Power supply auctions finally bring down rates

The government has taken baby steps in the last six years or so toward lowering electricity rates in the Philippines, one of the highest in Southeast Asia. By the looks of it, the initial reforms are paying dividends.

One such baby step is the competitive selection process, or CSP, introduced by the Department of Energy some four years ago. The CSP requires power supply agreements, or PSAs, to undergo an auction to obtain the best or lowest price of electricity in a transparent procedure.

Energy Secretary Alfonso Cusi was prophetic when he correctly predicted last year that operating a transparent and competitive energy market would trim the country's electricity rates. “We have a long way to go before our energy prices are as competitive as our neighbors but... we will get there,” he said.

But customers of the country's biggest retailer of electricity this early are now experiencing a gradual decline in rates. Manila Electric Co. president and chief executive officer Ray Espinosa is in the front row. The recently-appointed Meralco chief is witnessing an era of lower electricity prices that started with the successful CSP bidding and signing of new PSAs last year.

Meralco reduced its rate by P0.2055 per kWh in August to P8.4911 per kWh from last month’s P8.6966 per kWh. The adjusted rate means a decrease of around P41 in the total bill of residential customers consuming 200 kWh. With five straight months of generation rate reduction and a total rate decrease of over P1 per kWh since the start of the year, this month’s overall rate is the lowest in nearly three years, or since September 2017.

Espinosa has taken the call of the Energy Department for distribution utilities to provide affordable and reliable power, when Meralco awarded PSAs that will save consumers around P9.46 billion annually at least for the next 10 years.     

The 10-year PSA with Phinma Energy Corp., San Miguel Energy Corp. and South Premiere Power Corp. (SPPC) started on December 26, 2019 and will end December 25, 2029. Three more power supply deals were finalized covering five years. These are with SPPC for 290 MW, Phinma for 110 MW and Lopez-owned First Gen Hydro Power Corp. for 100 MW.     

Electricity consumers will ultimately benefit from lower rates. “Along with the results of the first successful CSP, consumers are projected to enjoy total savings of around P13.86 billion per year, or a rate reduction of P0.41 per kWh,” Meralco said after the successful bidding.     

“We thank our partners for offering generation rates well below the prevailing market rates and the Meralco reserve LCOE (levelized cost of energy) price cap and for making customers the runway winners in this groundbreaking, competitive bidding,” said Espinosa.

Reduced price, supply risks

DoE director Mario Marasigan was also pleased with the auction winners. “I’ll spread the word that yes, indeed, the winners for this activity are actually the Meralco consumers so we’re not yet done. We still have 121 electric cooperatives and about so many private DU that will conduct their Competitive Selection Process,” said Marasigan.      

The PSAs also eased uncertainty and risk because of the fixed price and 100-percent availability of power.     

“The generators have taken an inordinate amount of risk to be able to deliver this to the customers. One ingredient common with the three bidders is the power of portfolio. This is one game changer that I believe we’ve seen and I hope will be ushering a new era into the future CSP,” said Espinosa.     

I just hope that more successful CSP biddings will take place in the coming months despite the debilitating effects of the pandemic. Other DUs or even electric cooperatives should pursue their own CSP in the near future, so that customers from other areas of the Philippines can enjoy the benefits of lower power rates.

Meralco, meanwhile, has taken another step to trim electricity rates when it invoked force majeure in some supply contracts because of the reduced power demand in its service area. It invoked the FM provision in its PSA with First Gen Hydro Power Corp. that reduced rates by P82 million, or equivalent to savings of P0.0285 per kWh in the generation charge of some 7 million customers. The savings in the past five months have totaled around P1.9 billion.    

Consumer group Laban Konsyumer Inc. earlier asked the Philippine Independent Power Producers Association and the Energy Regulatory Commission to invoke a force majeure claim to reduce the generation charge on consumers, especially during the ongoing pandemic and quarantine period.

LKI president Vic Dimagiba said other power distributors and power producers should follow the example of Meralco.

“Right now, the force majeure claim of Meralco in their franchise area is very effective and can act as a jump-off point or peg for other parties wiling to join the mission to better serve customers, particularly those other distribution utilities,” Dimagiba said.

Lower and competitive electricity rates attract foreign investments. The Philippines's baby steps and electricity reforms, hopefully, will make it a preferred business site and a darling of foreign investors once again.