Following regulatory decision that junked the P0.30 per kilowatt hour (kWh) rate hike petition of supplier SMC Global Power Holdings (SMCGP), power utility giant Manila Electric Company (Meralco) said it will be seeking new offers and had already entered into emergency power supply agreements (EPSAs) to contract 1,000 megawatts of capacity.
This move by Meralco aims to avoid supply shortage in case its power supply agreements (PSAs) from the Ilijan and Sual plants of the San Miguel group will be terminated.
“We already sought offers and entered into emergency power supply agreements (EPSAs) with other generation companies to ensure continuity of stable, reliable and adequate supply to Meralco customers,” Atty. Jose Ronald V. Valles, first vice president and head of Regulatory Management of Meralco has noted.
In the event that South Premiere Power Corp. (SPPC) and SMEC will be unable to actually deliver power to Meralco for whatever reason, Valles said Meralco will be "constrained to source up to 1,000 MW from WESM (Wholesale Electricity Spot Market) without prejudice to the resolution of whatever legal remedies Meralco may pursue against SPPC/SMEC under the PSA.”
SPPC operates the 1,200MW Ilijan plant that has contract for 670MW capacity supply to Meralco, while San Miguel Energy Corporation (SMEC) is the independent power producer administrator of the 1,200MW Sual coal-fired power plant with 330MW capacity contract with the giant utility firm.
Nonetheless, Valles asserted “We shall comply with the decision and we shall exert all available remedies to prevent termination of the PSAs with SPPC and SMEC.”
Relative to the planned emergency power supply procurements, Meralco indicated it is “hoping for the swift action of the DOE (Department of Energy) in exempting the EPSAs from undergoing CSP (competitive selection process),” adding that “without these EPSAs, our customers may become exposed to volatile prices.”
Apart from denying the rate hike plea, ERC similarly disallowed "change of circumstances" (CIC) as a ground for the termination of the power supply agreements (PSAs) inked by the parties in 2019.
“For the avoidance of doubt, changes or variations over time of the costs of operations of power supplier or Meralco or variations over time of the market prices or the values of electricity shall not in themselves constitute a change in circumstances,” the ERC has stipulated.
To recall, SMC President and CEO Ramon S. Ang announced in August that it already served notices of termination for its PSAs with Meralco, relating to power capacities being supplied by the Ilijan gas-fired and Sual coal-fired power plants – and the company sought to enforce this starting October 4 this year.
When asked on the outcome of the ERC verdict, he conveyed that as far as SMC is concerned, it will “opt for the termination of the PSAs,” but Ang qualified their company “will join any bidding of Meralco” on its new round of supply sourcing.
Under the PSAs, the ERC decision stated that once the SMC plants would cease supplying the capacities specified in its contract with Meralco, the supplier will be liable for the payment of liquidated damages that shall be equivalent to P100,000 per megawatt per day of the contract capacity for the remaining term of the agreement. The PSAs had been signed in 2019 and that will be enforced until 2029.
“Meralco must exercise its contractual rights to ensure that the terms of the PSA are upheld such that the costs of power supply are not unreasonably increased and that delivery of the same is not hampered or arbitrarily discontinued,” the Commission stressed.
The regulatory body, similarly, stipulated that a termination of the PSAs “was not even the subject of applicants’ prayer in their joint motion for price adjustment.”
The ERC said it is of a firm view that “such termination should squarely stand on the provisions and conditions as stipulated in the contract, subject to the provisions of law, and the rules and regulations of the Commission.”
ERC Chairperson Monalisa C. Dimalanta qualified that SMC may still opt for the termination of the PSAs “as long as they will follow the terms of the contract.”
She noted that one argument raised by SMC during the hearings at the Commission had been the extent of its losses reaching threshold level 2; but that will entail six months of prior notice before the PSA can be terminated; and the power supplier must also show ‘data proof’ that it already reached such scale of losses.
Threshold 2 of losses entails that “the total unreimbursed new or increased charges and refundable amounts exceed the equivalent of 3.0-percent of the contract price applied to the energy corresponding to MEOT (minimum energy off-take) for one contract year.”
Separately, the DOE sounded off confidence that the parties, “as responsible corporate citizens and business entities imbued with public interest, San Miguel Power and Meralco will be guided accordingly by the ERC order and insure uninterrupted power supply to our people and the country, notwithstanding the denial of their joint petition.”