December 14, 2014

MER electricity rates lower by P0.19/kWh in December

In a press statement yesterday, Manila Electric Co (MER) said that electricity rates will go down by P0.19/kWh in December. The rate cut was primarily a result of the P0.17/kWh reduction in power generation charges to P4.9372/kWh, its lowest level for the year.

The decrease in power generation charges was, in turn, driven by the P1.70/kWh drop in the cost of power purchased from the Wholesale Electricity Spot Market (WESM) to P8.2844/kWh owing to better supply conditions especially after Sual’s unit 1 came back online after a month-long maintenance shutdown.

On the other hand, the cost of power purchased from independent power producers (IPPs) increased by P0.0985/kWh to P5.1102/kWh while rates from power supply agreements rose by P0.0325/kWh to P4.2773/kWh. Power purchased from PSAs accounted for 48.1% (1,196 GWh) of total GWh purchases followed by IPPs with 46.5% (1,157 GWh) and WESM with 5% (124 GWh).

Other cost components such as system loss charges and taxes also contributed to the decline in overall electricity rates but was partly offset by the P0.0174/kWh rise in transmission charges.

Our take: This month’s electricity rate is the lowest since Oct 2013 and represents a P1.62/kWh decline from this year’s peak achieved last April. Supply conditions have improved, thereby pushing down MER’s average WESM cost.

Although we expect WESM prices to again pick up in early 2Q15 when supply levels tighten due to higher demand with start of the summer season coupled with the scheduled one-month shutdown of the Malampaya gas field, the drop in commodity prices, especially oil, should help cushion the effects. This should help support demand moving forwardwhich bodes well for MER. - WealthSec