Looks for ways to lift TRO on SMCGP-Meralco power supply deal
The Office of the Solicitor General is working with the Energy Regulatory Commission (ERC) on ways to get the Court of Appeals (CA) to lift its temporary restraining order (TRO) that the government fears will drive up electricity costs for millions of consumers.
The ERC had earlier denied a petition by a San Miguel Corp. (SMC) subsidiary, SMC Global Power Holdings Corp. (SMCGP), to raise the price of the power it sells to the Manila Electric Co. (Meralco), noting that the 2019 supply agreement between the two companies does not allow it.
But SMCGP took its case to the CA, which imposed a TRO on the ERC, effectively suspending the implementation of the 2019 supply agreement.
Energy Secretary Raphael Lotilla said President Ferdinand Marcos Jr.’s foremost concern was the welfare of Filipino consumers.
He said the 60-day TRO issued by the CA, which took effect immediately, did not provide the distribution utilities and other parties concerned adequate time for preparation.
Lotilla said the ERC believed that the Power Supply Agreement (PSA) between the two parties would have required prior notice from SMCGP in case of a pre-termination.
“The solicitor general has been in communication with the ERC on the steps to be taken to lift the TRO,” he said.
Senator Sherwin Gatchalian said that pending the case’s final resolution, energy stakeholders, including 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.”
Gatchalian said he would closely monitor the resolution of the case as it would determine whether fixed price contracts of PSAs could be changed.
“This case will set a precedent for the energy sector as to whether 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 signed in 2019 by SMC and its subsidiaries for two fixed-price agreements to supply 1,000 megawatts to Meralco consumers.
Supply was to come from the 1,200-MW Sual coal-fired power plant in Pangasinan and the 1,200-MW Ilijan natural gas plant in Batangas.
SMC sought a temporary relief with the ERC from the high coal prices and thinning supply from the Malampaya gas project in northwest Palawan. When the deal was made, coal prices were around $65 per metric ton, which had since risen to over $400/MT.
SMCGP said the thinning supply from the Malampaya natural gas field resulted in San Miguel buying power from the spot market.
SMCGP said the ERC had knowingly exposed the public to much higher power rates by not approving its joint petition with Meralco for a temporary rate hike.
“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,” the company said in a statement.
The regulator rejected the joint petition of Meralco and SMCGP subsidiaries, saying the agreed price in the power supply agreement was fixed in nature, and the grounds for the increase were not among the exceptions that would allow for price adjustment.
SMCGP said it is the ERC’s responsibility to ensure the least cost of power for consumers, and it should have taken this into consideration when reviewing the merits of the petition and issuing its decision.
SMGCP said Meralco 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, it said.
SMCGP said the ERC decision forced the company to continue to absorb losses and essentially prevented it from exercising its legal options, clearly laid out in the PSAs, to preserve its financial standing.
It also noted that two other commissioners had strong dissenting opinions.
It said the ERC was made aware of the looming power rate hikes and how it could ensure that the public would get 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,” it said.
But the ERC said Monday that about 7.5 million Meralco customers would be hurt by the court’s decision.
ERC Chairperson and CEO Monalisa Dimalanta said customers of Meralco’s franchise area in Metro Manila and adjacent areas will be exposed to higher electricity prices.
“We are talking about 7.5 million consumers that will be affected if and when the TRO is implemented,” she told ANC’s “Headstart.”
President Marcos said over the weekend he hoped the CA would reconsider its decision to take into account its impact on so many consumers.