) Where will Meralco source alternative power now that SMC has said it would terminate the contract?

4) And the most important question for consumers really is this – how much will our electricity rates go up now, and until when?

We’ll have to wait and see what happens now.

The worst case scenario, aside from higher than expected power rates, is that SMC’s power units, with their losses, may not be able to meet their financial obligations. The negative impact of this may spread throughout the conglomerate.

I argue that there should have been a compromise, say SMC should have been allowed to pass on a portion of the unexpectedly high fuel costs. Sure, this would have hurt consumers, but in the long run it would have saved us from a totally new power supply agreement that could have translated to even higher electricity rates.

From the inbox: Ideas for a better Philippines

Every now and then I receive letters from readers with ideas on how to improve the country.

Here’s one from engineer Alex Serrano on providing low-cost units for the homeless:

“I believe it is high time for the government to seriously consider the compulsory relocation of old, messy, and hazardous warehouses and factories in the NCR region and outskirts, and make use of the properties – to develop them in partnership with interested private entities to accommodate affordable mid-rise residential buildings similar to those in Hong Kong and Singapore, with enough provisions for the honest to goodness low-cost units for the struggling poor.”

He said there are a lot of warehouses near Clark City and Cabanatuan City in the north and near Lipa City and Lucena City in the south.

A special team of professionals in the legal, engineering, business, finance, economics, urban planning, and other relevant fields of practice should be formed to plan this and help address the housing needs of informal settlers now numbering in the millions, he said.

Another reader, Charlie Yap from Marikina, talks about roads.

He said government and road concessionaires must look into the often-neglected load-bearing structures of our bridges and flyovers.

“In going to my office in Makati in the morning, I usually see many loaded trucks stuck in traffic along the entire length of the flyover. The trucks are on the outer lane of the flyover and not on the inner lane where there is better structural support. I am really worried about this scenario considering that C5 is very near the fault line,” he said.

I agree that this is something government engineers should look into. We must also continuously ensure that our road infrastructure is always well maintained so that we don’t need to do sudden closures, such as what happened to the Candaba Viaduct, a trade route between Metro Manila and Central Luzon.

There are many more great ideas from readers that I hope to share in the future. May you all keep them coming.

It’s good to know that despite all the chaos in this nation of 110 million, many of us continue to love our country – to the moon and back.

 

 

Iris Gonzales’ email address is [email protected].

Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com

ELECTRICITY

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