SMC liable to sanctions if it aborts power service agreement

The various energy subsidiaries of San Miguel Corp. arm SMC Global Power will have to suffer heavy sanctions if they back out from the Power Supply Agreements with power distributor Manila Electric Co.

A well-placed source in the energy sector said the Energy Regulatory Commission should look into that penalty clause in the Meralco PSA to determine the liabilities of SMC Global Power after notifying Meralco and the ERC that it will withdraw on 3 October from the PSA.

Consumer groups fear a spike in the monthly bills once SMC withdraws a total of 1 gigawatt of electricity supply when the PSA is unilaterally rescinded.

“What happens when a winning bidder withdraws?” the source asked.

The next step is contained in the term of reference. If they withdraw unilaterally, then there’s a consequence and it is in the TOR,” according to the energy sector expert.

“The TOR is drawn by Meralco but has the approval of the Department of Energy,” according to the source.

SMC had sought an adjustment in the electricity rates provided in the PSA while warning that it will stop supplying Meralco with electricity if ERC will not grant its petitions.

SMC’s plea with ERC is for temporary and equitable relief from soaring coal prices and unilateral Malampaya gas supply restrictions.

Over six months, SMC wanted to recover P5.2 billion from electricity users making it a precondition to “continue sourcing fuel and fulfill its power supply contract with Meralco.”

SMC also needed ERC approval to amend its tariff and collect an additional P4 per kilowatt-hour for the Sual coal plant and an additional P0.80 per kWh for the Ilijan natural gas facility.

Consumer groups opposed the SMC Global Power petition saying that it does not have the correct reason to alter the price terms in the PSA.

Subsequently in the ERC proceedings, SMC Global Power indicated that it will end the PSA on 3 October but sources said it wanted to take part in the CSP for a new deal.

“The contract has terms that specify what happens, for instance, when the bid fails or if a party withdraws so the rules will apply,” according to the source.

“The problem with San Miguel Global Power’s move is that they cannot just change the terms on the pain of penalty.”

The source said that SMC Global Power cannot be compelled to stay with the PSA. “If they withdraw, they may find it better than continuing.”

Meralco has the option, based on the TOR, of whether or not SMC Global Power can be allowed to participate in the new bidding that will be conducted after the PSA is ended.

Meralco set the rules, it can blacklist SMC Global Power from the new bid.

Ultimately it’s ERC

Another source, however, said the buck stops at the ERC since it has the regulatory power to impose penalties and not the private firm.

“That is why SMC Global Power invoked ‘change-in-circumstance’ to back out of the deal as provided in the TOR,” the industry executive said.

At the end of the day, the one who will decide on this is the regulator.

He said the consumers’ interest must be given priority in any decision of the ERC since the SMC Global Power threat will ultimately mean higher electricity bills until another PSA is signed as a replacement.

“If they will allow, the ERC must cite the reason for allowing it, if they did not allow conversely it will have to explain why,” the source said referring to SMC Global Power’s notice of withdrawal.

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