San Miguel Corp. said Tuesday two subsidiaries of SMC Global Power Holdings Corp. issued notices of termination to Manila Electric Co. over their 2019 power supply agreements.
San Miguel said the termination would be effective on Oct. 4 unless the Energy Regulatory Commission granted the appeal of South Premiere Power Corp. and San Miguel Energy Corp. for a temporary relief.
SPPC and San Miguel Energy are the administrators of the 1,200-megawatt Ilijan natural gas and 1,200-MW Sual coal-fired power plants.
The SMCGP subsidiaries filed their respective petitions for a temporary rate hike on the two power supply agreements with Meralco, which would translate into an increase of P0.30 per kilowatt-hour over six months.
SMCGP president Ramon Ang said SPPC and SMEC already issued the notices to terminate the power supply agreements to Meralco, citing unexpected and unprecedented “change in circumstance,” including sky-rocketing global fuel prices brought by multiple factors such as the Iukraine war.
“With much regret, we have to admit to the public that the current situation is seriously jeopardizing our other critical operations, projects and financial obligations. We are only seeking partial adjustment in price so we can continue supplying to Meralco and minimize the impact of termination on industries and consumers, particularly those from the lower-income households who will get hit harder,” said Ang.
Ang said the the door is open for further discussions with relevant government agencies and will work with Meralco to ensure supply through October when the termination takes effect.
SMCGP said electricity prices in Metro Manila and nearby provinces would go up by as much as 30 percent starting October if the ERC failed to act on its joint petition with Meralco.
It said if the temporary relief was not granted, there would be an increase of P0.80 to P1.30 per kWh in the price of electricity over the next three to four months. The distributor must find alternative sources that will most likely be costlier, including the Wholesale Electricity Spot Market, the trading floor of electricity.
The PSAs aim to shield power consumers from unjustifiably high prices over the long term.
Ang also asked the ERC for a fair and objective assessment of its petition for a temporary increase to recover losses from its Sual coal plant and Ilijan natural gas plant under the 2019 PSAs with Meralco in the wake of the record rise in global fuel prices driven by economic and geopolitical forces, he said.
“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. The war in Ukraine has taken prices far beyond what we and Meralco could have even imagined in 2019 when we signed the PSAs. At the time, the forecast for coal was only $65 per metric ton for ten years. Now it is already at $400 per MT,” Ang said.
SMCGP said if the petition was not approved, Meralco could also opt for emergency power supply procurement, but electricity prices were expected to go up further with the weakening peso and surging global fuel prices.
SMCGP said coal prices in the world market continue to hover beyond $400 per metric ton, threatening to push electricity bills even higher.
The company also expects hefty price increases over the term of the contracts until 2030 if the temporary relief intended for partial cost recovery was not acted upon.
SMCGP said the temporary rate hike was meant to allow the Sual and Ilijan facilities to recover some P5 billion in losses and ensure that their fixed-rate PSAs would be maintained over the longer term and continue to mitigate the soaring cost of electricity for consumers.
Ang said the PSAs would help keep electricity low for consumers, as they are among the last of the fixed-rate power supply agreements that do not pass on any additional costs to consumers.
“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. These power plants account for 25 percent of the net reliable capacity of the Luzon grid. They are a major part of the country’s already fragile power supply. We ask that in this time of extraordinary circumstance and difficulty, please, let’s not cripple them,” Ang said.