December 25, 2013

DoE to meet power sector players to thresh out rate hike issue

The Philippine Daily Inquirer today reported that the Energy secretary has summoned officials of the Manila Electric Co (MER, BUY), power generation companies, and the Philippine Electricity Market Corp (PEMC, operator of the electricity spot market) to a meeting today to discussed the issues related to the deferred power rate hike.

The Supreme Court earlier issued a 60-day temporary restraining order (TRO) on the phased implementation of a P4.15/kWh rate hike that MER wanted to implement to recover the hefty increases in generation charges which resulted from the maintenance shutdown of generation plants.

With the TRO, the regulator said it cannot act on MER’s petition to defer payment to its power suppliers. MER is slated to pay this month some P9b (with P6b due to the PEMC today) in power costs to suppliers. In the meantime, the Justice department has also launched a probe on possible collusion among power sector players that has led to the huge jump in generation costs.

Our take: As we discussed in our 17 Dec 2013 note on Meralco (Dealing With Regulatory Risks), the company’s inability to pass on what is supposed to be an automatic price adjustment mechanism highlights the regulatory risks that MER will continue to face.

On a positive note, government has recognized the problem and it seems bent on finding an interim solution that will be fair to MER and the power suppliers and therefore letting the entire sector share in the risks. We will come up with a longer comment and our view on MER pending the results of the meeting between the DoE and the power companies today.– WealthSec