Happy, sad New Year

We welcomed the New Year from exactly where we left the old one off, on shaky ground.

As if inflation and skyrocketing prices of basic food commodities like rice, fish, meat, and vegetables were not enough, our power bills have also gone up, and are expected to go even higher, with no definite end in sight.

Just recently, the Manila Electric Co. (Meralco) confirmed what many warned about as early as before the last trimester of 2022 - its overall power rate has increased by P0.6232 per kilowatt hour.

With that, an average household that consumes 200 kWh for the month would have to cough up an additional P125 to pay their bills.

This is due to the increase in generation charge to P7.1291 from P6.7975 in December, which independent power producers supply.

Even the Lopez Group’s First Gen Gas had to increase its charges since liquid fuel had become more expensive, partly due to Malampaya’s failure to supply natural gas to generation companies and many other events.

These are exactly the same reasons why SMC Global Power was essentially forced to withdraw from its fixed rate power supply agreement (PSA) with Meralco, which forced it to absorb significant losses for many months, worsened by Russia’s invasion of Ukraine and other countries’ crimping of fuel supply for their own use.

Last December was also marked with forced yellow alerts within the Luzon Grid despite a drop in demand, even as spot market charges shot up by P0.6808 per kWh.

But just like what Meralco has said in the past – it is a mere distributor and that its rates are determined by how much it buys power from those who generate it.

But the increase could largely have been tempered and would have been temporary had the Energy Regulatory Commission (ERC) granted San Miguel Global Power Corp.’s (SMGPC) and Meralco’s joint petitions to recover increased generation costs brought about by change in circumstances (CIC) via a staggered six-month increase in its pass on rate to Meralco.

Had ERC granted the petition, SMGPC would have preserved its fixed-rate power service agreements with Meralco which would have guaranteed Meralco customers a stable and more affordable price in the longer run.

Before it withdrew from its 670-megawatt fixed-rate PSA  with Meralco, a decision backed by the Court of Appeals, SMGPC had sought a mere 30-centavo per kWh increase in its charges for only six months, just to be able to recoup some of its losses, not all, due to the extraordinary circumstances that made the PSA unsustainable and untenable.

As the CA in its decision to issue a temporary restraining order that effectively allowed SMGPC unit South Premiere Power Corp. suspend the PSA with Meralco, even the ERC’s very own Regulatory Operations Service (ROS) validated the fact that granting the temporary increase would have been the least costly option for consumers.

The CA also cited the dissenting opinion of the ERC commissioners who were outvoted then, saying that they correctly pointed out that what remains to be clear in separate simulations made by Meralco is that granting the price adjustment was the cheapest option available.

For the first time, there was a tie when the ERC commissioners voted on the SMGPC-Meralco petition. The tie was broken when ERC chairperson Monalisa Dimalanta voted to reject it. But the ERC order not only denied the petitioned recovery of additional costs; it also prevented SMGPC from terminating its PSA with Meralco.

SMC president and CEO Ramon Ang earlier emphasized that what they were asking for was a mere temporary, equitable relief, given the undeniable and unforeseen circumstances that affected everyone including many economies worldwide, and not a permanent increase nor a relief from its contractual commitments with Meralco.

He also pointed out that unfortunately, despite being shown that granting the petition would have been the cheapest option for consumers, the ERC still denied the petition, fully aware that this would force SMGPC to either continue absorbing significant losses, which no company can sustain, or terminate the PSAs, which would ultimately lead to higher electricity costs for consumers: much, much higher than they were asking for.

SMGPC believed that the ERC acted with grave abuse of discretion when it prevented the PSA’s termination since it was a private contract with Meralco and so it went to the CA and filed a petition for certiorari and injunction with a prayer for the issuance of a TRO. The 60-day TRO was granted to afford SMGPC temporary relief and to avoid grave and irreparable damage to the company while the main petition has yet to be heard upon.

One SMGPC got court clearance, it terminated the PSA and stopped supplying power to Meralco, forcing the latter to buy power at higher rates from suppliers which of course both Meralco and ERC’s regulatory operations service already expected would happen.

Infrastructure-oriented think tank Infrawatch PH already warned of more expensive power rates as a direct consequence of the ERC’s rejection.

Infrawatch PH convenor Terry Ridon noted that Meralco now procures additional supply from the Wholesale Electricity Spot Market (WESM) at prices that are at least 75 percent more expensive than the price in the PSA.

Aboitiz Power, through its subsidiary GNPower Dinginin Ltd., has also entered into an emergency power supply agreement with Meralco covering 300 megawatts of the lost baseload capacity from the suspended PSA between Meralco and South Premiere.

The EPSA is in effect from December 2022 until Jan. 25, with a rate of P5.96 per kWh – much higher than the P4.2455 per kWh that SMGPC used to charge.

There are some supposed consumer groups which blame SMC for the electricity rate increase, saying it was due to the termination of the PSA with Meralco.

What they fail and refuse to mention is the fact that SMGPC used to supply the cheapest energy, until it could no longer bear the losses, and until it was left by the ERC with no choice but to tap out. They also failed to say that there are other big independent power suppliers that charge higher prices because their variable (as opposed to fixed) power supply agreements allow them to pass on additional generation charges to customers.

The fixed PSAs, contrary to what they are saying, were not designed to make the power generator absorb all the additional costs. The provision in the PSA regarding change in circumstances, such as the soaring coal prices due to the Russia-Ukraine conflict and the refusal of Malampaya to supply natural gas allowed SMGPC to recover the additional costs due to CIC and in case of failure to recover through higher rates, to terminate the PSA.

No company in its right mind would agree to absorb costs which are due to fortuitous events and due to circumstances which could not have been reasonably anticipated at the time the contract was entered into.

Many of these supposed consumer groups do not represent the consumers as they claim. Some are just vehicles for special interest. They are funded mostly by interest groups and foreign bodies which are not representative of the Filipino interest.

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