Consumers pay the price of Meralco’s imported LNG

MERALCO’S July rate hike is more than a routine monthly adjustment. Buried in the utility’s own supplier breakdown is a stark illustration of what it actually costs the country to depend on imported liquefied natural gas (LNG) instead of gas produced at home.

The gap between the two is no longer a rounding error — it is now the single clearest argument for why the Philippines needs to protect what remains of its indigenous gas supply.

Meralco’s residential rate rose by P0.3428 per kilowatt-hour (kWh) in July, from P14.4833/kWh in June to P14.8261/kWh — enough to add roughly P69 to the monthly bill of a household consuming 200 kWh.

The utility said the increase was driven mainly by a P0.1800/kWh rise in the generation charge, to P9.2504/kWh, on higher fuel costs, along with a P0.2678/kWh increase in power supply agreement (PSA) charges tied to the ongoing Middle East conflict’s effect on global energy prices.

Those totals only tell half the story. The more revealing numbers sit in Meralco’s plant-by-plant cost data, which shows exactly which suppliers are pushing rates up — and why.

Independent power producer Prime CoreGen, which runs the Santa Rita and San Lorenzo gas plants in Batangas, supplied 22 percent of Meralco’s energy needs in July — 779.5 million kWh — at an average generation cost of P10.6489/kWh. That cost held up even though both plants were forced to run on imported LNG rather than their usual indigenous gas, because the Malampaya field underwent scheduled maintenance from June 15 to July 15. The switch also meant the fuel lost its usual value-added tax (VAT) exemption and was taxed at 12 percent, since only Malampaya’s domestic gas qualifies for that exemption.

In other words, Santa Rita and San Lorenzo were hit with the worst-case scenario — LNG prices plus VAT — and their generation cost still came in well below every other gas supplier on Meralco’s grid. That alone should settle any argument about which fuel source is more favorable to consumers.

Compare that to the plants that run on imported LNG as a matter of course. PSAs accounted for 72 percent of Meralco’s July supply, led by South Premiere Power Corp. (SPPC), operator of the 1,278-megawatt Ilijan plant, with a 15-percent share, and Excellent Energy Resources Inc. (EERI), operator of a 1,320-MW gas facility, with 13.6 percent.

Even under normal operating conditions — no shutdown, no forced fuel switch — SPPC posted an average generation cost of P13.0886/kWh and EERI posted P12.6188/kWh, for a combined weighted average of P12.8537/kWh. That is more than P2.20/kWh higher than Prime CoreGen’s cost, despite Prime CoreGen having been forced onto the more expensive fuel that month.

There’s a wrinkle here that deserves more attention than it has gotten: EERI is partly owned by Meralco’s own generation arm, MGen, through a stake in Chromite Gas. Meralco has repeatedly pointed to high LNG prices as the reason bills keep rising. Yet some of the LNG-exposed capacity driving those costs sits, in part, on Meralco’s own books. That does not make the fuel-cost math wrong, but it does mean the utility’s generation affiliate has a direct financial stake in how the LNG-versus-indigenous-gas story plays out.

Cheapest

For context, Meralco’s coal suppliers remain the cheapest fuel source by far: Masinloc Power posted an average generation cost of P4.3493/kWh in July, and San Buenaventura Power posted P5.8814/kWh. But coal cannot do what gas does. Gas-fired plants provide the flexible “mid-merit” capacity that can ramp up and down quickly to match demand swings and to compensate for the intermittency of solar and wind. As the grid adds more renewable capacity, that flexibility becomes more valuable, not less — which is exactly why the cost gap between indigenous and imported gas matters so much.

Consumers should also brace for an additional cost starting in September, after the Energy Regulatory Commission authorized Meralco to recover roughly P4 billion in deferred generation costs owed to EERI for power supplied in early 2024. That recovery will add P0.1099/kWh to bills over a 12-month period — on top of whatever the fuel market does between now and then.

The July billing cycle simply reconfirms what the numbers have shown for years: gas from the Malampaya field costs the country roughly P4.80/kWh in fuel-cost equivalent, versus roughly P10.30/kWh for imported LNG — and Malampaya gas is VAT-exempt on top of that.

When Santa Rita and San Lorenzo can run on Malampaya gas under normal conditions, they are, by a wide margin, Meralco’s cheapest gas-fired option. Each month that those plants are forced on to imported LNG — whether by a maintenance shutdown or, eventually, by the field’s depletion — is a month that that gap gets passed straight to consumers.

This is precisely the vulnerability that the Philippine Natural Gas Industry Development Act was written to address. The law recognizes indigenous natural gas as the country’s logical “transition fuel” on the way to a cleaner energy mix, and it requires power producers to prioritize domestic gas over imported alternatives where feasible.

Malampaya

It also gave the Malampaya Phase 4 project the regulatory footing it needed to move forward — a project that this year completed the drilling, completion and testing of the Malampaya East-1 and Camago-3 wells, the country’s first major offshore gas discovery in over a decade. That discovery is projected to extend Malampaya’s productive life by roughly six years, with first gas from the new wells expected in the fourth quarter of this year.

Beyond the effect on electricity bills, indigenous gas also generates direct fiscal benefits: royalties collected under the Malampaya service contract go straight to the national government, funding public services while displacing fuel that would otherwise have to be imported and paid for in dollars.

There is also a security-of-supply dimension that goes beyond price. As demand keeps growing, the Philippines needs more reliable mid-merit capacity, not less. Without it, existing coal and gas plants are pushed to run harder to cover daily demand peaks, raising the risk of forced outages — and making it harder to absorb more renewable energy onto a grid that lacks the flexibility to handle its natural intermittency.

That risk was on full display during the recent red alert, when forced outages sidelined 48 generating units nationwide and forced Meralco to impose rotating brownouts. Among the plants unavailable at the time were Ilijan A and B, and EERI Units 1, 2 and 3 — precisely the LNG-dependent facilities discussed above. Santa Rita and San Lorenzo, by contrast, were dispatched to help stabilize the Luzon grid during that same period, underscoring how much the system leans on dependable, domestically fueled generation when things go wrong elsewhere.

Unambiguous

July’s billing cycle sends an unambiguous signal: the more the Philippines leans on imported LNG, the more exposed Filipino households become to price shocks that have nothing to do with anything happening in this country — a shipping disruption, a geopolitical flare-up, a surge in global demand — and everything to do with markets thousands of miles away. Preserving and expanding indigenous gas production is no longer just an energy-security talking point; it is the difference between a July hike of 34 centavos and something considerably worse.

It also matters well beyond the household electric bill. Industries need uninterrupted, reasonably priced power to stay competitive, and foreign investors weigh grid reliability heavily when deciding where to put new factories a​nd data centers. A stronger indigenous gas supply, backed by the mid-merit flexibility that only gas plants can provide, is what keeps that bottleneck from becoming a permanent drag on the economy — and what gives the country a fighting chance at an energy transition that doesn’t come at consumers’ expense.

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Consumers pay the price of Meralco’s imported LNG
Source: Breaking News PH