ERC review sought on 2024 power deals

Under its proposed rate adjustments, for a household consuming an average of 200 kilowatt-hours, an additional P67.52 will be tagged on electricity bills or P48 to pay for San Miguel Energy Corporation coal charges and P19.52 in South Premiere Power Corporation gas charges

September 13, 2022

ERC should carefully review the new power supply agreements that San Miguel Global Power obtained from distributor Manila Electric Co. for the contingent electricity supply starting 2024 since it includes pass-on provisions.

Last year, two San Miguel Corp. companies, Excellent Energy Resources Inc. and Masinloc Power Partners Ltd. Co. signed PSAs with Meralco for the supply of a total of 1,800 megawatts.

The PSAs provided P4.1462 per kWh for Excellent Energy using liquefied natural gas and 600 MW of electricity from the Masinloc coal plant for P4.2605 per kWh.
Both contracts cover 20 years of supply starting in 2024.

What baffles consumer groups opposing SMC Global Power’s petition to adjust existing PSAs also with Meralco on the supply of electricity from its Ilijan natural gas plant and the Sual coal plant was that the prospective contracts are priced lower than the P4.30 per kilowatt-hour that it considered a losing price.

At the current price in the PSAs for Ilijan and Sual, SMC Global Power said it had incurred P15 billion in losses which was the reason for its ERC notification to discontinue its PSAs with Meralco.

Power for People Coalition Convenor Gerry Arances said not the entire amount of the electricity cost is reflected in the PSAs with Excellent Energy and Masinloc Power.

Under its proposed rate adjustments, for a household consuming an average of 200 kilowatt-hours, an additional P67.52 will be tagged on electricity bills or P48 to pay for San Miguel Energy Corporation coal charges and P19.52 in South Premiere Power Corporation gas charges.

“What I know is that it is not straight pricing but a two-part tariff,” Arances said referring to the new contracts.

“This means that if there is volatility in global pricing, they will pass it on to consumers,” the P4P head said.

Under a two-part tariff, consumers pay for higher fixed capital costs in cases of lower utilization factors and higher variable costs in cases of spikes in fuels and exchange rates.

Meanwhile, generation companies that insist on operating fossil fuel power plants continue to rake in profits.

Burdensome scheme

In the two-part tariff scheme, there are constant and variable costs including fuel cost which is the biggest component of the pricing.

The actual price, according to Arances, will likely be higher than what was indicated since the price movement of fuel in the global market will have to be added to that.

“That was allowed under the PSA for the future needs of Meralco that’s the reason why we are opposing it,” he said.

“That is why Power for People has always been advocating for renewable energy because straight pricing is used for these,” Arances said.

“RE does not involve fossil fuel which is mostly imported and susceptible to volatility,” he added.

The only variable cost in straight pricing is the exchange rate considering the money used for maintenance or the purchase of new equipment

Currently, Meralco has six PSAs with straight energy pricing and a total contracted capacity of 1,700 megawatts.

The PSAs comprise a third of Meralco’s total contracted capacity.

Approximately 210 MW out of the 1,700 MW was purchased from solar and geothermal power plants.

Arances said because of straight energy pricing, PSAs that Meralco’s power rates have not increased as drastically as those in other provinces.

“Consumers have been protected from increasing fossil fuel prices, leaving generation companies to shoulder these risks. In fact, SMC Global Power is now claiming to have lost P15 billion due to the PSAs,” the consumer group said.


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