March 19, 2014

WESM’s new computation yields lower power rates for Nov-Dec 2013

News quoted the president of the Philippine Electricity Market Corp (PEMC) as saying its recalculation of the power rates for November and December last year would yield lower rates. Using the formula proposed by the regulator, the new rate in the spot market would show an increase of P0.43/kWh instead of the earlier rate of P2.15/kWh for the November supply period and an increase of P0.195/kWh instead of P2.50/kWh for December. Thus, the original settlement price will be cut from P25.404/kWh to P6.007/kWh for November and P6.246/kWh from P28.367/kWh in December.

Adding the WESM rates to the generation charges derived from independent power producers and power supply agreements, the rate increase for Meralco (MER, Buy) should be P2.43/kWh instead of P4.15/kWh for the December bill, and P3.02/kWh instead of P5.33 for the January bill.

Our take: We believe that this can finally settle the much politicized rate hike issue and addresses a key concern on the power sector. Lower rate hikes should bode well for the MER as this should temper any suppression in consumer usage. Some power generation companies like Aboitiz Power Corp (AP) have already booked provisions in 2013 to preempt any impact of the rate recalculation on unrealized earnings. – WealthSec