Meralco expects higher rates next month

By Danessa Rivera (The Philippine Star) | Updated January 31, 2018 - 12:00am

http://www.philstar.com/business/2018/01/31/1782922/meralco-expects-higher-rates-next-month

MANILA, Philippines — Manila Electric Co. (Meralco) expects electricity rates to go up next month as capacity fees from power generators start to normalize along with factors pushing up the generation charge.

“We may recall that the January generation charge reduction was largely due to lower capacity fees following the annual reconciliation of outage allowances. As in prior years, we expect capacity fees of PSAs (power supply agreements) to normalize in February,” Meralco head of utility economics Lawrence Fernandez said.

Capacity fees are determined through the annual reconciliation of outage allowances done at the end of each year under the contracts approved by the Energy Regulatory Commission.

For instance, if power generators do not exceed their outage allowance, their capacity fees are already paid in full and would no longer be reflected for the month of January.

The normalization of capacity fees will push up the generation charge, Fernandez said.

“Hence, we see an uptick in the generation charge next month, though we still need to await final supplier bills to see the effect of such factors as WESM (wholesale electricity spot market) charges, forex (foreign exchange) rate, fuel prices and others,” he said.

Also driving Meralco rates higher is the impact of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Earlier, Fernandez said electricity rates would be pushed up by the implementation of the coal excise tax and the removal of the value added tax (VAT) exemption of the National Grid Corp of the Philippines (NGCP) under TRAIN.

Under Republic Act 9511, NGCP was exempted from paying income tax and VAT. This was repealed in Section 86 of the TRAIN, subjecting NGCP to the VAT provision under the National Internal Revenue Code.

Based on Meralco’s computation, the VAT on transmission charge would translate to an additional seven centavo per kilowatt-hour in its rates, Fernandez said.

For the impact of the coal excise tax, Meralco is awaiting the response of suppliers to compute the increase in electricity rates but it has estimated an additional one centavo per kwh at P50 per metric ton.

Under the TRAIN Law, what was approved was a lower coal excise tax of P50 per metric ton in 2018, P100 in 2019, and P150 in 2020 compared with the original Senate proposal of a “100-200-300” hike scheme.

However, the Department of Energy (DOE) said the impact of coal excise tax on electricity rates is expected to reflect on consumers’ electricity bills during the summer season.

This is because coal plant generators maintain coal reserves good for at least 30 days, DOE Undersecretary Felix William Fuentebella said earlier.

Meralco inks O&M contract with Irish state-owned firm

By Lenie Lectura - January 30, 2018

https://businessmirror.com.ph/meralco-inks-om-contract-with-irish-state-owned-firm/

THE Manila Electric Co. (Meralco) has inked an operation and management (O&M) agreement with the Electricity Supply Board (ESB) of Ireland for the Philippines’s first ultra-supercritical coal power plant that will be undertaken by Atimonan One Energy Inc. (A1E).

“We signed that in December last year,” Meralco President Oscar Reyes said. “I think that contract, O&M, is valid for a period of up to 10 years.”

Reyes added the ESB will operate and manage the plant “with the intent, in due course, that we can operate and maintain it on our own.”

He added this arrangement is necessary because “it is such a big investment that we want to make sure it is operated and maintained very efficiently.”

ESB is a state-owned electricity firm engaged in generation, transmission and distribution to supply.

“We want to be  able to have assurance of expertise and technology for a period, but our objective is to go on our own later,” Reyes said.

A1E is the developer of a 2×600-megawatt (MW) coal plant in Atimonan, Quezon. It is a wholly owned subsidiary of Meralco PowerGen Corp. (MGen), Meralco’s power-generation arm. AE1 is currently in the final stages of its selection and contract documentation process for an EPC (engineering, procurement, construction) contractor.

The company is tapping a number of local banks to finance the loan component of the power project, which is being eyed for completion in late 2021. Site preparation started in 2017.

Reyes earlier identified Bank of the Philippine Islands and Philippine National Bank as among the eight banks that will partly finance the power project.

However, Meralco could not yet close a financing deal with the banks while its application for a power supply agreement (PSA) remains pending with the Energy Regulatory Commission (ERC).

MGen signed in April 2016 a 20-year PSA with Meralco for the full output of the plant, and filed with the ERC for its final approval.

It has already secured the necessary permits from the Department of Environment and Natural Resources and the National Commission on Indigenous Peoples. Likewise, a certificate of land use conversion for the resettlement site was issued.

“We continue to engage with the ERC. The important thing is, every month, results in higher project cost because the EPC cost is increasing and exchange rates are moving,” Reyes said. “So, in order to ensure the viability of the project, and the lower price for consumers, it’s best if early approval can be given.”

AC Energy awaits government signal for joining Malaya bid round

By Lenie Lectura - January 30, 2018

https://businessmirror.com.ph/ac-energy-awaits-government-signal-for-joining-malaya-bid-round/

AC Energy, the power arm of Ayala Corp. (AC), would rather wait for further instructions from policy-makers on the privatization of the Malaya Thermal Power Plant before it decides to join any auction.

AC Energy President Eric Francia said the power firm is open to studying the possibility of participating in the bid, though the best approach for now is to “wait for guidance.”

The Power Sector Assets and Liabilities Management (PSALM) Corp., which manages the assets and liabilities of National Power Corp. (Napocor) as mandated by the Electric Power Industry Reform Act of 2001, has yet to seek board approval on the privatization of the Malaya facility.

The sale of Malaya plant was previously deferred because of the plan of the Department of Energy to convert it into a liquefied natural gas (LNG) plant. The Psalm has yet to receive a final word from the DoE on the natural-gas policy, which will be included in the plant’s sale terms of reference.

Francia said an LNG project is capital intensive and there are so many factors to consider before it takes off.

“It’s not specific to Malaya, but it is challenging for gas to make commercial sense in the Philippines because, first, we need an LNG terminal. Once you have that, then comes a gas plant,” Francia said. “Your capex [capital expenditure] is now similar to a coal pant if you look at it, but fuel is much expensive than coal plant. How can you justify that unless you have a long-term contract? How can I have that in this environment?”

The PSALM has postponed the auction for the plant, which was supposed to be sold to four interested bidders who earlier submitted letters of interest.

The four bidders are APT Global Inc., Phinma Energy Corp., Riverbend Consolidated Mining Corp. and AC Energy Holdings Inc.

Energy Secretary Alfonso G. Cusi has been vocal of his intention to require the winning bidder of the power asset to convert it to an LNG facility. The agency intends to transform the Malaya plant into a base-load plant to augment the country’s capacity.

A base-load power plant provides continuous supply of electricity throughout the year with some minimum power-generation requirement.

“What the DOE wants is to make sure there is really energy production. What we don’t want to happen is to bid it out then the winning bidder would not operate it. We will be short of power,” Cusi said. “That is 600 megawatts.”

The Malaya plant was rehabilitated in 1995 by the Korea Electric Power Corp. under a 15-year rehabilitate-operate-manage-maintain agreement. It consists of a 300-MW unit with a once-through type boiler and a 350-MW unit fitted with a conventional boiler.