“Prudence dictates that Meralco reveals significant factors that could raise the cost of electricity supply over time …”
Reforms and deregulation in the nation’s power sector have failed to reduce the cost of electricity in the Philippines.
More often than not, monopoly Manila Electric Co. is adjusting the rates it charges to consumers higher. Meralco announced the latest electricity rate increase in February—P0.5738 per kilowatt hour due to higher cost of power from suppliers.
The government, especially the Energy Regulatory Commission, has vowed to make electricity rates competitive to lessen the burden of residential and commercial customers. Through the so-called competitive selection process (CSP), Meralco chooses the most competitive or lowest electricity charges possible as tendered by power generators.
The CSP mechanism seems credible—it easily guides Meralco to accept or award the lowest electricity charge offered during the auction process. But is CSP transparent?
Judging from the latest CSP conducted by Meralco, the CSP was not straightforward. Meralco did not disclose certain hidden costs of power delivery. Prudence dictates that Meralco reveals significant factors that could raise the cost of electricity supply over time, given the vagaries of energy pricing in the world commodities market.
Consumers, thus, are generally in the dark on how Meralco determines its power rates—the CSP notwithstanding. The recent CSP conducted by Meralco for contracts to supply the utility with electricity from natural gas power plants is a case in point.
Meralco can merely say that its awards were in compliance with ERC rules. It omitted the fact, though, that other factors determining LNG costs are pass-through, or borne by consumers, and not by the power generator. One is freight costs that are not fixed—they rise or fall depending on market forces.
Power plants exclusively using liquified natural gas, like the 1,200-MW combined-cycle power generating facility in Barangay Ilijan, Batangas, are held hostage by imported LNG suppliers. The actual generation cost of the Ilijan plant is above P8 per kwh, or far from the plant owners’ bid of P7.0718 per per kwh. The higher cost of imported LNG, including freight, account for the difference. Meralco itself conceded that the average generation cost of Ilijan was P8.40s per kwh.
The CSP, as being conducted by Meralco, should favor indigenous gas, which is naturally cheaper because of the Malampaya production field off northwest Palawan. But indigenous gas is unfairly treated as the CSP completely disregards the advantages it has over imported gas.
The Malampaya field, in addition, gives 60 cents per every dollar worth of gas sold in the market. The field so far has remitted over $13 billion to the Philippine treasury.
The CSPs of Meralco is doing mere lip service to indigenous gas—power supply agreements, or PSAs, are awarded to indigenous plants only in case of a tie with those fed by imported gas.
Its award of nearly 3,000-MW capacity to power plants that run on imported gas has made every Filipino vulnerable to the instability of global oil prices. Crude prices could soar by 50 percent in just two months and up to 600 percent in two years.
Meralco should have factored the unpredictability of oil and gas prices in the world market. Its preference for imported LNG is putting each Filipino at the mercy of gas traders. These middle-men in times of major geo-political events could easily stop delivering gas to the Philippines and sell the commodity to major users, given the infinitesimally volumes the Philippines imports compared with countries like China, South Korea and Japan. Pakistan, a minor gas market, has had a national energy crisis since 2023 because of its heavily reliance on the imported commodity.
The CSP award, meanwhile, is a dampener to the Philippine oil and gas exploration industry. No local company would be willing to fund hundreds of millions of dollars in drilling for an exploratory well and a bigger amount for developing a commercial gas field if power plants buy their fuel from abroad.
Malampaya’s snub calls into question the ability of the Department of Energy’s Philippine Energy Plan 2020-2040 to deliver on its objective of “secure, sustainable and resilient energy.” Around 25 percent of the country’s energy is expected to be accounted by natural gas under the plan.
Environmentalists have long described natural gas as a good stepping stone for a world looking to replace coal with renewable energy. It is a stand-in for dirty fuels, like coal and oil, but the omission of indigenous gas from Meralco’s power supply mix is unpatriotic, to say the least.
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