Meralco sees higher generation costs as peso weakens

POWER DISTRIBUTOR Manila Electric Co. (Meralco) said a weaker peso is putting upward pressure on power generation costs, following the currency’s recent slide to a record low amid geopolitical tensions.

“A depreciation of the peso will put upward pressure on power rates, in particular, the generation charge,” Lawrence S. Fernandez, vice-president and head of utility economics at Meralco, told ����ý.

On March 23, the peso fell to a record low of P60.30 against the US dollar, marking the first time it breached the P60-per-dollar level, according to data from the Bankers Association of the Philippines.

Mr. Fernandez said nearly 60% of Meralco’s cost of purchased power is dollar-denominated, as it largely consists of imported fuels such as coal and gas.

These costs are reflected in the generation charge, which typically accounts for more than half of consumers’ electricity bills.

Earlier this month, Meralco Chairman Manuel V. Pangilinan ordered a review of the company’s power supply mix to manage price volatility linked to movements in the global petroleum market.

“We are optimizing our energy mix and fully leveraging cost-efficient sources, regardless of technology. In addition, we are carefully managing our exposure to the WESM (Wholesale Electricity Spot Market), where price volatility is high,” he said in a social media post.

Gas currently accounts for about 60% of Meralco’s power supply, followed by coal at 20-25% and renewable energy at around 10%. The remainder is sourced from the Wholesale Electricity Spot Market.

Last month, Meralco raised electricity rates by P0.6427 per kilowatt-hour (kWh) to P13.8161 per kWh for March, driven by higher transmission and generation charges.

Meralco is the country’s largest private electric distribution utility, serving more than 8.2 million customers in Metro Manila and nearby provinces, including Bulacan, Cavite, Rizal, and parts of Laguna, Batangas, Pampanga, and Quezon.

Aside from electricity distribution, the company also has power generation interests through its subsidiaries.

Meralco PowerGen Corp. (MGEN), the company’s generation arm, said a weaker peso could affect not only generation costs but also the broader energy value chain.

“The impact of a weaker peso goes well beyond new power investments — it affects the entire energy value chain and is broadly inflationary, making imported goods, including fuel and equipment, more expensive,” MGEN President and Chief Executive Officer Emmanuel V. Rubio told ����ý.

He added that currency weakness may also put upward pressure on interest rates, increasing financing costs for new projects and affecting returns over time.

“At MGEN, we have taken a proactive approach to managing these risks,” Mr. Rubio said.

He said the company has hedged its exposure to currency risks by largely locking in costs for the MTerra Solar project, an integrated solar facility spanning Nueva Ecija and Bulacan.

However, Mr. Rubio said a weaker peso would still feed through to electricity prices, as most of the country’s coal and gas supply is imported and dollar denominated.

“Ultimately, while the direct impact on generators is manageable, the broader concern is affordability — particularly as sustained cost pressures may influence customer demand and the overall energy mix toward more cost-competitive sources,” he said. 

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in ����ý through the Philippine Star Group, which it controls. — Sheldeen Joy Talavera