ERC must serve consumers
The pernicious pass-through provision in power supply agreements can be removed and wiping it off is within the bounds of the authority of the Energy Regulatory Commission.
The condition which is attached to the contracts allows generating companies to apply higher costs of fuel on their charges that will ultimately be paid for by consumers.
An energy sector expert said the removal of the pass-through fuel cost provisions in Power Supply Agreements would ensure the least cost for consumers.
It is the provision that San Miguel Corp. energy unit San Miguel Global Power wanted to exploit for its petition with ERC for a temporary and “equitable” relief in back-to-back petitions to recover P5.2 billion through add -on in the monthly bills and an increase in the tariff under a PSA with Meralco.
San Miguel Global Power had sought the recovery of the huge amount within six months via the pass-through charges.
It cited soaring coal prices and unilateral Malampaya gas supply restrictions for the petition.
SMC Global Power is also seeking ERC’s approval to amend its tariff and collect an additional P4 per kilowatt-hour for the Sual coal plant and an additional P0.80 per kilowatt hour for the Ilijan natural gas facility.
In what sounded like blackmail, the petitioner said the adjustments are necessary for the power plants to continue supplying power to distributor Meralco.
The PSAs that SMC Global Power’s generating companies signed with Meralco provided for a fixed price that should stay as it is since the contract holders should have been aware of the risks involved, according to the energy expert.
“They knew the commercial risks that came with the power supply contracts and their bids were supposed to reflect these risks,” the energy expert noted.
Freeing the pass-through for imported fuel costs through an ERC directive avoids the backlash from volatile commodity markets, providing valuable price stability.
Coal power generation facilities such as Sual which is run by San Miguel Energy Corp, have been affected by the upswing in global prices of coal as a result of the supply chain crisis brought about by the perfect storm created by the Eastern European conflict and the still persistent lockdowns in some countries afflicted by Covid.
SMEC is also seeking a rate increase with the ERC.
The industry source said the power producers must absorb fuel costs since the pass-through process merely transfers the risk of entering the contract to end-users.
“The choice is to use coal as fuel. They could have chosen natural gas or renewable energy. It’s imported, and you have to bring it to the Philippines and these entail risks,” the expert explained.
The point is that like any other business deal, the PSAs are not risk-free.
Granting rate adjustment o money-losing contracts, under the guise of the jack-up being temporary, results in the electricity users being the eventual losers.
It gets worse, since granting the SMC petition would open the floodgates to similar claims of four independent power producers who also have similar PSAs.
It is ERC’s call on whether it will protect the welfare of big businesses or that of the already suffering consumers.
“Freeing the pass-through for imported fuel costs through an ERC directive avoids the backlash from volatile commodity markets, providing valuable price stability.
“It gets worse, since granting the SMC petition would open the floodgates to similar claims of four independent power producers who also have similar PSAs.