Cheap oil price has minimal impact to power cost – Veco

CEBU, Philippines - While oil prices in the world market are still at relatively low levels, this does not however translate to lower cost of electricity.

Power distributor Visayan Electric Company dismissed impressions that the fuel price drop could push electricity cost downward.

"The oil price slump has only a slight impact because in the case of Veco, for example, the oil-based component in the power generation rate is only 3.5 percent of the total electric bill," said Veco chief operating officer Sebastian Lacson.

Lacson, who recently made his presentation to big electricity consumers of Cebu, through the Cebu Chamber of Commerce and Industry, gave Veco's response following several queries from the business community on why it has not reduced prices of electricity following the oil price slump in the market.

Lacson said Veco's sources of energy for 2014 include companies engaged in geothermal, coal-fired power plants, or from cheapest rates from the Wholesale Electricity Spot Market, the trading floor for electricity.

From these sources of energy last year, he said only two producers make use of fuel but the fuel components of what they produce is only minimal or about 12 percent,

In 2014, the Aboitiz-led electric distribution firm gets 27 percent of their power from the Cebu Energy Development Corp. (CEDC) and four percent from the Cebu Private Power Corp. (CPPC). The CEDC had 28 percent fuel component while CPPC had 32 percent.

“This is the reason why the elasticity of the generation rate to fuel is very minimal. Fuel is a small component of our generation mix,” Lacson explained.

In fact, Lacson said that Veco consumers can benefit from the insignificant effect of cheaper oil prices to their electricity bill because they are hedged or protected from any fuel price fluctuation.

"Should oil prices rise once again, they need not worry on their power rates going up as well," he said.

Meanwhile, Lacson voiced optimism that there will be no major issues for Cebu in the upcoming summer season when electricity demand is expected to spike.

He said that the company's interruptible load program (ILP) is in place, adding that  there will be 40 to 50 megawatts of backup power for Cebu.

Under the ILP, big power consumers such as commercial establishments are asked to operate their own generators during peak demand time if the grid operator sees a need to boost generation capacity in the grid. (BANAT NEWS)