Reforms hijacked

Since it dominated the power sector anyway, it obtained new cheaper contracts through the emergency PSAs bid out by Meralco.

In the Electricity Power Industry Reform Act, or Epira, the guiding principle is the least cost of power for consumers which was effectively pursued through the competitive selection process which was made permanent in the industry during the previous administration.

Meralco, the power distributor, introduced the straight pricing scheme in the power supply agreements or the contracts it bids out to prevent fluctuations in electricity prices due to factors beyond the control of the generating companies, or gencos, such as spikes in fuel prices as a result of geopolitical shifts.

The presumption on those who will participate in the bid for the fixed price PSAs is that they will shoulder the risks and it will be up to them to hedge or undertake measures to address upswings in costs.

That was the arrangement in the PSAs with San Miguel Corp.’s gencos, Sual coal and Ilijan natural gas plants.

When the price of coal surged after the conflict between Russia and Ukraine erupted, and Malampaya started to restrict supply as it was being depleted, SMC complained of piling losses to the extent of P15 billion.

Stakeholders, however, said much of the ordeal of SMC in their claimed accumulated debts was self-inflicted due to poor decisions.

According to a representative of a consumer group, SMC never showed proof of the losses it cited, which in turn became the basis for its petitions for price adjustments with the ERC.

In October last year, the ERC dismissed the petitions of SMC and instead directed the company to fulfill its commitments in the PSA.

The spurned SMC went directly to the Court of Appeals, or CA, to contest the ERC ruling instead of filing a motion for reconsideration with the regulator.

Promptly, the CA issued a temporary restraining order which last month was upgraded to a permanent injunction that bars ERC from enforcing its quasi-judicial authority on SMC.

SMC, with the use of the court orders, unilaterally terminated its PSA with Meralco.

Since it dominated the power sector anyway, it obtained new cheaper contracts through the emergency PSAs bid out by Meralco.

SMC, thus, succeeded in getting what it wanted through the injunction power of the CA.

Consumer groups opposed to the rate increases that would result after SMC was freed from its contracts without any consequence branded the maneuver as SMC’s way of “ultimately hijacking power purchase bidding systems that are in place to protect consumers.”

The oppositor in the ERC case, Power for the People, deplored the way SMC won the deal to supply the same power requirement of Meralco for the shortage that it itself had caused.

“The spirit of competitive selection and least-cost electricity goes out of the window when companies like SMC are allowed to pull tricks like this,” P4P convenor Gerry Arances said.

P4P filed a motion for reconsideration of the CA’s injunction order. The consumer coalition was the only one left on the list of oppositors that had questioned SMC’s  “temporary” price adjustment petitions with ERC.

The others had dropped out, including the main complainant, for reasons they only knew.

“We are disappointed but not surprised at how the CA yielded to the arm-twisting of SMC so that it could hike prices and turn its back on its contracts. The decision will open the floodgates to higher electricity, as SMC and other fossil fuel power generators are now emboldened to ask for more rate hikes, and to participate and win auctions through bid prices far lower than what consumers will eventually be charged, knowing they can apply for and possibly secure price adjustments during their contracts’ lifetime,” Arances said.

ERC voiced the same apprehension in rejecting the SMC petitions, saying others hold the same straight-pricing PSAs but never sought a revision in the terms of their contracts.

Failed business decisions such as bidding too low just to obtain the PSAs should be the lookout and the burden of the contractor and not the electricity users who should be spared from paying for the consequences of bad business decisions.

Besides, SMC as the holder of the contracts should have been penalized with the proceeds from which used to ease the plight of consumers amid the high price of electricity.

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