The Department of Energy (DOE) has asked Manila Electric Co. (Meralco) and San Miguel Corp. (SMC) to ensure uninterrupted power supply to consumers following the Energy Regulatory Commission’s (ERC) denial of their application for a temporary rate hike.
The ruling is expected to jack up the electricity rates of Meralco, which will have to tap the more expensive supply from the Wholesale Electricity Spot Market (WESM) or from other power generators to fill 1,000 megawatts (MW) in combined capacity under two service agreements provided by SMC.
“The Department is highly confident that as responsible corporate citizens and business entities imbued with public interest, San Miguel Power and Meralco will be guided accordingly by the ERC Order and ensure uninterrupted power supply to our people and the country, notwithstanding the denial of their joint petition,” Energy Secretary Raphael Lotilla said.
SMC previously announced plans to terminate its 2019 fixed-price power supply agreement with Meralco by October 4 if it receives an unfavorable ruling from the ERC.
Lotilla said DOE respects the independence, responsibility, and authority of the ERC to hear and resolve cases brought before it consistent with its Charter, the Electric Power Industry Reform Act (EPIRA).
The department said it also recognizes that the private sector parties involved, Meralco and SMC, filed their petition for a rate increase before the ERC in recognition of the importance of rules-based processes and outcomes.
Meralco and SMC, through its subsidiaries South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC), filed a petition to recover P5 billion from consumers that will result to an increase of P1.57 per kilowatt-hour in the SMC selling rate to Meralco.
This is equivalent to an add-on of P0.30 per kilowatt-hour in the generation charge of Meralco, since the 1,000 MW under the SMC PSA is just a portion of the distributor’s total requirement.
ERC chairperson Monalisa Dimalanta said the parties can still file a motion and refile a new petition, if needed.
Dimalanta also said Meralco has 60 days or up to 6 months from the issuance of a notice to terminate under a separate provision of its contract with SMC.
She said Meralco also has the obligation to provide “least cost supply” under its franchise and under the EPIRA.
Jose Ronald V. Valles, Meralco first vice president and head of regulatory management, said they have read the decision denying SMC’s claim for a price adjustment.
“For Meralco, we shall comply with the decision, and we shall exert all available remedies to prevent termination of the PSAs with SPPC and SMEC,” Valles said.
If SPPC and SMEC will be unable to deliver power to Meralco for whatever reason, he said the company is constrained to source up to 1,000 MW from the WESM.
He said this is without prejudice to the resolution of whatever legal remedies Meralco may pursue against SPPC and SMEC under the PSA.
“We already sought offers and entered into emergency power supply agreements (EPSAs) with other generation companies to ensure continuity of stable, reliable and adequate supply to Meralco customers,” Valles said.
“We are hoping for the swift action of the DOE in exempting the EPSAs from undergoing CSP (competitive selection process). Without these EPSAs, our customers may become exposed to volatile prices,” the Meralco official said.
In 2019, San Miguel, through its electricity arm San Miguel Global Power Holdings Corporation (SMCGP) and subsidiaries, entered into a fixed price agreement to supply energy to Meralco consumers. Power was sourced from Sual coal-fired power plant and the Ilijan liquefied natural gas (LNG) plant.
At the time the deal was made, coal prices were around $65 per metric ton — now it’s over $400 per MT.
SMC chief Ramon Ang said the Russia-Ukraine war “has taken prices far beyond” what his company and Meralco even imagined in 2019. He asked regulators that “in this time of extraordinary circumstance and difficulty, please, let’s not cripple them [power plants].”
The thinning of Malampaya gas field’s supply, which in turn supplies gas for the Ilijan plant, also resulted in an output drop, prompting San Miguel to buy fuel abroad.
The rising coal and gas prices led to a whopping P15 billion in losses. To recover a portion of the losses or just around P5.2 billion, the power companies sought a temporary rate hike of P0.30 per kilowatt hour to be amortized for six months.
The hike would supposedly ensure that the fixed-rate supply deal would be maintained over the longer term.
The ERC decision also emphasized that the thinning Malampaya natural gas field supply was public knowledge, with the DOE even issued notices in 2014 and 2015 in relation to the issues.
The challenge in procuring power from Malampaya and other sources should have been factored in price offers, the ERC added.
The ERC also told Meralco it should have “exercised prudence” in ensuring suppliers would have the necessary fuel for the operation of its facilities when the power supply agreement was awarded.
“The Commission, therefore, cannot afford relief to any party for its miscalculations, imprudence, or inadvertence, at the cost of the consumers,” Dimalanta said in her decision.