The Department of Energy said Monday the power industry should learn from the fixed-rate contract signed by Manila Electric Co. and San Miguel Corp. that led to challenges because of the volatile fuel prices.
“This particular case is a learning experience for everyone, and as far as the DOE and the ERC jurisdictions are concerned, we want to make a clear distinction of the policy rule of DOE and the regulatory aspects for the ERC,” Energy Secretary Raphael Lotilla said during the Economic Journalists Association of the Philippines Infrastructure Forum in Pasay City.
Lotilla said a fixed rate contract for ten years “was a policy or a condition that was entered into by the parties,” referring to Meralco’s and SMC’s 2019 power supply agreement.
“It’s a learning experience for everybody that if we provide for a fixed rate contract, then there must be other terms and conditions that will make the contract implementable, notwithstanding the highly volatile prices in the commodities market,” he said.
SMC and Meralco asked the Energy Regulatory Commission for a temporary rate hike under the 2019 fixed-rate 10-year PSA because of the unprecedented increase in coal prices and Malampaya gas constraints.
The ERC denied the petition, saying the grounds invoked by the applicants did not fall within the “change in circumstances” definition as contemplated in the PSAs.
Lotilla said the two major private power companies, “will be intelligently analyzing the TOR [terms of reference] of the contracts that they have entered into and that moving forward, we will both be benefiting from the lessons learned.”
Meralco head of utility economics Lawrence Fernandez said the termination of the PSA would not mean that the SMC power plants would stop operating.
“It only means they will stop supplying Meralco at the contract rates. Under current rules of the spot market, power plants that are able to operate need to offer their capacities to the market,” Fernandez said.
He said SMC might sell the supply to the spot market “likely at higher prices” if it would decide to terminate the contract.
Fernandez said SMC had committed to supply Meralco at contract rates despite the ERC’s denial of the petition.
“They have continued to supply Meralco under ERC-approved rates although they said under protest. Right now, given the situation, we don’t see any change or effect in the generation charge, maybe for the November supply month,” he said.