‘SMC reneging on energy contract for new deal’

Consumer group Power for People Coalition fears that the SMC unit only wanted to get out of its current contract to shift to a two-step pricing.

September 10, 2022

Business titan San Miguel Corp.’s energy arm SMC Global Power wanted to get out of the straight pricing scheme that compels it to stick to a fixed amount in its power supply agreement with distributor Manila Electric Co.

Consumer groups are blasting away at SMC for informing participants in an ongoing public hearing that it intends to unilaterally terminate power supply agreements with Meralco.

SMC Global Power has pending petitions with Energy Regulatory Commission to collect an additional P4 per kilowatt hour for the Sual coal plant under the San Miguel Energy Corp. and an additional P0.80 per kWh for the Ilijan natural gas facility of its unit South Premiere Power Corp.

The proposal, however, would need the amendment of the provisions of the PSA which can only happen under a “change-in-circumstances” provision or when an unpredictable event happens.

In its petition with ERC, SMC wanted to recover P5.2 billion from electricity consumers within six months which it claimed was necessary so it could continue sourcing fuel and fulfill its power supply contract with Meralco.

SMC wanted to amend its tariff and collect an additional P4 per kWh for the Sual coal plant and an additional P0.80 per kWh for the Ilijan natural gas facility.

The PSA is the product of a competitive selection process that the government requires to ensure the lease cost of electricity.

Consumer group Power for People Coalition fears that the SMC unit only wanted to get out of its current contract to shift to a two-step pricing that provides for adjustments in pricing and then passes on the extra amount to consumers.

Talks in ERC are that after SMC Global Power abrogates its PSA a new auction will be held by Meralco for a substitute PSA which SMC Global Power will rejoin.

Consumers wanted Meralco to blacklist SMC Global Power from any future PS bid.

“Likely that would be the result (if SMC Global Power backs out of its PSA). So ERC and Meralco should defend (straight pricing) for their customers or consumers,” P4P convenor Gerry Arances said.

Keep prices low

Arances said PSAs must be based on the straight pricing method which has provisions that parties to the contract are compelled to follow.

A two-step pricing scheme has a constant and a variable cost. In the variable portion of the scheme is the fuel price which allows for periodic adjustments based on prevailing prices.

“That’s why P4P is advocating for the use of renewable energy since there are little variable costs in the using green sources of power,” according to Arances.

He added: “The cost is stable exactly because the source is renewable and no importation is needed. The only variable amount is the exchange rate.”

“Sky-high electricity costs hurt Filipinos’ hope of bouncing back. But we are not surprised by the heights power rates are reaching: it is the outcome of a decade of recklessly building dependence on fossil fuels for our power needs, driven by the neglect of actors supposedly protecting consumers’ interests — a decade of piling burdens upon them while allowing companies to rake in profits,” Arances said.

Scheme shields consumers

Arances said the straight energy pricing was the reason for power rates were tempered from fully absorbing the impact of global prices of fossil fuels.

“Straight energy pricing protects consumers from shouldering pass-on fuel and currency exchange risks which are volatility e’s present in fossil fuels,” the consumer group head indicated.

Moreover, he called for mandating a straight energy price in all power supply agreements to relieve consumers of the burden brought by fluctuating global prices.

Currently, Meralco has 1,700 megawatts of supply under straight energy pricing, which comprises a third of its total contracted capacity.

Power rates from these PSAs were well below ₱5 per kWh compared to the current average of P8.50 per kWh.

Some 210 MW of deals using straight pricing were for solar and geothermal fuel.

“It is no surprise that renewable energy sources can commit to straight pricing because these are free from fuel and other costs,” Arances said.

He added the nationwide clamor against “outrageous energy prices and recurring and persistent outages are consequences of our dependence on fossil fuels.”

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