The Energy Regulatory Commission (ERC) has established a sharp divergence between the price of imported coal that trended lower during a year-long study and the actual generation charge levied on consumers during the period. The charge is collected by distribution utilities (DUs) like Meralco on behalf of the various power generation companies (gencos) around the country.
According to the ERC, an initial analysis of the generation charge for the period showed a “notable disparity” between the substantial reduction in coal prices globally compared to the actual decline in the generation charge extracted from electricity consumers.
The ERC, which based the conclusion on an analysis of available records, established “a noticeable steep decline” in coal prices globally based on the Newcastle Coal Price Index from December 2022 until November 2023.
“This follows the sharp increases in the 12-month prior period. It also appears in the data that while most gencos purchase coal from Indonesia using the same price level, they would usually use the Newcastle Index that effectively shows a large disparity,” the ERC said.
The regulator noted that while the generation rates started to stabilize after the effects of the Russia-Ukraine war that erupted in February 2022, the sharp descent in coal prices does not appear to reflect an equivalent impact on generation costs in the country.
“While there is a convergence in the upward movement when coal prices are rising, the ERC noted that there is a divergence at the time the fuel prices are declining,” the ERC said.
The ERC closely monitors the price of coal as the bulk of the energy produced in the country is from coal-fired power plants. The regulator also said more than 80 percent of coal supply is also imported.
ERC also mentioned that record adjustments in fuel prices have been recorded in the past 24 months with the price of natural gas and oil increasing by a substantial extent even as the price of coal climbed almost 150 percent immediately after the first quarter in 2022, significantly impacting electricity rates as fuel costs in most power supply agreements are passed on directly to consumers.
Apart from the volatility of fuel prices, the ERC said external factors as market dynamics, geopolitical events and other macro-economic conditions also affect generation rates.
The ERC vowed to release early next year the full findings on the fuel cost audit of the various generation firms that involved an analysis of the approved genco fuel formula compared to the amount collected from distribution utilities that are passed on to consumers.
The generation charge represents the cost associated with producing the power supplied to consumers but excludes other charges such as transmission fees, system loss, distribution fees, subsidies and taxes. It is collected by DUs and remitted to the gencos and constitutes 60 to 65 percent of the monthly electricity bill of consumers.
