Consumer groups: Probe ‘promo’ power service rates

SMC Global Power cited a ‘change in circumstance’ provision in its PSAs to back its petition with ERC

September 14, 2022

Government should investigate the practice of contractors bidding low, even on private deals, to seal long-term projects before turning around and running to regulatory agencies to have their rates adjusted.

Consumer groups said the artificially low offers to defeat the purpose of auctions.

In the energy sector, such practices negate the aim of the competitive selection process to provide electricity users with the lowest-priced electricity.

Umbrella group Power for People Coalition said the petitions of SMC Global Power units South Premiere Power Corporation and San Miguel Energy Corporation have submitted a P4.30 per kilowatt hour to seal the PSAs.

Yet, it filed last year petitions for adjustments in the terms of its PSAs that violated its nature of straight pricing.

SMC Global Power cited a “change in circumstance” provision in its PSAs to back its petition with ERC.

Center for Energy, Ecology and Development, a private think tank, released figures showing that based on the SMC petitions for SMEC’s Sual coal and SPPC’s Ilijan natural gas plants, consumers will be shelling out P33.76 to as much as P168.80 per month more on their electric bills.

For an average consumption of 200 kilowatt-hours, an additional P67.52 is expected on electricity bills or P48 for coal charges and P19.52 in gas costs.

Consumer groups called the SMC Global Power maneuver to obtain the PSAs by resorting to “promo price.”

“We should investigate SMC for this pricing scheme, where you have (SMC president Ramon) Ang himself admitting they priced it very low to be competitive,” P4P Coalition convenor Gerry Arances said.

A former official whom Daily Tribune talked to said the practice of flooring their offers to obtain a contract happens not only in the power sector.

Arm-twisting gov’t

The contractors thereafter rely on the government to compel consumers to shoulder their added expenses and make good on their profit.

PSAs are the products of public bidding, subject to the competitive selection process rules.

“If SMC can’t sell electricity at its bid price, then another bidding should be held instead of forcing consumers to pay at a higher rate. You don’t give your introductory offer to beat the competition and then change the price after,” Arances said.

SMC said in a statement that it already absorbed P10 billion in losses as a result of the added costs from the global fuel cost increases and the disruptions in natural gas supply from the Malampaya field.

“In consideration of the difficulties the country experienced from the pandemic, the company had already decided to absorb more than P10 billion in losses last year, which it did not file a claim for after coal prices averaged $176 per metric ton in the second half from just $99/MT in the first half of 2021. Average coal price in 2019 and 2020 was only at $69/MT,” SMC president and chief executive officer Ramon S. Ang said.

“Unfortunately, those prices have increased by over 500 percent since then. We are not asking to recover all our losses, and nor are we asking for a permanent increase. We want to continue supplying Meralco with baseload power. What we are asking for is just a temporary and equitable relief, to allow the power facilities to survive this difficult period and continue supplying power to Meralco,” he said.

SMC Global Power is asking the Energy Regulatory Commission for a rate increase from January to May 2022, of P0.80/kWh (from P4.3 to P5.1/kWh) for its 670 MW of contracted baseload capacity from the Ilijan Plant, and an average of P4.0/kWh (from P4.3 to 8.3/kWh) for the 330 MW contracted baseload capacity from the Sual Plant. Overall, the company is looking to recover from P5.2 billion in losses for the period January to May 2022. The net rate impact however to Meralco, assuming that this cost recovery claim is granted by the ERC, is just P0.28/kWh over a period of 6 months.

No one to blame for the loss

Arances, however, said if SMC invested more in renewable energy, then consumers would have cheaper electricity and they would not have lost so much money betting on fossil fuels.

“But of course, profits are more important than public service for SMC, even if they insist on entering the field of public utilities. It’s time they learn what it means to give public service,” Arances added.

Arances also criticized SMC’s remarks on the pricing of the Sual and Ilijan power plants in their PSA.

SMC said the PSAs were priced very low to “benefit consumers” but it now complains of a P15-billion loss to the company.

“SMC, against all reason, decided to invest in fossil fuels. They knew prices of imported coal and gas are subject to supply disruptions and fluctuations on the world market, and Malampaya would dry up soon. They knew fossil fuels pollute the environment,” Arances said.

Arances said they pursued their projects knowing they can always hold the consumer hostage to pay for their mistakes.

“The government should not allow them to continue with this business model,” Arances explained.

P4P has consistently criticized the reliance on fossil fuels, first on coal, then liquefied natural gas for the country’s power grid instead of using renewable energy.

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