Meralco Anticipates Higher Generation Charge Due to Peso Depreciation
Power distributor Manila Electric Co. (Meralco) expects a significant rise in its generation charge this month, as the peso’s notable depreciation is seen to drive up the cost of power purchased from its various suppliers.
“While we are still waiting for some billings from our suppliers to finalize the October electricity rate, indications point to a possible increase in the generation charge this month,” stated Joe R. Zaldarriaga, Meralco Vice-President and Head of Corporate Communications, in a public statement released on Tuesday.
He directly attributed the potential upward adjustment in the generation charge to the sustained weakness of the Philippine peso.
This currency devaluation critically impacts the expense of power supply contracts, which are overwhelmingly dollar-denominated to account for imported fuel costs.
The value of the peso closed at P58.196 per dollar on September 30, according to the Bankers Association of the Philippines’ reference exchange rate, marking a P1.07 weakening from its P57.13 finish just a month earlier on August 29.
This slide in the local currency translates almost directly into higher costs for Meralco’s customers, as the generation charge represents the cost of power from suppliers and typically accounts for more than 50% of the total monthly electricity bill, making it the largest component.
Meralco is the primary power distributor serving Metro Manila and adjacent areas, covering 39 cities and 72 municipalities, and delivering electricity to a massive base of around eight million customers. Any movement in the generation charge, which is passed through to consumers, therefore affects millions of households and businesses within the company’s franchise area.
WESM Price Drop May Temper Cost Increases
Despite the substantial upward pressure created by the weaker peso, Meralco is expressing hope that the anticipated increase in the generation charge may be significantly offset by favorable market conditions, particularly lower power prices at the Wholesale Electricity Spot Market (WESM), the country’s official electricity trading floor.
The Independent Electricity Market Operator of the Philippines (IEMOP) reported encouraging data, showing that the average WESM rate system-wide experienced a sharp decline of 33.8% month on month, settling at P3.04 per kilowatt-hour (kWh) for the September supply billing.
This notable decrease is the lowest recorded spot price in the past seven months, reflecting improved supply conditions or reduced demand during the period. For the Luzon region alone, which encompasses the majority of Meralco’s franchise area, the spot prices fell by an even larger margin of 31.7% month on month, reaching P2.57 per kWh.
These significantly lower spot prices offer a crucial counterbalancing force to the rising cost of dollar-denominated power supply contracts. When WESM prices drop, Meralco can procure cheaper power from the spot market to supplement its contracted supply, thereby potentially mitigating the overall increase in the blended generation charge passed on to consumers.
The generation charge, which had dropped by P0.1852 per kWh in September to P13.0851 per kWh from P13.2703 per kWh the previous month, was previously pulled down by a lower generation charge, indicating that market factors can swiftly influence the final rate. The current expectation rests heavily on the WESM’s lower prices being substantial enough to absorb the impact of the currency depreciation.
Financial Structure and Regulatory Environment
The operational and financial structure of Meralco, along with its complex ownership, plays a central role in how it manages and communicates these fluctuating electricity costs.
The company functions within a heavily regulated environment where it acts as a mere pass-through entity for the generation charge, meaning it simply collects the cost of power from its suppliers and transmits it directly to consumers without earning a profit on it.
The current situation highlights the direct vulnerability of the Philippine power sector to foreign exchange rate movements, given the reliance on imported fuels like coal and natural gas for power generation, which are naturally paid for in US dollars.
Understanding this financial dynamic is key to interpreting the monthly adjustments in the generation charge announced by Meralco. The distributor’s overall rate in September dropped largely because the costs it incurred from its generators were lower during that period.
The potential increase in October is a clear indicator that the currency weakness has now begun to outweigh any favorable pricing from the WESM.
It is also worth noting that Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc.
Furthermore, Hastings Holdings, Inc., which is a unit of the PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in BusinessWorld through the Philippine Star Group, which it controls, illustrating the interconnected nature of the Philippines’ largest corporate groups, which have significant involvement across telecommunications, media, and power distribution.
