IT’s “grossly unfair” for a Generation Company (GenCo) to appeal a temporary suspension of the “fixed price clause” in their Power Supply Agreement (PSA) contract with a Distribution Unit due to the spiraling global fuel cost, Sen. Sherwin Gatchalian stressed Saturday.
In an interview, the senator also said the Energy Regulatory Commission (ERC) should not allow, and must reject, any appeal from a GenCo for temporary relief on the fixed price clause in a PSA contract, saying it would set a “bad precedent” and a negative impact on investors.
“You made the commitment for the fixed price, so you (GenCo) should stand by that commitment,” said the chair of the Senate Energy Committee.
According to Gatchalian, the latter PSAs were all subjected to a competitive selection process as they underwent bidding.
He noted that the goal in the competitive selection process is to lower prices that will be passed on to the consumers.
“They were given free hand to compete and propose innovative ways of bringing down prices,” said Gatchalian.
“They were also given free hand to innovate, to propose how to lower costs so that the consumers will enjoy lower electricity price,” he stated.
One of the innovations they proposed, Gatchalian said, is the fixed pricing mechanism, “which connotes 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 enjoy 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 (costs). Pagalingan na lang sila in terms of hedging,” the returning senator explained.
During talks with the GenCos, Gatchalian said he was informed that they “buy forward” and buy cheap coal. But from the consumer’s standpoint, the senator said they should only pay a fixed price.
While electricity prices right now are going through the roof, Gatchalian asserted that it’s still not fair and just for GenCos to appeal or ask the regulatory body to stop the fixed price mechanism because of the current high prices.
“That’s unfair because during the low fuel price (period), you enjoy the fruits of low fuel price. So that during the high price, you cannot come to a regulatory (body) and re-negotiate because that’s your commitment to the consumers and that’s how we share the risk,” he pointed out.
At the same time, Gatchalian said the welfare of the consumers should always prevail over a GenCo despite their PSA contract.
“That’s the reason why they allow fixed pricing. It came from GenCos and not the consumers. They were given the opportunity to come up with innovative products.”
Pressed if there’s any irregularity with Manila Electric Co. (Meralco) and other GenCos, Gatchalian said so far, he has not found any.
“Wala naman ako nadetect, especially the latter PSAs, which were all won by San Miguel. In my observation, it’s competitive and it’s quite laban-laban,” he said.