Supply deal delays seen to hike power costs

MANILA, Philippines - Further delays in the approval of long-term power supply deals of power distribution giant Manila Electric Co. (Meralco) could translate to higher electricity costs and a tight supply situation in the long run, its top official said.

It has been over a year since Meralco applied for the approval of its power supply agreements (PSAs) with seven generation companies for over 3,500 megawatts (MW) of supply for 25 years, but only one has been given provisional authority by the Energy Regulatory Commission (ERC).

Meralco president Oscar Reyes said the agreements would meet the requirements of their franchise area and the rest of the Luzon grid with adequate reliable power on a stable basis and pricing.

“These power plants are really needed especially if the Philippines continues to grow at its current trajectory and through these planned investments, infrastructure promotes growth in demand,” he said.

“I would say that it is possible that demand growth may exceed expectations in which case power supply tightness will be a very major issue and the question is who will answer for that,” the Meralco official said.

The PSAs involve a supply of 3,551 MW, which corner 81 percent of the combined output of the seven power plants, most of which are owned or partly owned by Meralco through its power generating unit Meralco PowerGen Corp. (MGen).

The Meralco PSAs include a 225-MW supply with Redondo Peninsula Energy Inc. (RP Energy) – a consortium composed of Meralco PowerGen Corp. (MGen), Aboitiz Power Corp. and Taiwan Cogeneration International Corp.; a 400-MW supply with St. Raphael Power Generation Corp. – a new joint venture between MGen and Semirara Mining and Power Corp.; 600-MW supply with Atimonan One Energy Inc., which is fully owned by MGen.

The power distributor will also source up to 528 MW capacity from Central Luzon Premiere Power Corp. and Mariveles Power Generation Corp., up to 70 MW from Panay Energy Development Corp. and up to 600 MW from Global Luzon Energy Development Corp.

The deals were dragged into the ERC corruption controversy after director Francisco Jose Villa Jr. committed suicide in November 2016.

Meralco was alleged to have entered midnight deals with the ERC after it was tagged in anomalous dealings which were revealed following the suicide of the agency’s bids and awards committee chief.

The applications were submitted to the ERC on April 29, 2016, just before the new effectivity date of the competitive selection process (CSP) policy requiring distribution utilities to undertake competitive bidding to secure PSAs with generation companies.

However, Reyes said “these PSAs are fully negotiated power supply agreements and they were allowed to be submitted without going into CSP with a restatement.”

“And time is money, every month of delay means higher EPC costs, higher financing costs, higher exchange rates so it is very, very detrimental to consumers,” he said.