‘Blacklist SMC from bid’

Consumer groups have appealed to the Energy Regulatory Commission to intervene and halt SMC Global Corp.’s unilateral action

September 6, 2022

Behemoth San Miguel Corp.’s energy units should be blacklisted from participating in new power supply agreements with dominant supplier Manila Electric Co. once it unilaterally rescinds its existing deal.

SMC subsidiary San Miguel Global Power had issued a notice of termination with Manila Electric Co. to end its PSA on 3 October as a result of what it claims as mounting losses due to the escalated fuel prices and the unpredictable natural gas supply from the Malampaya field.

Consumer groups have appealed to the Energy Regulatory Commission to intervene and halt SMC Global Corp.’s unilateral action until it shows proof of the P15 billion operation losses that it cited in its rate hike petition.

Nonetheless, groups under the Power for People Coalition said that if SMC Global Power pushes through with its PSA withdrawal, it should be excluded from any future bids.

ERC can make a ruling that SMC is an unreliable party in a contract. “ERC can question the reliability of SMC in entering into a PSA,” Arances indicated.

“Meralco should act on it independently to protect the welfare of electricity users,” Arances averred.

Based on the prices solicited for the PSA, Arances revealed that SMC was included, which he said is absurd since it had backed out of the deal.

Termination nears

SMC has notified ERC that it will end the PSA but consumer groups wanted the regulator to first compel SMC Global Power to show proof for its claim of losses.

Withdrawal of the PSA would mean higher costs of electricity since Meralco will have to secure the huge shortfall from the Wholesale Electricity Spot Market which sells at higher prices than the contracted amounts.

“Second, SMC Global Power was referring to ‘the change of circumstances regarding the natural gas supply from Malampaya which is inconceivable since the status of Malampaya’s reserves is widely known,” P4P Convenor Gerry Arrances said.

“The loss in the definition of SMC is a reduction in profit after it reported a P17 billion net income last year,” Arances said. “That is pure greed.”

He said SMC only wanted to match the huge profits that suppliers of fuel such as coal and natural gas are raking in in the post-pandemic era.

SMC seeks recovery of P5.2B

Based on its petition with the ERC, SMC wanted to recover P5.2 billion through rate adjustments as a condition to maintain its contract with Meralco.

SMC has a separate petition to amend its tariff and collect an additional P4 per kilowatt-hour for the Sual coal plant and an additional P0.80 per kWh for the Ilijan natural gas facility.

Amending the PSA is not just since the PSA between Meralco and SMC’s power producers is a financial contract with a straight energy price as a tariff structure which means simply that SMC should assume the risk of fluctuating fuel prices.

“In their PSA, applicants agreed to have straight energy pricing as their tariff structure, which mandates generation companies, instead of electricity consumers, to assume the fluctuation risks of fuel cost, currency exchange, and consumer price index,” according to P4P’s opposition to the SMC rate proposal.

P4P expressed surprise that its coal unit San Miguel Energy Corp. which runs the Sual coal plant, “admitted that it used the Levelized Cost of Electricity method which measured and compared the cost competitiveness of various pricing schemes and proposals of the participating bidders covering the entire term of the PSA.”

When it won the PSA, SMC stated that the PSA is a definitive and absolute number at contract inception, is not directly linked, and does not move concerning any pertinent financial index that is subject to future uncertainty.

For instance, “SMEC admitted that in its bid, they considered the entire period covered by the PSA in its calculations and assumptions.”

By agreeing to the PSA with straight energy pricing as a tariff structure, San Miguel assumes the risk of volatile energy pricing.

“Should the plant of the power suppliers experience any shutdown, derating, or any other situation that will render it incapable of supplying the contracted capacity, San Miguel can comply with its obligation under the PSA by supplying electricity from the spot market or any other source,” according to a provision of the PSA.

Thus, it can be concluded that San Miguel should have considered and assumed the risk of under-recovery arising from fuel supply disruptions and any penalties in case of failure to supply the contracted capacity, knowing fully well that it has been experiencing supply disruptions in the past year from the Malampaya Gas Field.


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