‘Buck stops with SMC’

A unilateral pullout from the PSA will make SMC Global Power liable under the ‘Termination upon Event of Default’ provision of its supply deal with Meralco

Power struggle Consumer groups, cooperatives and organizations that are part of the Power for People Coalition on Thursday, 15 September 2022, demand that San Miguel Corporation stop its plan to pass on its alleged P5-billion losses to consumers amid skyrocketing gas and coal prices. | PHOTOGRAPH BY ANALY LABOR FOR THE DAILY TRIBUNE @tribunephl_ana

September 16, 2022

The buck stops with San Miguel Corp. over the supply of one gigawatt of electricity that it threatens to deprive the Luzon grid by 3 October, a power sector executive insisted on Thursday.

San Miguel Corp. energy arm SMC Global Power said it will halt the supply of electricity from two giant power plants if the Energy Regulatory Commission rejects its petition to adjust the rates in its power supply agreement.

A distribution utility executive who has been in the power industry for 30 years said that since the industry goliath appears bent on ending its contract with Meralco over what it claims as mounting losses from rising fuel prices, it must be prepared to face the consequences.

Under the default provision in the PSA, SMC Global Power would be liable for P255.5 billion in penalties if it arbitrarily halts the supply of electricity by pushing through with a 3 October withdrawal from its PSAs on the supply of electricity from the Ilijan natural gas plant and the Sual coal plant.

For penalties in the PSA to be assessed, a long litigation process will have to take place “but the act has already been committed,” the source averred.

SMC liability spelled out

A unilateral pullout from the PSA will make SMC Global Power liable under the “Termination upon Event of Default” provision of its supply deal with Meralco which Daily Tribune obtained.

SMC Global Power has a pending petition with the Energy Regulatory Commission for an adjustment in the agreed PSA price citing a “change in circumstances” — the spike in coal prices and supply restrictions from the fast-depleting Malampaya natural gas field.

“It will really be for the regulator to weigh what is best for both sides and most of all what will benefit the consumers the most,” the source said.

He added that if SMC Global Power fails to get what it wanted from ERC, the recourse should not be to cut the supply of electricity.

The company should assume the responsibility to help find replacement power.

“It is a no-brainer that prices are bound to rise. The most expensive electricity is no electricity,” the source said about SMC Global Power’s move to close the supply tap on Meralco.

At the end of the day, the one who will eventually decide on the PSA issue is the regulator. “Will it allow the petition or not?” the source said.

“If the ERC will allow, they will have to cite the reason for allowing it. Conversely, if they will not allow, it will have to explain why not,” he added.

Replacement power needed

“If the supply stops, Meralco’s role would be to find an alternative that may turn out to be more expensive,” the source said.

A consumer group, meanwhile, asked ERC to help protect consumers from the looming power rate increase that may result from the pending termination of the SMC Global Power PSA.

“Straight pricing works to protect consumers. It gives a predictable rate for the duration of the contract.

Having it in place is one of a few things protecting consumers in procurement processes,” Power for People Coalition convenor Gerry Arances said on Thursday.

Electricity prices are rising all over the country as distribution utilities pass on the high cost of coal and gas to their consumers, he said. Rate increases in the Luzon network have so far been tempered by the “straight price” provisions of some of its PSAs, which SMC is now seeking to overturn.

The Ramon S. Ang-led company filed motions for price adjustment before the ERC, seeking to reverse its contractual obligation to provide electricity at a straight price and instead pass on its losses in the fossil fuel market to consumers.

P4P said it has long argued against the increase in SMC Global Power prices, saying that the motions of SMC make a mockery of the public bidding process of PSA by allowing generation companies to change approved prices anytime their profits are threatened.

Gas prices have increased by almost 112 percent since last year and coal by 150 percent. According to the group, SMC should own up to its business decision of placing its bet on these fuels despite their volatile nature.

Overall rate for a typical household in September slightly inched up by 39 centavos per kilowatt hour to P9.94 from P9.56 per kWh in August. For residential customers consuming 200 kWh, this is equivalent to an increase of around P78 in this month’s power bills.

Meralco attributed the power rate increase to the higher generation charge — which jacked up by P0.36 to P6.94 per kWh from the P6.58 per kWh the previous month.

@tribunephl_cloz @tribunephl_mbr

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