‘WORST-CASE SCENARIO’: Negros Power warns of rate hike from Iran war fallout

BACOLOD CITY – Consumers in the Negros Power franchise area could see their electricity bills rise by as much as PHP 2 per kilowatt-hour in April as the ongoing US-Israel war on Iran drives global fuel prices sharply higher, a company official warned.

Corporate Energy Sourcing and Regulatory Affairs Manager Engr. Christian John Villena said the worst-case increase is pegged to peak electricity market prices recorded from March 2 to 6, shortly after the United States and Israel launched joint military strikes on Iran on February 28.

“Definitely, as of this moment, we are already feeling the impact of the fuel price increase due to the Middle East war. We cited that the peak prices we have right now, as of today, were recorded from March 2 to 6,” Villena said during a press conference at Negros Power’s headquarters here on March 12.

“We are looking at a rate increase of, more or less, around PHP 2 at the most, if that March 2 to 6 major price hike caused by fuel prices continues through the end of this billing month,” he added.

The conflict has disrupted global oil supply chains, with Iran’s Islamic Revolutionary Guard Corps effectively closing the Strait of Hormuz – a critical maritime chokepoint through which roughly 20 percent of the world’s oil supply transits. Brent crude, the international benchmark, has surged past USD 100 per barrel since the war began, climbing more than 40 percent from pre-conflict levels of about USD 65.

The Philippines, which imports nearly all of its crude oil, has been particularly vulnerable to the oil shock. Diesel prices nationwide have surged by as much as PHP 24.25 per liter in staggered increases, while gasoline has climbed by PHP 7 to PHP 13 per liter.

President Ferdinand Marcos Jr. has shifted government offices to a four-day workweek to conserve fuel and announced plans to seek congressional authority to temporarily suspend fuel excise taxes.

Villena said the generation component – which accounts for roughly 45 to 65 percent of a consumer’s electricity bill – is the segment directly affected by fuel price movements, not the distribution charge collected by Negros Power.

“As we know, we are highly affected by world crises through forex, currency exchange rates, and increases in fuel prices. That portion of generation cost is passed through to consumers,” Villena said.

Negros Power Vice President and Chief Operating Officer Engr. Joe-Mel Zaporteza emphasized that the fuel price impact is neutral to the distribution utility itself.

“The effect of fuel price increases is actually on the generation component of the bill. For Negros Power itself, it is neutral. There will be no adjustment on our side as a result of that. But on the generation side, there will be movement,” Zaporteza said.

For the March billing period, Villena said consumers should expect a more modest increase of about PHP 0.30 to PHP 0.35 per kilowatt-hour.

The company’s current base rate stands at around PHP 11.40 per kilowatt-hour, which Villena described as among the lowest in the franchise area’s history.

He recalled that during the Russia-Ukraine war in 2022, rates in the Negros Power franchise – then under the Central Negros Electric Cooperative (CENECO) – climbed as high as PHP 15 per kilowatt-hour, a difference of roughly PHP 3 to PHP 4 from today’s levels should similar conditions persist.

“Historically, if you can recall the Russia-Ukraine war in 2022, the rate in the Negros Power franchise, formerly CENECO, increased as high as PHP 15. Our base rate now is around PHP 11.40, which is among the lowest,” Villena said.

On Negros Power’s power supply mix, Villena said at least 40 percent of the utility’s power base comes from coal technology, where the direct fuel component accounts for less than 10 percent. However, coal-fired generation is still affected by sub-indices such as foreign exchange rates and the Newcastle coal index, since coal is imported.

He noted that Negros Power recently completed a competitive selection process (CSP) that awarded a 20-megawatt supply contract to Therma Visayas, a power generator based in Cebu. The contract was implemented starting February 26.

“So in the event that those power supply agreements are delayed, the fact that the 20 MW capacity was already delivered last Feb. 26 helps shield that capacity from being sourced entirely from the grid or the market,” Villena said.

He explained that Negros Island is particularly vulnerable during nighttime hours, when the grid is highly dependent on baseload plants and has less support from renewable energy sources that supplement daytime demand.

Villena said the diesel bunker plants in the system serve as peaking and reserve energy sources. When market prices are lower than the diesel generators’ offered price, Negros Power sources from the market. But when market prices spike, the utility activates diesel units, which currently run at an average rate of about PHP 13 to PHP 14 per kilowatt-hour.

During the March 2 to 6 price surge, he said, market prices during evening hours reached as high as PHP 32 per kilowatt-hour – more than double the cost of running diesel peaking plants.

“When the market price is excessively high compared with Energreen, we try to run the diesel units, because diesel is currently at an average rate of around PHP 13 to PHP 14 per kilowatt-hour,” Villena said.

Zaporteza added that the ongoing rehabilitation of Negros Power’s 69-kilovolt sub-transmission lines also indirectly supports the management of generation costs by removing constraints that limit efficient power wheeling across the network.

The Middle East conflict, now in its 17th day, has sent shockwaves through global energy markets. The International Energy Agency has described the disruption as the largest to the global oil supply in history, with member countries agreeing to release 400 million barrels from emergency reserves – the biggest such coordinated action ever undertaken.

Zaporteza also flagged global supply chain disruptions as a challenge to Negros Power’s infrastructure projects, noting that power transformers ordered from suppliers are subject to international logistics that have been strained by the war.

“Because of the war happening in the Middle East, we are already seeing some effects of disruptions in our supply chain. But this is not to alarm everyone, because we have adequate supply of materials and fuel, and we will be able to execute these projects,” Zaporteza said.

He also noted that rising prices for materials such as steel and concrete, which tend to follow fuel price increases, could affect the estimated costs of the utility’s substation and sub-transmission line projects budgeted at about PHP 630 million.

“While we mentioned earlier that we are earmarking around PHP 130 million for the line rehabilitation and about PHP 250 million for each substation development, who knows what the prices of those materials will be after six months?” Zaporteza said.

Despite the challenges, Zaporteza expressed confidence that Negros Power can manage the impact through careful planning and its ongoing investment program.

“These are challenges, but I think we will be able to hurdle them. We are preparing for them,” he said.

Negros Power serves Bacolod City and the cities of Talisay, Silay, and Bago, as well as the municipalities of Murcia and Don Salvador Benedicto.