Supply pact bars SMC tariff hike

The PSAs of SPPC and SMEC provided that the contracted rates can only be changed by so-called change in circumstances.

Technician checks meters for a cluster of houses along Quezon Avenue on Saturday amid pending rate increase petitions with the Energy Regulatory Commission that SMC Global Power filed. The SMC unit threatened to withdraw from supply contracts if its pleas are not considered. | PHOTOGRAPH BY ANALY LABOR FOR THE DAILY TRIBUNE @tribunephl_ana

Despite its insistence, San Miguel Corporation’s energy arm SMC Global Power’s effort to obtain rate hike increases may prove futile.

SMC Global Power’s unit South Premiere Power Corporation which is the operator of the Ilijan natural gas plant and the San Miguel Energy Corporation which runs the Sual coal plant have petitioned the Energy Regulatory Commission for an adjustment in the contracted price in the power supply agreement with Manila Electric Co.

The company has petitioned ERC for a rate increase from January to May of 80 centavos per kilowatt hour kWh (from P4.3 to P5.1/kWh) for its 670 MW of contracted baseload capacity from the Ilijan Plant and an average of P4 per kWh (from P4.30 to P8.30/kWh) for the 330 MW contracted baseload capacity from the Sual Plant.

Overall, the company is looking to recover P5.2 billion in losses through adjustments in its PSA tariff.

SMC Global Power Corp. threatened to rescind its PSAs with Meralco on 3 October if it fails to secure ERC approval for its rate hike petitions.

Power for People coalition which includes the Philippine Movement for Climate Justice, Sanlakas, and the sustainability think-tank Center for Energy, Ecology, and Development opposed the SMC Global Power’s filings with ERC.

The PSAs of SPPC and SMEC provided that the contracted rates can only be changed by so-called “change in circumstances.”

SMC Global Power contends that the depletion of the Malampaya gas field and higher coal prices are among the valid reasons to invoke change in circumstances in the PSAs.

A review of the PSA between Meralco and the conglomerate’s energy arm, obtained by Daily Tribune, indicated that the cited factors are not part of what can trigger a tariff amendment.

The PSA’s definition of terms clearly indicated that “for the avoidance of doubt, changes or variations over time of the costs of operation of the power supplier or Meralco, or variations over time of the market prices or the values of electricity shall not in themselves constitute a change in circumstances.”

It specifically defined change in circumstances as:

• Any law coming into effect after the signing of this agreement, including the adoption or enactment, or any change or repeal with respect to the imposition of taxes, duties, levies, fees, charges, and similar impositions, and the right to remit or convert currencies, but in all cases excluding any legal requirement or the application or interpretation thereof in existence at such date but which by its explicit terms became effective only after the date of the agreement;

• The amendment, modification, repeal, or withdrawal of any law (including any official interpretation thereof which the parties have relied upon in entering into this agreement) in force at the date thereof; and

• The application, enforcement, interpretation, or implementation of any law by a governmental instrumentality at any time after the date of this agreement.

Consumer groups pointed out that the corporate giant has the benefit of tapping experts who knew as early as 2015 that the Malampaya gas fields might be depleted by 2024.

“And everyone knows that the price of coal fluctuates, as with all other fossil fuels. Did these companies ignore the realities of the fossil fuel market so they can offer a low price at first and then increase it later as it is trying to do now? Consumers should not pay for this,” Gerry Arances, convenor of consumer group P4P Coalition said.

Fixed contract can’t be altered

House energy panel vice chairman Rodante Marcoleta had earlier warned against “companies applying for adjustment in their electricity rates, knowing that the contract is fixed.”

Marcoleta said the ERC’s role in putting in order the electricity sector is indispensable.

“How can you even accept applications for adjustment of electricity rates when you know that the contract is fixed?” he asked ERC.

He also cited the error in citing a change in circumstances for the rate hike petitions.

“If it’s a 10-year contract for example for one company, I would imagine if I’m the investor, and I use coal as fuel, I would have the good sense of talking to the supplier and hedge on the supply,” according to Marcoleta.

“I would tell my supplier: Whatever happens since I have a contract with a distribution company, we can’t change the price.”

When I asked ERC about the contract, the reply was that the terms in the contract were fixed “based on the obtaining circumstances at the time when the contract was signed,” Marcoleta indicated.

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