SMC's energy unit incurs P15-B losses on surging fuel costs

SMC Global Power Holdings Corporation (SMCGP), the power investment arm of San Miguel Corporation, logged colossal losses of P15 billion on the electricity generation operation of its power plants due to surging fuel prices in the world market and is now batting for rate hikes so it can partly recover costs via its power supply agreements (PSAs) with Manila Electric Company (Meralco).

In a statement to the media, SMCGP indicated that it incurred losses in the operation of its Sual coal-fired and Ilijan gas-fired power facilities due to “skyrocketing global coal prices and unilateral natural gas supply restrictions from Malampaya.”

In view of the incessantly rising fuel prices, SMCGP has “sought for a temporary and partial cost recovery relief only for the losses it incurred from January to May 2022 in the form of a rate increase on its contract capacity under the PSAs to be amortized over a period of six months.

Specifically, SMCGP had applied with the Energy Regulatory Commission (ERC) for a rate hike of P0.80 per kilowatt hour (kWh) to P5.10 from P4.30 per kWh for the 670-megawatt contracted capacity of its Ilijan plant; and average P4.00 per kWh to P8.30 to P4.30 per kWh for the 330MW contracted capacity of its Sual plant.

“Overall, the company is looking to recover P5.2 billion in losses for the period January to May 2022. The net rate impact however to Meralco, assuming that this cost recovery claim is granted by the ERC, is just P0.28 per kWh over a period of 6 months,” SMC stressed.

The company said “this will allow the power generation facilities to continue sourcing the necessary fuel and allow it to viably operate and supply power.”

SMCGP added that while the cost recovery sought in its PSAs “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.”

The company primarily cited that “coal prices in the global commodities markets have already breached the US$400 per metric ton level.”

SMC explained that the surge in coal prices had been “way beyond the $60-$65 per MT price range and long-term outlook contemplated at the time of the execution of (the) PSAs with Meralco in 2019.”

Electric utility giant Meralco is the off-taker (capacity buyer) of the power capacity generated by the Sual and Ilijan plants – that had been anchored on the power supply deals cornered by the subsidiary-companies of SMCGP in the competitive selection process (CSP) carried out by the power distribution firm three years ago.

Relative to the heavy losses incurred, SMC President Ramon S. Ang stated that the company decided “to absorb more than P10 billion in losses last year,” as it no longer opted to file for cost-claims accruing from sudden escalation in fuel prices.

On that specific period, he qualified that coal prices already started to shoot up rapidly to average $176 per metric ton in the second half from just $99 per MT in the first half of 2021; while average coal prices in 2019 and 2020 just hovered at relatively lean $69 per MT on average.

Ang asserted “unfortunately, those prices have increased by over 500-percent since then,” with him emphasizing that “we are not asking to recover all our losses, neither are we asking for a permanent increase.”

He said they are taking that step on partial cost-recovery plea, as “we want to continue supplying Meralco with baseload power,” with him stressing that “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.”

The SMC chief argued that “the tremendous and continuing spikes in commodity prices are unprecedented and now, simply untenable,” reiterating that the circumstances in fuel pricing had been largely different when the PSAs were firmed up with Meralco.