ERC puts foot down in SMC power rate hike petitions

The Energy Regulatory Commission in its two decisions denying the petitions for rate increases of San Miguel Corp. power generation units San Miguel Energy Corp. and South Premiere Power Corp. dismissed all of the arguments that the conglomerate raised to support its bid.

The ruling, released late Monday night, pointed out that the two generation companies under SMC energy arms San Miguel Energy Corp. and South Premiere Power Corp. hold a financial contract that does not allow adjustment or pass-through costs or tagging the increase in rates on monthly bills.

The PSAs do not require exclusive sourcing of electricity from the power plants of the contractors but commit both companies to a fixed volume of supply that can be obtained “from the nominated power plant, the Wholesale Electricity Spot Market or any other source.”

An overriding intent of the ERC in its ruling was upholding the sanctity of a contract.

“The role of the regulator is always a balancing act. The Commission deliberated on many occasions fully conscious that the consequences of the ruling go beyond the businesses of the immediate parties, but will extend further and demonstrate how we, in the power industry, honor the sanctity of contracts,” ERC chairperson Monalisa Dimalanta said.

The nature of the contract was “clearly discussed in the Commission’s orders dated 10 December 2019 and 16 June 2020”, according to the ruling.

According to the decision, “the unrestrained nature of such supply obligation from any source” and not limited to the designated power plant “is further underscored by the fact that the PSAs do not provide for any outage allowance and that supply availability is guaranteed at the rate allowed and approved by the Commission.”

ERC added that the PSAs ensured that the contractors “shall provide the contract capacity and associated energy at the guaranteed price.”

“It is also a financially firm contract since the difference between the strike price agreed between the parties and the WESM spot price will be on the account of the (PSA holder) for all periods and for the amount of energy specified in the PSA,” the ruling stated.

“In effect, the consumers have no exposure to the spot prices.”

The ruling indicated that “the fact that the PSA is financial in nature provided Meralco and its consumers the assurance that any fuel supply risk was of no moment and was assumed in full by the supplier.”

Consumer protection foremost

Likewise, the ERC ruled “the fixed price nature of the subject PSA is meant precisely to protect consumers from market volatilities, such risks being assumed by the supplier.”

In a way, the fixed price arrangement in the financial contract, PSA acts as a natural barrier protecting consumers from external threats, a power supply version of Sierra Madre, as it were, the ruling expounded.

On SMC Global Power invoking the “change in circumstances” provision of the PSA, ERC stressed the “grounds invoked by applicants do not fall within the definition of change in circumstances as contemplated in the PSA.”

Citing what they claim to be the massive losses suffered by SMEC resulting from the increase in fuel-related generation costs for the Sual Power Plant brought about by recent geopolitical events, like the Indonesian coal export ban and the Ukraine invasion by Russia, the SMC Global Power units citer change in circumstances “since these have occurred “abruptly” and thus qualified in the definition of change in circumstances.

“Contrary to applicant’s assertion, the Commission finds that the notice of gas restrictions issued by National Power Corp. cannot qualify as law, or an amendment, modification, repeal or withdrawal of any law, or an application, enforcement, interpretation or implementation of any law,” the ruling furthered.

“Said notices of gas restrictions remain to be as such, mere notifications on the state of gas availability from Malampaya.”

The Commission noted that SPPC’s argument that the notices qualify as “law” in the PSA is belied by its own actions when it initially filed a Motion for Confidential Treatment of Information for the Notices, and thereafter withdrew the said motion when it realized that the same was inconsistent with their main argument. Laws are required under the Civil Code to be published in order to take effect.

The ERC then underscored that it has no basis to approve the proposed recovery of billions of pesos considering the parties’ own admission that the “corresponding data thereof is yet to be generated/gathered as of date.” The parties also admitted in the course of the hearings that, “should the price adjustment be given favorable action, there will be subsequent filings for more price adjustments.”

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