Expect electricity rates to skyrocket in December. Prices of food and other basics will follow. Culprit: the Energy Regulatory Commission. Being under Malacañang, ERC’s blunders will explode in the President’s face. Unwanted Yuletide fireworks.
No choice, San Miguel Corp.’s two generators will have to stop supplying cheap electricity to distributor Meralco. The latter will be forced to buy from others at double or triple rates. Homes, shops, factories, hospitals, schools, malls, offices in Greater Manila will suffer.
ERC could have averted disaster. All SMC Global Power and Meralco jointly sought in May was a temporary P1.57 per kilowatt-hour rate hike, staggered over six months to only 26 centavos per kWh.
The slight half-year increase aimed for a breather. SMC’s generators use coal, whose price has sextupled due to Indonesia’s export ban and the Ukraine war. When SMC offered Meralco electricity in 2019, world price was less than $70 a ton; suddenly it’s over $400. Its rate petition is to partially offset a P5-billion loss in January-May 2022 alone.
SMC’s generators are Meralco’s second and third lowest suppliers among 12. They average less than P4 per kWh, unlike others’ P10 to P13.50. SMC will still be cheap despite the 26-centavo increment.
SMC does not impose onerous pass-through riders. Others have provisos to escalate generation rates for whatever cause, including mismanagement and greed, then make Meralco pass these on to customers. Meralco gets blamed when all it does is collect in their behalf.
That wee 26-centavo increase would have been best for Meralco customers. In Meralco’s scenario presentations to ERC hearings, it was the “least cost to consumers” – as required by the Electric Power Industry Reform Act. EPIRA binds all power firms to that least-cost dictum. ERC is bound too, that’s why its own engineers endorsed the 26 centavos as least burdensome to consumers.
Yet three of five ERC commissioners rejected the 26 centavos. Stick to the rates which ERC provisionally approved in 2019, they ordered SMC and Meralco. Two commissioners registered their dissent, a first in EPIRA’s 21 years.
ERC knew that the old deal was no longer workable. In nixing SMC-Meralco last Oct. 4, it said, “Any contract termination should take effect 60 days upon receipt of this decision.”
Like all major contracts, SMC-Meralco’s has an escape clause. It provides for “abrupt change in circumstances (CIC)” that upturn operation costs. SMC continues to stockpile coal; Meralco has not done anything to disrupt the set-up. Neither foresaw Indonesia’s coal ban of January 2022 and the Ukraine war starting February. Those constitute CIC to terminate if no solutions suffice or ERC issues adverse rulings.
Business execs grumbled about conflict of interest. A consumerist wrote Malacañang to revoke the ERC chairman’s appointment for being once the chief lawyer and compliance officer of a competitor. That firm is both a generator like SMC Global Power and distributor like Meralco.
Meanwhile, an ex-energy official gossiped against SMC and Meralco. Supposedly SMC will keel over from heavy penalties if it unilaterally halts the deal. Future power biddings would ban SMC, he alleged. That official was once connected with SMC-Meralco’s rival.
If anyone should fine SMC, it won’t be ERC or government, but Meralco. That’s unlikely, though, since Meralco had crafted the 2019 no-price-escalation clause with SMC in a public process that other generators shunned. That’s why Meralco and SMC jointly petitioned ERC for temporary rate hike, a compromise to absorb the coal price spikes instead of dumping it all on consumers.
Likelier 119-year-old Meralco and 132-year-old SMC will work things out. Neither would relish a protracted legal fight. Not in the midst of energy crisis of supply, prices and leadership.
Anticipating termination, Meralco prepared two options. First it sought year-long emergency power service agreements (EPSAs) to replace the 1,000 megawatts it would lose. Five of seven bidders submitted lowest rates, three of them SMC generators (including one original contractor), D.M. Consunji Inc. and Aboitiz.
All coal-fired, their weighted average is P7.9891 per kWh, nearly double the P4 of SMC’s original generators. Additional yearlong burden to customers is P12.6 billion. That was the very scenario presented by Meralco to ERC showing that P1.57 per kWh, staggered over six months at only 26 centavos, was lower than any new contract.
The other option, if ERC does not approve the EPSAs before termination, is to buy hourly from the Wholesale Electricity Spot Market. WESM rates are at least P3 per kWh higher than those contracted long-term. Monthly extra burden on Meralco customers is P1.6 billion.
Being the largest distributor, Meralco buying from WESM would swell demand and push up electricity rates all over Luzon-Visayas. Customers of smaller retailers who buy from WESM will be price-shocked. ERC’s blunder will snowball.
Already, with ERC-approved pass-through provisos, Leyte-Samar suffer P15 per kWh generation rates, and Cagayan-Isabela P12. Same in Mindanao. By Christmas, more homes will have electricity connections cut and small shops collapse. Thanks to ERC.
Sinovac safety efficacy and price still need clarifying
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