The good news from the power sector just keeps on coming.
With the one-two-three-four punch that is the Manila Electric Co. (Meralco) downward rate adjustments in four consecutive months, the utility company’s rates in these extraordinary times are lowest in years.
Basically, what led to the lower rates, or the lower regeneration charge in particular, is Meralco’s claim of force majeure for the company’s contracted suppliers.
Meralco continued to invoke the force majeure provision in some of its power supply agreements (PSA) (the generation cost that would have been charged by suppliers) because of the reduction in power demand in its service area during the modified enhanced community quarantine and general community quarantine.
Case in point: In July, the force majeure claims totaled P265 million, equivalent to customer savings of P0.0877 per kWh in the generation charge. This represents avoided charges from the temporary suspension of mid-merit supply contracts recently approved by the Energy Regulatory Commission (ERC).
“And, if you look at the savings [of] consumers in terms of the absolute amount, P1.885 billion has been the significant reduction and represents the reduction in fixed costs from baseload supply contracts,” Meralco spokespman Joe Zaldarriaga said.
Also significantly contributing to the rate drop is the decline in overall generation charge this June due to lower Wholesale Spot Market (WESM), independent power producers and PSA costs.
Meralco looks further at its fuel mix and its sourcing of power in the least cost possible to further drive down cost.
This is done through competitive selection process (CSP). Sources of Meralco’s generation are from gas, coal, renewable energy and from the WESM.
Meralco has currently held successful CSP biddings, and this has helped in lowering the cost of generation charge which will be passed on to consumers. More than P1 per kilowatt hour was reduced because of recent successful CSP.
“That is why we are undergoing CSP, to obtain the fuel mix that will be the least cost manner. Right now, our sources for generation come from gas, coal, renewable energy and others,” Jose Ronald Valles, first vice president and Regulatory Management head, stressed.
The Department of Energy (DoE) has guidelines for the CSP, which Meralco is currently implementing to achieve the least cost manner.
Meralco pointed out that it differs in each country. Thailand has a subsidy that they give to the consumer, while Singapore is similar to the Philippines which has an open market and has no government subsidy.
The CSP is facilitated by a third-party to ensure fairness. After the CSP, the contracts are filed with the Energy Regulatory Commission (ERC), and this is evaluated by a public hearing and ERC has the final say into what the final rate will be implemented, based on the guidelines of DOE and ERC.
The DOE explained that they provide a guide for sourcing of power. It’s by conducting CSP involving technology neutrality.
“There are times when gas is cheaper when run as baseload, and there are times where gas is higher in rate when run as mid-merit,” Valles said when asked about First Gen Power Corp. and gas sourcing.
Initially, Meralco said there are times gas is cheaper if it’s running as base load and there are times it’s more inexpensive when running on mid merit.
On the other hand, Meralco explained that distribution and transmission rates are regulated by the ERC, while generation charge is based on the contract of Meralco and WESM prices.
Meralco said it provides subsidized lifeline rate to marginalized end users that is lower than what is usually charged to ordinary residential customers. This applies to 0 to 20 kWh, where there will be 100 percent discount. For 21 to 59 kWh, there will be 50 percent discount, 51-70 kWh, 30 percent discount.