San Miguel Corp. energy affiliate SMC Global Power's effort to free itself of the power supply agreement with Manila Electric Co. was meant for it to break free from the straight pricing scheme that has kept electricity bills lower than those outside of the power distributors' franchise area.

Straight pricing does not allow the pass-through provision in which contractors collect extra charges from electricity users.

The standard tariff or pricing structure in most PSAs are two parts, comprising of fixed costs which are capital recovery fees, and operations and maintenance, and variable costs involving operations and maintenance, and fuel costs.

The Institute for Energy Economics and Financial Analysis and the Center for Energy, Ecology, and Development have cautioned against the two-step tariff structure, including higher fixed capital costs in cases of lower utilization factors, and higher variable costs in cases of spikes in fuels and exchange rates.

"Thus, risks from an economic downturn such as the pandemic or from global shocks such as the Russia-Ukraine war are all shouldered by consumers, while generation companies which insist on operating fossil fuel power plants continue to rake in profits," according to Power for People convenor Gerry Arances.

"Pass-on provisions in majority of PSAs transfer fuel and foreign exchange risks to consumers, except for Meralco's six straight pricing PSAs," according to consumer rights advocates.

"It is because of these 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," according to Arances.

"In fact, SMC Global Power is now claiming to have lost P15 billion due to these PSAs," he added.

CSP religiously followed

In 2019, Meralco conducted two public bidding or competitive selection processes which mandated a straight energy price instead of a two-part tariff structure.

In Meralco's straight energy price, a minimum energy off-take or a take-or-pay portion of the contract capacity was provided.