“Instead of increasing the burden of consumers with another round of power rate increases, GenCos are utilizing their 2020 profit bulge to absorb the current global fuel price increase, rendering the PSA fixed-rate scheme relevant and manageable”.
By Richard Orsino
When generation companies (GenCos) made their bids and won their Power Supply Agreement or PSA contracts in 2019 with Meralco, it was understood they made a calculated risk on their profit margins even during all-time high oil price hikes.
Understandably, Meralco’s clientele must accept that in exchange for protection from unstable power generation cost.
That PSA contracted GenCos should earn their legitimate profits when global fuel price lingers at the lower range. Fair enough, right?
That is the essence of the PSA.
It fairly guarantees benefits to all parties involved: Meralco as the distributor, its subscribers as the end users of the PSA’s fix-rate scheme, and power generators like the Ayala’s AC Energy, Inc (ACEN), First Gen, and two other GenCos.
The overall objective of the deal is to keep prices of electricity affordable and stable to industrial, commercial, and domestic end-users.
This way, it eliminates the need for businesses to pass on the burden of rising electricity costs to the general public.
Through the fixed-price clause, the PSA empowers the consumers by lessening their worries on electricity bills even if the prices of fuel suddenly go up in the global market.
COVID-19 pandemic hit the country in 2020. The global pandemic caused fuel prices to crash. With fixed PSA prices and fuel costs lower, the margins became wider.
This caused windfall for profits for GenCos, even if overall demand was lower due to the lockdowns.
With only Authorized Persons Outside Residence (APOR) allowed to travel, Work-From-Home, Online Schooling became a new trend, thereby increasing households’ consumption of electricity, which created an opportunity for GenCos to earn their due profits. Fair enough!
2020 onwards were already times of great trials to all Filipinos.
When the conflict in Ukraine broke out, we were suddenly confronted by successive increases in oil prices. Without the PSA, this trend may already have triggered rounds of more power rate increases.
It is actually a blessing that we have the PSA that protects consumers from the necessities of adjusting power production costs due to high cost of fuel.
Fortunately, we have kind-hearted GenCos like the Ayalas’ ACEN, Lopezes’ First Gen, and two others that are still upholding their commitment to the PSA, which people direly need as a relief to the current price increase of petroleum products.
I can only speculate, instead of increasing the burden of consumers with another round of power rate increases, GenCos are utilizing their 2020 profit bulge to absorb the current global fuel price increase, rendering the PSA fixed-rate scheme relevant and manageable.
Indeed, profit windfall serving as cushion for rainy days. Windfall profits in 2020-2021 are helping them weather 2022. It’s a ten year contract, which means there are seven more years to even out their profit. No need to be in a hurry to make money.
With such display of outstanding corporate compassion, it will seem wise for the administration of President Ferdinand Marcos, Jr. to recognize the GenCos’ commitment to the PSA to maintain the beneficial role in stabilizing power rates in the country.
This ultimately benefits consumers besieged with economic challenges.
Kudos to ACEN, First Gen, and the two other PSA contract holders.
(Richard Orsino is a retired executive who worked 30 years in the telecommunications industry)
