March 11, 2014

ERC caps rates for Nov-Dec period

News portal reported yesterday that the Energy Regulatory Commission (ERC) has voided all prices at which spot market players settled during the two months leading to the controversial increase in November and December last year.

It now wants the Philippine Electricity Market Corp (PEMC) to recalculate the regulated prices based on the load weighted average of the ex-post nodal energy prices and meter quantity of the same day same trading interval that have not been administered covering the period 26 December 2012 to 25 September 2013. The price should also cover compensation for oil-based plants' full fuel and variable operating and maintenance costs.

Based on the ERC’s computation, the regulated prices would result in at least a 70 percent reduction in the WESM prices, which averaged P22.13/kWh last November 2013 and P25.67/kWh in December. The rate hike was put on hold by the Supreme Court pending the resolution of the case filed by various groups.

Our take: Unless the power generation companies will contest the ERC decision, this may render the pending case at the Supreme Court moot and academic. For the Manila Electric Co (MER, Buy), this should also address the issue on the collection of deferred charges pertaining to the hefty power rate hike. In all, a tempered rate increase bodes well for MER’s electricity sales growth. – WealthSec