December 15, 2013

Lower House to review EPIRA law

BusinessWorld reported today that the House of Representatives plans to revisit certain provisions of the Electric Power Industry Reform Act of 2001 (EPIRA) in wake of protests regarding the impending power rate hikes that the Manila Electric Co (MER, Buy)) plans to implement starting this month (i.e., P2.41/kWh this December, P1.21/kWh in February, and P0.54/kWh in March).

The Malampaya gas facility -- which fuels the Sta. Rita, San Lorenzo, and Ilijan power plants tapped by Meralco -- underwent a scheduled month-long maintenance shutdown in November. Other power plants also experienced forced shutdowns between October and December, prompting the distribution utility to buy power from the Wholesale Electricity Spot Market.

Our take: We note that the move to revisit the EPIRA law is not entirely new. This has happened before especially during the times when there were protests over power rate hikes. It remains to be seen though if Congress will find anything worth revising in the law at this point. However, we view this as part of the regulatory risks that power utility companies constantly face.

What is more noteworthy, however, is that the Energy Regulatory Commission has approved the phased implementation by MER of the power rate hike as it saw justifications for the increases amid higher spot market prices. While the impending power rate hike is a pass-through cost for MER, the higher power rates could temper usage and thus would affect MER’s electricity sales. MER is also slated to petition for new power distribution tariffs that will be applied for the next regulatory period starting July 2015. – WealthSec