SMC terminates power supply deal with Meralco

Published December 6, 2022, 5:12 PM

by Myrna M. Velasco

SMC Global Power Holdings Corporation (SMCGP), a subsidiary of San Miguel Corporation, has formally notified Manila Electric Company (Meralco) that it will be terminating its fixed-price power supply agreement (PSA) covering 670 megawatts of supply drawn from the Ilijan gas-fired power plant.

As a naturally occurring consequence of the halted power supply deal, South Premiere Power Corporation (SPPC), which is the operating entity of the Ilijan plant, will already stop supplying generated electricity from the plant starting December 7 this year.

The SMC firm said it opted to take this step following the issuance of a temporary restraining order (TRO) by the Court of Appeals which effectively stopped the Energy Regulatory Commission (ERC) from enforcing its order denying the rate hike sought by the company for the capacity for its Ilijan plant as supplied to Meralco.

“The cessation of supply, covered by the resolution and the TRO, is immediately executory,” the San Miguel firm noted.

According to SMC President and Chief Executive Officer (CEO) Ramon S. Ang, “the power firm did not want to have to terminate the PSA, and that was why it was seeking just a temporary, six-month relief.”

But with the ERC junking its rate hike petition, the company indicated that SPPC was compelled “to source capacity from the Wholesale Electricity Spot Market (WESM), which triggered even higher price spikes, further affecting the company’s costs to supply Meralco.”

Had its rate adjustment been granted based on its pleading as anchored on the change in circumstances (CIC) provision of the PSA due to the ‘gas restriction’ in the Malampaya field, SMC opined that it should have helped “mitigate continuing losses of SPPC’s Ilijan power plant.”

Beyond Malampaya’s strained gas production, SMC further cited “the extraordinary and unprecedented rise in global fuel prices brought on by the Russia-Ukraine war” – being the added triggering factor on its swelling financial losses.

Ang asserted that “from the very start, we were very transparent and clear with the ERC. We were not asking for a permanent increase, we did not want to be relieved of our contractual commitments, we were just asking for temporary, equitable relief, given the undeniable and unforeseen circumstances that affect not just us, but all Filipinos and many economies worldwide.”

Nevertheless, he emphasized that “despite being shown that granting our petition would have been the cheapest option for consumers, the ERC still denied our petition, fully-aware that this would force us to either continue absorbing significant losses–which no company can sustain.”

By taking the PSA termination route, he stipulated that this will “ultimately lead to higher electricity costs for consumers: much, much higher than what we were asking for.”

SMC stressed that under the PSA, ”the right to unilaterally terminate is allowed… as part of necessary mitigation measures under the long-term, fixed rate supply deal, particularly in the event of a “change in circumstances”.

On ceasing its delivery of Ilijan capacity to Meralco, San Miguel underscored that “there will be no impact on current level of system supply because the company will still continue to offer its available and uncontracted capacity to qualified off-takers and to the spot market.”

San Miguel further conveyed that the Ilijan plant is undergoing repair works “to improve its fuel efficiency and generation ramp rate” and its resumption of operations is targeted by April next year when liquefied natural gas (LNG) is already available in the country.