Meralco sees no need to enter into new power contracts

Lopez-controlled Manila Electric Co. (Meralco) sees no immediate need to enter into new bilateral contracts despite the entry of new power demand in 2010 in Luzon, a ranking company official said.

Meralco president Jesus Francisco said that their requirements in the next three years are covered by a transition supply contract (TSC) signed with the state-owned National Power Corp. (Napocor).

“Our requirements are fully covered and we still have our TSC with Napocor,” Francisco said. Based on the two firms’ agreement, the contract will last for five years (2006-2011) or one year after open access.

A supply agreement with the country’s largest private distribution utility like Meralco is crucial to these power plant owners as this will ensure a ready market for their power output.

Francisco also believed that it would be more viable for Meralco to contact the existing excess capacity of power plants, including those being offered by the newly-privatized power assets of Napocor.

Francisco also noted that they would need to determine first when will be the actual implementation of open access and retail competition before they could decide to enter into new supply agreements.

Open access and retail competition are provided under the Electric Power Industry Reform Act (EPIRA) which will allow consumers to choose where to source their electricity requirements.

Based on the internal timeline of Meralco, it may need to enter into new bilateral contracts only after 2011 or until 2013 as the company’s long-term contracts with independent power producers (IPPs) would already be sufficient to cover its captive customers. Captive customers, primarily residential end-users, are those which are not allowed to choose their power providers once initial open access is in place.

Meralco said they need to carefully study their options before entering into new supply agreements.

“We are very careful with our decision because we don’t want to be placed in a situation that we will be over-contracting,” Meralco vice president and utility economics head Ivanna G. Dela Peña, said.

According to Francisco, there are several options that Meralco could tap should they need to cover for additional supply in the future.

One option is through the wholesale electricity spot market (WESM). Distribution utilities are also mandated to secure 10 percent of their supply from WESM.