SMC Global Power Holdings Corporation (SMCGP), the energy investment arm of San Miguel Corporation (SMC), has formally lodged ‘notice of termination’ for two of its prevailing power supply agreements (PSAs) with Manila Electric Company (Meralco).
This move is SMCGP's ultimate recourse if the Energy Regulatory Commission (ERC) continue to ignore its petition for cost recoveries on its fuel usage to generate electricity.
“South Premiere Power Corp. and San Miguel Energy Corp., administrators of the Ilijan and Sual plants, respectively, had already issued notices of termination to Meralco of their power supply agreements -- citing unexpected and unprecedented ‘change in circumstance’ - including skyrocketing global fuel prices brought on by multiple factors including the war,” SMCGP has stipulated.
The company emphasized that the termination of the power supply contracts will be effective starting October 4 this year, “if no relief is given” – or if the ERC will not act favorably on its rate hike application.
In a text message, ERC Chairperson Monalisa C. Dimalanta conveyed “that’s what we wanted to address right away and we were scheduled to host tomorrow a clarificatory hearing on their (Meralco and suppliers’) recent filing with the Commission.”
But she stated that “with the work suspension given the typhoon, we are arranging for the holding of the hearing at the soonest possible time,” with the ERC chief stressing that ‘we also want to resolve this without delay and address similar issues brought to the Commission by electric cooperatives and stakeholders outside Metro Manila.”
The two subsidiary-firms of SMC earlier filed an application with the ERC for P0.30 per kilowatt hour (kWh) increase on its pass-on rate to consumers - and that had been primarily intended to recoup the upward adjustments on its cost of fuel purchases due to swelling prices in the world market.
“The temporary relief, if granted, would increase electricity prices in Luzon by only P0.30 per kWh over a period of six months,” the San Miguel firm has reiterated.
SMCGP added that “the temporary rate hike is meant to allow the Sual and Ilijan facilities to not only recover some P5 billion in losses; more importantly, it will ensure their fixed-rate PSAs are maintained over the longer term, and continue to mitigate the soaring cost of electricity for consumers.”
The company nevertheless qualified that “without it (cost recovery) and with a termination of the PSA, Meralco has estimated an increase of at least P0.80 per kWh up to P1.30 per kWh in the price of electricity over the next 3-4 months, as (Meralco) will have to find alternative sources that will most likely be costlier, including the Wholesale Electricity Spot Market (WESM).”
Ramon S. Ang, president of SMCGP, indicated that what his company has been batting for would be for the ERC to have “a fair and objective assessment of its petition.”
He further asserted “we know any price increase is unpopular, and normally we never ask for one--which is what we did for all of last year, when we absorbed expanding costs that we do not pass on to consumers.”
Ang opined that the Russia-Ukraine war “has taken prices far beyond what we and Meralco, could have even imagined in 2019 when we signed the PSAs,” emphasizing that the price forecast for coal then was just at the level of $65 per MT, a far cry from what it is today at over $400 per MT.
The rate hike application was filed in May, and it was mainly seeking a temporary rate increase within six-month duration for the combined capacities supplied by the Sual coal-fired and Ilijan natural gas plants to Meralco.
SMCGP expounded “should Meralco opt for emergency power supply procurement, the increase is expected to further go up with the weakening peso and surging global fuel prices,” emphasizing that the prevailing coal prices in the world market continue to surge above $400 per metric ton, hence, this could push electricity rates higher.
The company further sounded off expectations of “hefty price increases over the term of the contracts until 2030 if the temporary relief intended for partial cost recovery is not acted upon.”
Ang noted “we just hope the ERC will not merely try to prevent a temporary increase, but will take a whole-of-industry approach. No company or business can sustain operations with these unprecedented and continuing rise in costs.”