SMC liable to pay over P1M in penalties daily if it ends power service contract
The favor bestowed clear upon a third party (consumers) is clear and deliberate, and not merely incidental.
San Miguel Corp.'s power supply agreements (PSAs) which it sought to terminate can be simply terminated because it is imbued with the public interest and contains a "stipulation pour atrui" which means that the ultimate beneficiary would be the consumers.
"The favor bestowed clear upon a third party (consumers) is clear and deliberate, and not merely incidental," according to the provisions of the PSA.
The favor bestowed upon a third party is clear and deliberate, and not merely incidental, as found in Article 7.3 of the PSA: "In case Power Supplier fails to deliver the Contract Capacity and Associated Energy to Meralco due to unavailability of supply from its plant, Wholesale Electricity Spot Market, and any other source, power supplier shall pay a fine equivalent to P908 multiplied by each megawatt-hour during a day, which shall be used to reduce the generation charge to the consumers".
Thus, in case San Miguel Global Power pulls out from its deals and withholds 1 gigawatt of electricity from its Sual coal plant and the Ilijan natural gas plant, it would be liable for P908,000 a day each for San Miguel Energy Corp and South Premiere Power Corp. based on the PSA provision.
The amount is aside from the P1,000 per megawatt-a-day penalty during the remaining life of the PSA, or a sum of P255.5 billion each for SMEC and SPPC or a total of P510 billion if SMC is found in default under the PSA if it unilaterally terminates the deal.
ERC said that since the deal is a contract imbued with the public interest and contains a stipulation pour atrui, it should be adhered to faithfully.
SMC Global Power had notified ERC of its intent to terminate the PSAs of SMEC and SPPC even before the regulator handed down the ruling to dismiss the petition for a P4.80 increase in its fixed PSA contracted rates.
Termination of the PSA will directly or indirectly violate the policies laid down in sections 2 and of the Electric Power Industry Reform Act about the quality, reliability, security, and affordability of the supply of electric power.
Also breached is the requirement to ensure transparent and reasonable prices of electricity and the protection of public interest as it is affected by the rates and services of utility firms and other providers of electric power.