Carousel ride, SMC style

President Ferdinand “Bongbong” Marcos Jr. gave energy companies a directive last Friday to ensure “reliable power at all times,” as the country takes firm steps toward an economic boom starting this year.

Reliable power entails the most affordable electricity that is mandated under the least-cost provision of the Electric Power Industry Reform Act, or Epira.

To ensure that consumers are getting the best price for electricity, the Department of Energy came up with the competitive selection process, or CSP, for all contracts.

The private sector then took the cue and power distributors like Meralco required straight pricing in power supply agreements, or PSA, which means that the supplier can’t jack up electricity costs and pass these on to consumers.

Conglomerate San Miguel Corp. then forayed into power generation and as in any business that it entered into, it was soon a dominant force in the energy industry.

Fixed-price PSAs were auctioned off in 2019. SMC won two contracts by driving down its bid price to knock off competitors’ bids that were more grounded in reality.

Subsequently, SMC’s ploy to obtain the contracts was revealed as it sought from the Energy Regulatory Commission the losses it supposedly incurred due to the low price it had committed to in the PSAs.

Some of the participants in the CSP had expressed doubt that SMC could meet the PSA straight-pricing condition that bars pass-on charges but SMC president Ramon Ang defended the company’s decision to obtain the new contracts.

After SMC successfully won the bid, Ang said: “Actually, we were hesitant to join the bidding. There was no fuel pass-on, the risk was too high. But I know Meralco was trying to protect the consumers.”

Four years later, SMC discarded the contract using a court-issued temporary restraining order that effectively suspended the PSAs.

The PSAs then were auctioned off in response to the rising energy demand as the economy was on an unprecedented momentum.

Then Energy Secretary Al Cusi recognized the need to ramp up the power supply and pursued power development which had been stalled for several years.

Cusi issued in 2018 the DoE circular requiring the CSP, which the Supreme Court later upheld after it was challenged by big business.

The SC in upholding the CSP ordered that all PSAs submitted to the Energy Regulatory Commission undergo the process.

SMC through its energy subsidiary, San Miguel Global Power, won two PSAs for its power plant operators South Premiere Power Corp. and San Miguel Energy Corp.

The PSAs have a provision that holds generation companies liable for fines if they default on the supply. The penalties would be used to reduce the generation cost to consumers.

With the straight pricing contracts, the electricity rates were guaranteed to be free from spikes that previously had resulted in astronomical increases in the monthly bills of electricity users.

For the 1,200-megawatt PSA with straight pricing, the projected savings were around P13.86 billion per year, or a rate reduction of 41 centavos per kWh.

Four years after the bid, SMC claimed it had incurred P15 billion in losses due to a “change in circumstances” and sought a revision of the PSA terms with the ERC.

Failing to get what it wanted, SMC went straight to the Court of Appeals which promptly issued a restraining order and later a writ of preliminary injunction giving SMC a way to escape the PSAs.

The statements issued by SMC defending its petition to the ERC were a complete turnaround from what it had stated four years ago — that it was taking a risk in acquiring the contracts because it would benefit consumers.

Now, it wanted the consumers to pay for its losses due to bad business decisions.

SMC through the years has only unveiled its greed for profit that has upstaged its pretensions of promoting the public welfare.