Consumers question SMC power deal

San Miguel Corp. has won its way to a new contract with Manila Electric Co., or Meralco, which will face challenges from consumer groups.

The new power supply agreements will be questioned before the Department of Energy even as the Court of Appeals decision upholding the voiding of an Energy Regulatory Commission, or ERC, rejection of a temporary adjustment petition from two energy units of the conglomerate despite a fixed-price contract, is elevated to the Supreme Court.

A straight pricing contract does not allow adjustments to the agreed price in the PSA that are favorable to consumers. This is because pass-through pricing, in which consumers absorb increases through higher electricity bills, is not allowed.

Meralco is currently conducting a competitive selection process, or CSP, for power requirements amounting to 1.8 gigawatt, or GW, and 1.2 GW. SMC subsidiary South Premiere Power Corp., or SPPC, won recently the Meralco supply deal for 1.2 GW.

“The contracts will be grossly disadvantageous to consumers. It paves the way for passed-on charges to consumers. It is favorable to fossil fuel plants, which are to blame for high electricity prices and red alerts, especially during the summer season, and are extremely vulnerable to global market fluctuations,” Gerry Arances, Power for People, or P4P, convenor said.

SPPC operates the Ilijan natural gas plant, the biggest such facility.

In 2019, Meralco released two tenders using “prudent energy sourcing practices” and pro-consumer terms of reference, such as straight energy price with no automatic fuel pass-through, Arances recalled.

PSA terms

SMC, however, petitioned the ERC in October last year to collect from consumers P5.2 billion in claimed losses from its use of gas and coal. The price adjustment seeks to let SMC change the terms of its PSA with Meralco, which committed to SMC in 2019 to give consumers a fixed price on electricity.

“Meralco already made ways forward in the past. But its responsibility to provide pro-consumer services and pro-consumer electricity is not a one-off thing,” he added.

P4P has filed letters before the Department of Energy to protest the tender’s terms for violating the least-cost provision of the Electric Power Industry Reform Act, or EPIRA.

“Consumers have a basic right to affordable electricity,” Arances said.

The Court of Appeals issued a temporary restraining order that was upgraded to an injunction order to freeze the ERC decision that, in turn, SMC used to unilaterally rescind the PSAs. The CA last December issued a final decision throwing out the ERC decision.

Thus, SMC was able to disregard provisions of the contract that provided for a P255-billion penalty in case of default.

Arances said his group condemned the decision of the 13th Division of the CA which allowed SMC to violate the terms of the PSA and raise electricity rates in the Meralco franchise area.

“The decision of the CA allowed SMC to pass billions of extra charges - P5.2 billion based on SMC’s petition — on to electricity consumers in defiance of a public contract that forbade it and in the absence of proof of losses on the part of SMC and Meralco,” Arances pointed out.

“The ERC correctly rejected the petition because SMC could not show sufficient proof that the PSA it freely entered into with Meralco, which set fixed rates instead of passing on fuel costs to consumers, should be changed,” the consumer welfare advocate said.

He added: “That agreement protected the consumers of Meralco at a time when every other distribution utility in the country was raising prices due to the spike in the cost of fuel in the world market.”

Bad precedent

The decision, if left to stand, would set a dangerous precedent that would allow energy companies to escape responsibility under their PSAs and pass on the cost of their mistakes to consumers, Arances warned.

“SMC made a risky business decision betting on gas. It could have chosen an energy source with a more stable supply and price like renewable energy. The CA decision says that energy companies do not have to take responsibility for their decisions because consumers can absorb the costs,” he said.

“The CA, in effect, is saying that it is okay to walk away from a public contract like a PSA if things do not suit you. A PSA is a contract imbued with public interest. It should not be discarded simply because one party is losing money from its own decisions. The consumer welfare must be paramount, but the CA says otherwise,” he added.