Tuesday, October 25, 2016

Meralco nears P19-B income goal for 2016

By Danessa Rivera (The Philippine Star) | Updated October 25, 2016 - 12:00am

In a briefing yesterday, Meralco SVP and CFO Betty Siy-Yap said the company’s core net income reached P14.96 billion in the nine-month period ending September 2016, a five percent decline from P15.8 billion in the same period last year. STAR/File Photo
MANILA, Philippines - Improved performance in the third quarter helped power distributor Manila Electric Co. (Meralco) nearly close the gap in meeting its 2016 core net profit guidance of P19 billion, company officials said yesterday.
In a briefing yesterday, Meralco SVP and CFO Betty Siy-Yap said the company’s core net income reached P14.96 billion in the nine-month period ending September 2016, a five percent decline from P15.8 billion in the same period last year.
Reported net income for the period also slipped three percent to P15.68 billion from P16.15 billion last year.
But in the third quarter, core net income rose 10 percent to P4.6 billion compared with P4.154 billion a year ago.
“The third quarter is 30 percent of the core income of P15 billion,” Siy-Yap said.
For the nine-month period, revenues went down one percent to P195.16 billion versus P197.05 billion last year even as year-to-date energy sales rose nine percent.
Siy-Yap said the decline was largely because of lower fuel prices which pulled down generation costs.
“We saw average fuel prices all for coal, gas and oil at record low,” she said.
Coal prices averaged $54.36 per metric ton, oil price an all-time low of $38.98 per barrel and Malampaya gas at $6.1376 per GJ.
With the company’s performance, Meralco chairman Manuel Pangilinan expressed confidence, the company will meet its core profit guidance of P19 billion for the full-year, slightly ahead of the core net income of P18.8 billion in 2015.
“Meralco typically produces more than P1 billion a month in core net income and we’re about P15 billion in nine months… So we’re between P3 billion and P4 billion away [from the target],” he said.
Pangilinan said meeting the target would be driven by growth in customer base and demand. “We continue to add customers at three to four percent and then demand continues to grow,” he said.
As of end-September, Meralco’s customer count stands at 5.98 million.
“We’re going to hit six million customers some time this month,” Meralco SVP Alfredo Panlilio said.

Bold DOE, ERC moves vs system loss

by Ernesto Hilario - October 24, 2016

Quizzical eyebrows greeted neophyte Sen. Manny Pacquiao’s recent question widely publicized in media. It was a good question—one that has been asked before by the public and by legislators, past and present.
The question was, “Why are consumers paying for system losses”?
As a consumer, Pacquiao aptly lent his voice to a public long baffled by the practice of “penalizing” them for losses that could have otherwise been shouldered by the entities who are in a better position to prevent and address them— meaning, power firms.
However, as a senator, Pacquiao should have, perhaps, been informed that the reason for the pass-on is an existing law that allows the practice: Republic Act 3832, or Anti-Electricity and Electric Transmission Lines/Materials Pilferage Act of 1994. Since the basis for the burdensome pass-on is a piece of legislation, Pacquiao can choose to do something about it rather than simply rant against it.

