SMC Global Power seeks power rate hike to stop bleeding

SMC Global Power Holdings Corp. (SMCGP), the power business of listed conglomerate San Miguel Corp. (SMC), is asking regulators for power rate hike as a temporary relief measure amid losses from operating two power plants nationwide.

SMCGP said its Sual coal and Ilijan natural gas power plants had incurred combined losses of P15 billion from 2021 to date amid skyrocketing global coal prices and unilateral natural gas supply restrictions from the Malampaya gas field.

As such, it sought from the Energy Regulatory Commission (ERC) a temporary and partial cost recovery relief for the P5.2 billion in losses sustained from January to May this year by implementing a rate hike on its contract capacity under the power supply agreements (PSAs).

In particular, the power company is asking the regulatory agency to increase its power rate by P0.80 per kilowatt hour to P5.1 per kWh from P4.3 per kWh for its 670 megawatts of contracted baseload capacity or uninterrupted supply from the Ilijan power plant.

Likewise, it is seeking ERC’s approval to raise the rate for the 330-MW contracted baseload capacity from the Sual power plant by P4 per kWh to P8.3 per kWh from P4.3 per kWh.

Assuming the ERC would grant this cost recovery claim, SMCGP said the net rate impact on Manila Electric Co. (Meralco) would be P0.28 per kWh, to be amortized over a period of six months. It has been supplying electricity to Meralco since the agreements commenced in 2019.

“We want to continue supplying Meralco with baseload power. What we are asking for is just a temporary and equitable relief, to allow the power facilities to survive this difficult period and continue supplying power to Meralco,” SMC president and CEO Ramon Ang said.

SMCGP said this would allow the power generation facilities to continue sourcing the necessary fuel and allow them to viably operate and supply power.

“While this will result in temporary increase in prices, the grid would continue to have adequate supply of reliable base load power to keep the lights on for the millions of individual consumers, households and industrial facilities,” it added.

Ang said the company already decided to absorb more than P10 billion in losses last year instead of seeking claims to recover such amount even if coal prices in the global commodities markets had surged by more than 500 percent.

The company noted that global coal prices have breached the $400-per metric ton level, way below the price range of $60 to $65 per MT when it signed the PSAs with Meralco.

In the second half of 2021 alone, average coal price hit $176 per MT from $99 per MT in the first six months of last year. This was significantly higher than the average coal price of $69 per MT in 2019 and 2020.

“In fact, the widely held outlook at that time was that coal prices would even continue to go down because of a global shift in the energy mix. Well, due to various reasons, coal prices have continued to climb in 2021, and have recently reached unprecedented levels, as high as $440 per MT, as triggered primarily by the Russia-Ukraine conflict,” Ang added.

In the case of the Ilijan plant, SMGCP said the questionable and unilateral notices of gas restrictions had severely affected net generation capacity and forced it to source replacement fuel from the Wholesale Electricity Spot Market, the venue for trading electricity as a commodity.

SMC’s top official said the Sual and Ilijan power facilities adopted an escalation mechanism where the tariff price would start “very low” to enable consumers to immediately benefit from the competitive selection, and just escalate at a fixed annual rate of 3.5 percent on the fuel price component. INQ