Meralco, SMC unit seek approval of supply deal

Manila Electric Co. (Meralco), the country’s biggest power distributor, is seeking regulatory approval of an agreement that will allow conglomerate San Miguel Corp. to provide up to 500 megawatts to the power utility within the next seven years.

In an application filed with the Energy Regulatory Commission, Meralco and San Miguel, through its subsidiary San Miguel Energy Corp. (SMEC), stressed that the power supply agreement would result in an average generation rate of P4.5049 a kilowatt-hour, or lower by 11.33 centavos a kWh compared to the effective rate of P6.0454 under Meralco’s existing transition supply contract with state-run National Power Corp.

“Thus, it is essential and urgent that the application be approved in order to immediately afford end-users the benefits resulting from the implementation of the power supply agreement,” the filing stated.

Based on the contract, it was agreed that SMEC would provide 200 MW to Meralco up to Dec. 25, 2012, using the electricity generated by the Sual coal-fired power plant in Pangasinan. After that date, SMEC will begin providing as much as 500 MW to the distribution utility.

“Meralco and SMEC have recognized that there is a paramount relevance and necessity to implement the power supply agreement immediately upon the [impending] termination of Meralco’s transition supply contract with Napocor on Dec. 25, 2012, to ensure continuous and reliable electricity for [Meralco’s] customers,” the filing stated.

“The implementation of the power supply agreement will clearly redound to the benefit of the end-users as it will shield them from the detrimental impact of the expiration of the transition supply contract that may constrain Meralco to source replacement energy up to 500 MW that would otherwise have been sourced from the Sual power plant, from the wholesale electricity spot market, which would likely increase prices,” it explained.

Meralco has been enhancing its energy-sourcing activities to secure new long-term power supply agreements that will generate lower power costs for its customers.

In this way, Meralco is able to limit its exposure to volatile and escalating spot market prices.

It is expected that the average blended power rates from both Meralco’s existing and new power supply contracts are expected to reach only P5 a kWh next year and 2014; P5.04 in 2015; P5.07 in 2016; P5.08 in 2017; P5.10 in 2018; and P5.13 in 2019.