The controversial pass-on charge is actually now the subject of bold moves by two government agencies: the Department of Energy (DOE) and the Energy Regulatory Commission (ERC).
DOE Spokesman Pete Ilagan said the department is already studying the possibility of “removing the burden on consumers to pay for system loss charges.” We presume that the move would require certain amendments to the law and which is why Ilagan added that a legal team is looking into this possibility now.
The ERC took an even bolder step by commissioning a third-party study on system losses. ERC Chairman Jose Vicente Salazar said they have already tapped a consultant to do two important tasks. First is to find out how the mystery of system losses can be unraveled by separating it into two components: the technical and the nontechnical losses.
The second is to find out if the system losses cap can be further lowered. That cap, or the limit of the amount that can be passed on to consumers, stands today at 8.5 percent for private utilities and 13 percent for electric cooperatives.
The results of that study commissioned by Salazar is worth waiting for. By separating the technical and the nontechnical components of system losses, Salazar should be able to help the public pinpoint which of the losses are due to gaps, failures and lapses in the operations of the power firm, and which ones are due to theft, cheating by customers and pilferages.
This is a bold ERC move since we doubt if the players in the industry are willing to admit that customers could actually be paying for operational incompetence. The ERC third-party study will bring that to light and just might show how unfair this particular component in our monthly bill may have been.
The Salazar-commissioned study should provide the answers to questions, like, could such losses have been prevented had power firms improved their technologies and operations? Could they have been averted if power firms were more efficient? On the nontechnical aspects, we hope to find answers to questions, like, have power firms put in place enough safeguards and measures to prevent theft, pilferage and cheating? Have they been lax in these aspects since part of the cost of the losses are being passed on to us, anyway?
The move is also a bold one since ERC can immediately act on this issue. It has the power to set the cap. Salazar will not require legislation to lower the maximum pass-on should the commissioned study provide him a solid basis. This can happen sooner than a proposed change in the law.
Both the ERC and the DOE moves are very much welcome. The ERC can set a lower cap while a DOE-initiated amendment to existing laws could take the burden away from consumers permanently.
System losses in the power sector is not just a Philippine problem. It is a global concern. And, as far as the World Bank is concerned, technical system losses represent “an economic loss for the country.”
That the World Bank itself has commissioned international studies on system losses in the power sector tells us the significance and the gravity of the problem. Based on these studies, the World Bank points out the technical system losses “in electricity transmission and distribution grids is an engineering issue, involving classic tools of power systems planning and modeling.”
This means the more competent the engineering capabilities of a power firm, the less we pay for system losses.
The World Bank study also pointed out that nontechnical losses “represent an avoidable financial loss for the utility.” These are the amounts of electricity consumed by users who do not pay for them. The report branded as “perverse” the effects of nontechnical losses, noting that “customers being billed for accurately measured consumption and regularly paying their bills are subsidizing those who do not pay for electricity consumption.”
Would the Salazar-commissioned study show whether the power firms were in a position to prevent such a perverse situation? We certainly hope so.
We should not be penalized for “poor management” on the part of the utilities that sell us electricity. Any decisive and permanent solution to the problem of system losses is definitely welcome.

Former DOE chief offers his view on ‘energy mix economics’

by Myrna Velasco October 24, 2016

To get discussions moving to the next level on the proposed energy mix for the country, former Energy Secretary and PHINMA Energy President Francisco L. Viray offered insights on what metrics the energy planners shall be assessing and taking into consideration for the policy.
At this stage, energy mix had become the industry’s buzzword but the Department of Energy (DOE) is still at ground zero when it comes to the specifics of the plans and parameters for such policy crafting.
The fixed 30-30-30 prescription of technology sharing for coal, gas and renewables remained a deep puzzle and still too-complicated terrain for the industry players, hence, they have been seeking for clarity of the energy mix economics being presented by the energy department.
In an exclusive interview, Viray noted that the starting point for the DOE planners shall be to analyze the power system’s load duration curve (LDC), and from there, they should “determine the mix on the basis of the components of the load curve – namely, the system’s need for base load capacity, mid- to peak load and then the system’s need for ancillary services (reserves).” A load curve is applied in power generation to demonstrate the relationship between the generating capacity requirements of a system and how that capacity is being utilized.
Viray said it is paramount for energy planners to “determine technologies for each component of the load curve using basic rule of power system economics of a vertically-integrated utility.”
In essence, that must reflect realities that the base load capacities “are supplied by technologies with high capital expenditures (capex) and low variable fuel costs,” he said. In the Philippines, that reality is the dominance of coal-fired power plants; while for mid-merit to peak load capacities, these are often supplied by technologies with “low capex and high variable/fuel costs.”
Following that, Viray emphasized the need to distribute the mix among the technologies based on the realities of power developments trended by the private investors in the restructured electricity sector.
Factoring all of that, he emphasized that the other important step for energy planners would be to optimize such capacities, but with consideration of the constraints posed by each technology.
The deeper technical and economic analysis of the proposed energy mix will then require them to flesh out the more detailed elements, such as cost of electricity generation, environmental impact, and security of supply relating to indigenous versus imported fuels; weather dependency of technologies and geopolitics.