No backing out

Straight energy pricing protects consumers from shouldering pass-on fuel and currency exchange risks.

By TEB

September 12, 2022

Recent proceedings at the Energy Regulatory Commission on the petitions for rate increases of SMC Global Power revealed the intention of the energy arm of the diversified San Miguel Corp. to get out of a contract that limited its profit potential.

Its existing power supply agreement with distribution utility Manila Electric Co. is based on a straight energy price that restricts from passing on to consumers higher costs as a result of fluctuations in fuel prices and foreign exchange.

The scheme was designed to keep electricity rates stable by requiring the contractor to absorb losses instead of passing them on to consumers.

The alternative is what SMC Global Power wanted, which is the two-part tariff scheme where consumers would be made to pay for higher fixed capital costs when consumption is low and when variable costs rise from spikes in fuel costs and exchange rate.

In its petition with ERC, SMC Global Power is seeking to collect an additional P4 per kilowatt-hour to cover its losses from higher coal prices in its Sual plant, and an additional 80 centavos per kWh for the Ilijan natural gas facility, due to the unpredictable fuel supply from the Malampaya field.

Unless it gets a tariff adjustment, SMC Global Power said it will terminate its fuel supply to Meralco.

The pass-on provision in the contract ensures that generation companies continue to rake in profits.

The ERC and the Department of Energy thus have been prodded to require all PSAs, which undergo the competitive selection process, to adopt the straight pricing method.

Straight pricing is also ideal for renewable energy contracts since green sources of electricity have little variable cost, which is mainly the exchange rate fluctuation.

Key opposition in the ERC hearings, the Power for People coalition, said at this point when Filipinos suffered from poverty, sickness, hunger, and unemployment in over two years of Covid-19, sky-high electricity costs should not be allowed.

“Straight energy pricing protects consumers from shouldering pass-on fuel and currency exchange risks. The situation calls for mandating a straight energy price in all power supply agreements so we can be relieved from the economic burden brought by fossil fuel,” the group said.

Currently, Meralco has contracts for a total of 1,700 megawatts under the straight energy pricing, which is equivalent to a third of its total contracted capacity.

Consumer groups even doubt the claim of SMC Global Power of P15 billion in losses, which it has not shown proof to the ERC.

Instead of losses, SMC Global Power faces a slight reduction in its atrocious profit of about P17.9 billion last year, which is the height of corporate greed.


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