0.20 dividend proved SPC to be a value trap

In 2021, SPC POWER CORPORATION declared a total dividend of 1.55 Pesos a share.  With that dividend windfall, SPC shoots up to the moon to reach as high as 15 a share.

SPC did not suffer the same fate as San Miguel Energy Corp., as SPC embedded a pass-through provision for its fuel costs on its power supply agreements.  When coal prices rose significantly, SPC passed on the significant increase in fuel costs to its customers.  SPC burdened its ultimate customers with high electricity bills.

On the generation side, SPC owns a 40% interest in KEPCO SPC Power Corporation (KSPC), which operates coal-fed power generation plants in Naga City, Cebu.  On the distribution side, SPC has a majority-owned subsidiary, Bohol Light Company, Inc. (BLCI), which distributes electricity in Tagbilaran City.  BLCI and the electric cooperatives in Bohol purchased power from its affiliate KSPC with the pass-through fuel provision embedded in the contract.  That provided a windfall to KSPC and eventually to SPC.  When coal prices rose significantly, the consumers in Bohol suffered a significant rise in their electricity bills.

When consumers complained of the significant rise in electricity bills, distribution utilities were forced to do a competitive selection process in power procurement and shun “sweetheart deals.”  With relatively high coal prices, SPC’s coal power generation could not be competitive with geothermal power and other sources.  Even in the spot market, coal power could not easily compete with other sources.  Thus, SPC is forced to declare increasing competition as its primary challenge.

Another headwind for SPC is the impending expiry of its BLCI’s “franchise” in 2025.  BLCI does not have a congressional franchise as mandated by EPIRA.  It only has a “franchise” from the National Electric Administration that expires in 2025.  It could not be sure if moneyed tycoon Enrique Razon will not vie for the congressional franchise for electric distribution in Tagbilaran City.

The 0.20 Pesos per share cash dividend declaration confirmed that SPC is a value trap.  SPC is facing a lot of headwinds ahead and it might not be able to repeat the total 1.55 Peso per share dividend back in 2021.

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