A limited hedge on fuel supply procurement that a power generator can avail of has been the major justification cited by Aboitiz Power Corporation for the higher rate of P5.69 per kilowatt hour (kWh) it offered to Manila Electric Company (Meralco) in their emergency power supply agreement (EPSA).

Company President and CEO Emmanuel V. Rubio forthrightly acknowledged to media that international coal prices are still at escalated levels, Rubio indicated that for its two-month EPSA with Meralco. “We were able to find back-to-back coal supply to offer something to Meralco,” said Rubio.

The 300-megawatt capacity to be supplied to Meralco from December 15, 2022 to January 25, 2023 will be coming from the electricity generation of the GNPower Dinginin coal-fired power plant, a joint venture between the Aboitiz group and AC Energy and Infrastructure Corp of the Ayala conglomerate.

That capacity will replace part of the 670-megawatt supply contracted by Meralco from the Ilijan gas-fired power plant of South Premiere Power Corporation (SPPC) of the San Miguel group, at a relatively cheaper fixed price cost of P4.31 per kilowatt hour (as reckoned on November 2022 billing).

Supply from the Ilijan gas plant ceased since December 7 this year, on the strength of a 60-day temporary restraining order (TRO) issued by the Court of Appeals on the SPPC-Meralco rate hike case that was earlier denied by the Energy Regulatory Commission.

Rubio indicated that since the halted supply from the Ilijan plant would still have a gap of 370MW, Aboitiz Power is eyeing to eventually increase its offer of capacity to Meralco.

“We’re still looking for fuel supply that will allow us to go beyond that or make an offer beyond that...it really depends on what we can find as a suitable fuel supply in order to meet the demands of Meralco. We really have to have a hedge,” he stressed.

Rubio expounded that when Meralco auctioned the power supply agreement (PSA) that was won by San Miguel in 2019, Aboitiz Power opted not to join the competitive selection process (CSP) or bidding because it wasn’t able to secure a long-term hedge that it can lean on for a decade-stretch contract that it will need to enter into with the giant power utility.

“We were looking at participating in that contract in 2019, but we cannot find a back-to-back hedge to actually arrest the risk for the 10-year fixed price. The longest you can find then was three (3) years, no one would want to extend beyond three (3) years, so that’s too risky,” he stated.

Onward, Rubio qualified that there could still be capacity that the country’s power system would be able to depend on for additional supply, but the major question is on the cost impact of that electricity given the relentlessly surging fuel prices in the world market – primarily for coal and gas commodities which have been both casualties of the lingering Russia-Ukraine war.

“I guess it would really depend if we can find a competitive cost of fuel that we can actually offer to Meralco. We have power supply, the problem is: what’s the cost of that power supply,” he emphasized.

Despite the internal calculations of the Regulatory Operations Service (ROS) of the ERC signaling an even heftier rate hike if supply from Ilijan capacity will be stopped, the majority bloc of the Commissioners opted to junk the P0.30 per kWh rate hike petition of Meralco-SPPC for fear that this could result in higher rates.

Nevertheless, with the EPSA resorted to following cessation of supply from the Ilijan plant, the electricity prices cornered were even higher than the rate of the original supplier.

Given the twist of fate that this issue will bear on more than 7.0 million Meralco customers, Power4People (P4) Coalition Convenor Gerry Arances asserted that “the new contract with Aboitiz and its Dinginin power plant is no savior to consumers.”

He highlighted that “without the benefit of a CSP, consumers had no opportunity to engage in the bidding process to vie for terms that are the least expensive ...this unfortunately puts straight energy pricing arrangement out of the picture which has shielded power consumers from high electricity prices. Consumers are forced to buy more electricity from coal at a time of volatile prices, which would see no end soon.”