CONGLOMERATE San Miguel Corp. (SMC) did not terminate the power supply deals with the Manila Electric Company (Meralco), but said on Tuesday it will exhaust all legal remedies to continue supplying power to the utility firm while fulfilling its responsibilities to its shareholders.
“We will do everything we can to make sure Meralco’s energy supply is not disrupted. Despite the present challenges, we will never withhold our available power capacity to the detriment of the country and the consumers,” SMC Global Power Holdings Corp. said.
SMC Global Power’s two units and Meralco were not allowed by the Energy Regulatory Commission (ERC) to temporarily implement an upward adjustment in their previously approved power rates. SMC had warned earlier that it would be forced to terminate starting October 4 the power supply deals (PSAs) entered into with Meralco should the ERC deny the joint plea, as it had been absorbing billions in losses.
A day after the ERC announced its decision, SMC said it regretted the agency’s denial of the joint petition for temporary relief on their 2019 PSAs, “not so much for our own interest but more for the consumers.”
However, it said, “given the circumstances, we will continue to explore other legal remedies to allow us to sustainably provide for the increasing power needs of our country while meeting our obligations to our various stakeholders.”
The joint petitions involved a temporary and partial cost recovery relief only for the losses incurred by South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC) from January to May 2022, to be amortized over a period of six months. They initially pegged the temporary adjustment to only 30 centavos per kilowatt hour (kWh).
SMC Global Power said the temporary relief would have enabled it to preserve a few of the last remaining fixed-rate PSAs of Meralco that are responsible for keeping power rates in Metro Manila low compared to other parts of the country, amid surging global fuel prices.
Based on Meralco’s own computation—validated by ERC’s Regulatory Operations Office—SMC Global Power stressed that the interest of the consumers would have been best served with the approval of the petition.
“The ERC-ROS itself confirmed that the commission does not have any other data or information that could contradict or disprove the computations and simulations submitted by Meralco. We believe these numbers speak for themselves.
“The ERC, armed with such data, knows too well that denying the petition will not only cripple us, but more importantly, burden consumers who will have to face higher electricity bills,” SMC Global Power said.
‘Just and necessary’
ERC commissioners Alexis Lumbatan and Marko Remeo Fuentes, who opted to grant the petitions of SMC and Meralco, said in their dissenting opinion that they find it just and necessary under the circumstances to grant the joint motion to cushion the impact of high cost of fuels and so as not to disrupt the basic and essential services.
“We have no reason not to accept the simulations made by Meralco as reasonably true and vaild as the same are independently corroborated by ROS. The copious, clear, and convincing evidence presented by the applicants are undeniably vital insofar as the resolution of the instant matter is concerned,” they said.
The ERC, however, said that it has no basis to approve the proposed recovery of billions of pesos in light of the parties’ own admission that the “corresponding data thereof is yet to be generated/gathered as of date.”
The joint plea cited the “Change in Circumstance” provisions in their PSAs. They argued that the global increases in fuel and coal prices have led to SPPC and SMEC incurring significant losses in operating their power stations, and such justified their proposed rate increases.
SMC said the power plants have already posted staggering losses of P15 billion and the companies absorbed more than P10 billion of the losses that were incurred last year.
“The rate impact simulations presented and submitted in evidence by Meralco clearly are indicative that the denial of the CIC claims would even expose the consuming public to unknown and even higher rates than granting the same, both in the short-term and in the long-term [until 2029]. And we, in the commission, should not allow such eventuality.
“The dissenting minority recognizes that all these date and information made available to the commission are all indicative based on the view of industry experts, less than conclusive but definitely better than taking it on chances,” Lumbatan and Fuentes said.
Meralco earlier projected an estimated P1.6-billion incremental burden to consumers if it will source from the Wholesale Electricity Spot Market (WESM), as it expects WESM rates to be higher by P2.94 per kilowatt hour versus the rates of the SMC PSAs.
It also estimated a P25.8-billion incremental burden to consumers if the PSAs are terminated and Meralco opts to secure replacement PSAs through conduct of CSP covering the remaining term up to 2029. The replacement tariff under the replacement new PSA will be P2.24 per kWh higher than estimated 2023-2029 rates of the SMC PSAs sought to be replaced.
Moreover, the burden to consumers could even reach P12.6 billion if the PSAs are terminated and Meralco opts to secure emergency PSAs through DOE exemption from CSP covering one-year term. The expected tariff under the replacement emergency PSAs will be P3.49 per kWh higher than the rates of SMC PSAs sought to be replaced and P1.92 per kWh higher versus rates of the SMC PSAs even if the CIC claims are approved.
However, the ERC said the figures in Meralco’s presentations on the price impact of PSA terminations appear to have been deliberately picked to present an aggravated picture of the termination scenarios.
According to ERC Chairperson Monalisa C. Dimalanta, “The role of the regulator is always a balancing act. The Commission deliberated on many occasions on these Joint Motions, fully conscious that the consequences of the ruling go beyond the businesses of the immediate parties but will extend further and demonstrate how we, in the Philippine power industry, honor the sanctity of contracts, uphold the results of bidding process, and hold ourselves accountable to all stakeholders.
“We were mindful as well of the limits of regulation. As we protect consumer interests, our rulings cannot be oppressive to business. We tried, as we ruled on these Joint Motions, to decide on the basis of the clear terms of the PSAs that the parties signed up for, and on the basis of law.”