Win: GenCos ‘grossly unfair’ to appeal PSA fixed price clause
It is “grossly unfair” for a production company (GenCo) to appeal a temporary suspension of the “fixed price clause” in its power supply agreement (PSA) contract with a distribution unit due to of skyrocketing global fuel costs, said Senator Sherwin Gatchalian. .
In an interview over the weekend, the senator also said the Energy Regulatory Commission (ERC) should not allow – and must reject – any appeal by a GenCo for temporary relief from the release clause. fixed price in a PSA contract, saying it would set a “bad precedent” and negatively impact investors.
“You made the commitment for the fixed price, so you (GenCo) must honor that commitment,” the Senate Energy Committee Chairman said.
According to Gatchalian, these latest PSAs all went through a competitive selection process during the bidding process.
He noted that the objective of the competitive selection process is to drive down prices which will be passed on to consumers.
“They were given carte blanche to be competitive and come up with innovative ways to bring prices down,” Gatchalian said.
“They’ve also been given carte blanche to innovate, to come up with ways to cut costs so that consumers benefit from lower electricity prices,” he said.
One of the innovations they came up with, Gatchalian said, is the fixed pricing mechanism, “which involves a fixed price for a period of time,” he said.
“If the actual price of fuel, for example coal, is lower than the fixed price, the GenCos will profit from the difference between the fixed price and the actual price. But if the price of fuel goes up, the Gencos take that risk. They will absorb (the costs). Pagalingan na lang sila in terms of coverage,” the returning senator explained.
In discussions with the GenCos, Gatchalian said he was told they were “forward buying” and buying cheap coal. But from the consumer’s perspective, the senator said he should only pay a fixed price.
With electricity prices currently skyrocketing, Gatchalian asserted that it is still not fair and equitable for GenCos to appeal or ask the regulator to stop the fixed price mechanism due current high prices.
“It’s unfair because, during the (period) of low fuel prices, you enjoy the fruits of low fuel prices. So during the high price you can’t go to a regulator and renegotiate because that’s your commitment to consumers and that’s how we share the risk,” he stressed.
At the same time, Gatchalian said consumer welfare should always prevail over a GenCo despite their PSA contract.
“That’s why they allow fixed prices. It came from GenCos, not consumers. They had the opportunity to offer innovative products.
Pressed if there is any irregularity with Manila Electric Co. (Meralco) and other GenCos, Gatchalian said so far he has found none.
“Wala naman ako nadetect, especially the latest PSAs, which were all won by San Miguel. In my opinion, it’s competitive and it’s pretty laban-laban,” he said.