SMC wants ‘pass on’ power provision

September 22, 2022

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.

“A pre-determined allowable escalation clause not greater than 3.5 percent annually beginning the second contract year,” was included.

“In other words, generation companies may no longer pass-on fuel and currency exchange risks to consumers,” according to Arances.

Arances then showed tables indicating the volatility and costliness of generation charges from January 2019 to July 2022, which were purchased from PSAs with two-part tariff structure.

It showed fossil gas generation rate as fluctuating to as high as P9.991 per kilowatthour kWh in November 2020, while coal generation rate fluctuated to P63.9789/kWh in April 2022.

The tables showed power rates from PSAs with straight energy pricing remained well-below P5/kWh, and those from a straight energy price with no escalation clause at P3.6779/kWh.

Meralco’s six PSAs with straight energy pricing and a total contracted capacity of 1,700 MW comprise nearly a third of its total contracted capacity.

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

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