RSA seeks temporary relief for SMC power unit as losses surge to P15B amid skyrocketing fuel costs

SMC Global Power Holdings Corp. (SMCGP) has sought a temporary and partial cost recovery relief for the P15 billion in losses incurred by its Sual and Ilijan natural gas facilities amid soaring coal prices and supply restrictions from the Malampaya.

Coal prices in the global commodities markets have already breached the $400 per metric ton level, which is way beyond the $60-$65/MT price range and long-term outlook contemplated at the time of the execution of SMGCP’s power supply agreements (PSA) with Meralco in 2019.

To allow it to continue sourcing the necessary fuel and viably supply power, SMCGP is seeking relief only for the P5.2 billion losses it incurred from January to May this year. This will be in the form of a rate increase on the company’s contract capacity under the PSAs to be amortized over a period of six months.

SMGCP is asking the Energy Regulatory Commission (ERC) for a rate increase of 80 centavos per kilowatthour for its 670 megawatt of contracted baseload capacity

from the Ilijan plant, and an average of P4/kwh for the 330 MW contracted baseload capacity from the Sual plant.

The net rate impact however to Meralco, assuming that this cost recovery claim is granted by the ERC, is just P0.28/kwh over a period of six months, the power unit of conglomerate San Miguel Corp. said.

SMGCP said while this would result in temporary increase in prices, the grid would continue to have adequate supply of reliable base load power.

SMC president and CEO Ramon S. Ang said the company had already decided to absorb more than P10 billion in losses last year, which it did not file a claim for, after coal prices averaged $176/MT in the second half from only $99/MT in the first half of 2021. Average coal price in 2019 and 2020 stood at only $69/MT.

“Unfortunately, those prices have increased by over 500% since then. We are not asking to recover all our losses, neither are we asking for a permanent increase. We want to continue supplying Meralco with baseload power. What we are asking for is just a temporary and equitable relief, to allow the power facilities to survive this difficult period and continue supplying power to Meralco,” he said.

Ang explained that when its supply agreement was bid out by Meralco in 2019, unlike other bid participants, Sual and Ilijan proposed and adopted an escalation mechanism where the tariff price would start “very low”–to enable consumers to immediately benefit from the competitive selection, and just escalate at a fixed annual rate of 3.5 percent.

However, from the start, this 3.5% fuel price component increase had been long outpaced by the massive and continuing escalation of coal prices from 2020 to 2022, which was at an annualized rate of 125 percent. As such, the company never made any money from contract execution that would allow it to soften the blow of the recent unprecedented spikes in coal prices, Ang said.