Regulator’s lookout

Market analysts now say that coal is back as one of the world’s hottest commodities. The fast depleting natural gas resources, while it is another story, had worsened the prospect of sustaining a reasonable cost of electricity.

By TEB

August 12, 2022

With the soaring prices of fuel including coal due to the geopolitical conflict and the spike in demand as most economies recover, power companies are incurring higher expenses that prompted them to run to the regulator for relief.

Such relief would be at the expense of consumers who would be forced to shoulder higher electricity bills as a consequence of the pass-on provision.

It has been a rough ride for the fuel market since only a few months ago, following the United Nations Conference on Climate Change in Scotland or COP 26, where coal was practically left for dead since nations committed to discarding it as a source of energy by 2030.

The Philippines, however, is committed to gradually reducing its use since it is a developing country that requires a cheap source of fuel.

Market analysts now say that coal is back as one of the world’s hottest commodities. The fast depleting natural gas resources, while it is another story, had worsened the prospect of sustaining a reasonable cost of electricity.

All of the petitions for adjustments in electricity rates are lodged with the Energy Regulatory Commission (ERC), giving it a crucial role amid the price pressures.

Among the biggest recovery petitions is that the appeal of conglomerate San Miguel Corporation (SMC) to recover P5.2 billion from electricity consumers which the Asian giant indicated was necessary for its power units to continue sourcing fuel and fulfill its power supply contract with Meralco.

It also sought a P4 per kilowatt-hour (kwh) increase in the charges of its Sual coal plant unit and an additional P0.80 per kwh for the Ilijan natural gas facility.

While it will be up to the ERC to decide on the petitions of SMC, the bone of the matter is that it has a supply contract which it supposedly won through a bid.

While utility companies have a guaranteed return on investments, the existence of the contract should make it incumbent for the parties in the contract to shoulder some if not all of the cost that resulted in the recent outturn of global events.

It is incumbent for the parties in the contract to shoulder some if not all of the cost that resulted in the recent outturn of global events.

It appears that the electricity users are being hostage to clinch from ERC the higher rates due to threats of terminating the supply of power without the adjustments.

Other independent power producers will surely follow suit if the ERC gives in to the petition for relief since they are in the same boat as the SMC subsidiaries in terms of the profit downturns.

When the power plants participated in the bid for the supply contracts, they knew the commercial risks that came with it and their bids were supposed to reflect these risks.

That is the reason for some of the offers providing provisions for losses but these electricity suppliers either dropped out of the competitive selection process or submitted higher prices that made them lose out to SMC.

It would be unfair that the contract owners will now seek huge adjustments with the ERC. The distasteful practice leaves the electricity consumers bearing the backlash of higher prices and thus negating the gains from the competitive selection process.


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