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Energy Regulatory Commission ignored impact of power rate hike–SMC unit

THE Energy Regulatory Commission (ERC) “chose to look the other way” when it ruled against the petition for a temporary relief to recover part of the P15 billion in losses incurred by the units of SMC Global Power Holdings Corp. (SMCGP), the power arm of conglomerate San Miguel Corp. (SMC) said Monday.

“ERC was made aware of the looming power rate hikes. It was also made aware of how it can ensure that the public gets the lowest possible rate while energy players continue to supply power viably amid rising geopolitical risks beyond anybody’s control. Yet, it still chose to look the other way,” said SMCGP.

The company’s statement was issued a day after President Ferdinand R. Marcos Jr. said he was hoping that the Court of Appeals (CA) would reconsider the “unfortunate” ruling of its 14th Division regarding a 60-day temporary restraining order (TRO) in favor of South Premier Power Corporation (SPPC). The TRO, in effect, suspended the implementation of SPPC’s power supply agreement (PSA) with Manila Electric Company (Meralco).

Consumer advocacy group Infrawatch commented, however, that the President “should allow full judicial proceedings to take its course,” and that  “his views may ably be represented through ERC lawyers and the Solicitor General.”

The ERC’s September 29 order denied the rate hike joint petitions of SPPC, San Miguel Corporation (SMEC), and Meralco for price adjustments to serve as temporary relief covering a combined P5.2-billion losses incurred from January to May 2022 due to the unprecedented spike in fuel prices.

According to the ERC, their plea for price increase was denied because the agreed price in the PSA is fixed in nature, and the grounds for increase cited by SPPC and Meralco were not among the exceptions that would allow for price adjustment.

Chairperson Monalisa Dimalanta expressed grave concern on the impact of the TRO, saying this will expose approximately 7.5 million Meralco customers  to higher electricity prices.

‘Least costly option’

However, SMCGP said ERC “knowingly exposed public to much higher power rates.”

“In our joint petition before the ERC, Meralco already provided the Commission with in-depth computations and projections showing that granting the temporary rate hike would have been the least costly option for power consumers. It would also be beneficial in the long term, as it would preserve the fixed-rate PSAs,” SMCGP said.

Further, SMCGP said the projections were reviewed and validated by the ERC’s Regulatory Operations Service (ROS). “And yet, the ERC Chair and two Commissioners denied the petition, forcing us to continue to absorb losses, and essentially preventing us from exercising our legal options, clearly laid out in the PSAs, to preserve our financial standing. This, despite, two other commissioners delivering strong dissenting opinions,” said SMCGP.

While the company recognized that it is ERC’s responsibility to ensure the least cost of power for consumers, SMCGP said the agency should have taken this into consideration when reviewing the merits of, and deciding on the joint petition.

“Everyone—including Filipino enterprises—is entitled to a fair hearing by an independent, impartial tribunal. We believe the ERC decision, which forces us to continue absorbing billions in losses in the face of a continuing war in Ukraine and escalating global fuel prices, is against its mandate.

“Going to the Court of Appeals is part of our right to due process among the legal remedies provided to us by the Constitution. We recognize and respect the independence of the judiciary as part of our system of check and balance,” said SMCGP.

When sought for comment, the ERC said it “will wait for the CA to decide,” while reiterating that “this misinterpretation of the simulations of ROS will be clarified” when it submits its comments to the CA.

“ERC is confident that the Fourteenth Division of the Court of Appeals, consistent with existing jurisprudence, will accord great respect, if not finality, to the regulator’s factual findings because of its special expertise over the energy sector,” Dimalanta had said.

Meanwhile, the petition for certiorari of SMEC is pending with the 17th Division of the CA.

The Solicitor General has been in communication with the ERC on the steps to be taken to lift the TRO, according to the Department of Energy (DOE).

DOE, Meralco coordinating

“The DOE is also coordinating with Meralco, the independent market operator, and all concerned, particularly on the contingency measures,” said DOE Secretary Raphael Lotilla.

The DOE also said the TRO does not provide the distribution utilities and all other parties concerned with adequate time for preparation. “As the ERC explained, the PSA would have required prior notice to Meralco in case of a pre-termination,” added Lotilla.

Meralco, for its part, said it has already received an official copy of the TRO. “We are reviewing the Resolution in consultation with our counsel to determine the next steps,” it said.

Also, Meralco wrote the DOE to follow up on its previous letter requesting for CSP (Competitive Selection Process) exemption of certain emergency PSAs that are ready to be implemented to shield its customers against volatile and potentially higher WESM (Wholesale Electricity Spot Market) prices.

Meralco earlier forged emergency PSAs or EPSAs with other power suppliers to ensure continuity of stable, reliable and adequate supply to its customers.

Meralco First Vice President and head of regulatory management Atty. Jose Ronald V. Valles said Meralco it had received five lowest EPSA offers from Consunji-led SEM-Calaca Power Corporation (SCPC-Calaca)-200 MW; GNPower Dinginin Ltd. Co. (GNPD)-300 MW from Aboitiz Power Corp.; Masinloc Power Partners Co. Ltd (MPPCL)-250 MW; SMC Consolidated Power Corp. (SCPC-Limay)-200 MW; and South Premiere Power Corp. (SPPC)-120 MW.

MPPCL, SCPC, and SPPC are units of SMCGP.

However, SEM Calaca withdrew its offer due to “technical issues in its power plant, specifically that of Unit 2.” Thus, after immediately conducting rate simulations, Meralco said it will replace the 200 MW that should have been provided by SEM Calaca from the WESM as it has the lowest cost to Meralco’s customers, instead of taking such capacity from the other power suppliers that had the next lowest EPSA offers.

“We are hoping for the swift action of the DOE in exempting the EPSAs from undergoing CSP. Without these EPSAs, our customers may become exposed to volatile prices,” said Valles.

Bottomline: Steady power supply

A lawmaker, meanwhile, said all parties involved must work on ensuring a steady supply of electricity amid the legal tussle.

“Pending the final resolution of the case, DOE, ERC, Meralco, and SMC must see to it that a steady supply of electricity is maintained and that there are no significant power interruptions,” Senator Sherwin Gatchalian said.

According to Gatchalian, he will closely monitor the resolution of the case given that it will determine whether fixed price contracts of PSA can be changed or not.

“This case will set a precedent for the energy sector as to whether or not power-generating companies along with distribution utilities could revise power supply contracts with fixed prices. We hope that at the end of the day, consumer interest will be protected,” he said.

The ERC’s decision stemmed from a contract entered into in 2019 by SPPC and SMEC for fixed-price agreements to supply energy to Meralco consumers—one with its Sual coal-fired power plant in Pangasinan and the other with Ilijan natural gas plant in Batangas.

At the time the deal was made, coal prices were around $65 per metric ton and have since risen to over $400/MT. Also, thinning supply from the Malampaya natural gas field resulted in San Miguel buying power from the spot market.

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