Painful lesson learned
SMC should be compelled to perform according to the PSA, or Meralco should seek damages if the former fails to do so.
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Daily TribuneSMC should be compelled to perform according to the PSA, or Meralco should seek damages if the former fails to do so.
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The clock is ticking for San Miguel Corp. regarding its next move after the Energy Regulatory Commission denied on 3 October the petition of its energy unit for a P4.80 increase in the contracted power supply agreement rate.
In 2019, SMC Global Power units — South Premiere Power Corp. which operates the Ilijan natural gas plant, and San Miguel Energy Corp. which runs the Sual coal plant — won PSAs with distributor Manila Electric Co. under a straight pricing scheme.
The SMC generation companies cornered the contracts by diving its offers but this proved to be a fatal mistake with the spike in coal prices and as the Malampaya natural gas field depletes faster than expected.
SMC did not hedge on coal which was another misstep that led to its mounting losses.
It then turned to the regulator for relief that would require altering the fixed terms in the contract.
SMC Global Power, in all desperation, threatened to pull out from the PSAs to allegedly stop its financial hemorrhage. During the ERC public hearings on its rate hike petition, SMC Global Power did not show proof of its claimed P15 billion loss due to the PSA.
Consumer groups that successfully fought off SMC Global Power's attempt to escape from its contract said the giant energy firm must feel the consequences of trying to evade its obligations.
"The law is on Meralco's side if it wishes to teach generation companies like SMC a lesson in keeping true to their contracts," according to the consumer groups' spokesman.
An industry source said SMC's option should not include causing discomfort to households by stopping the supply of electricity and thus forcing Meralco to buy from far more expensive sources like the Wholesale Electricity Spot Market which will result in a spike in electricity bills.
SMC should be compelled to perform according to the PSA, or Meralco should seek damages if the former fails to do so.
It should also comply with the six-month notice to withdraw under the PSA and not the 60 days that it insists.
Moreover, it should be banned from future PSA biddings since it is an unreliatle firm to deal with.
"SMC is making a mockery of the decision. It should not be allowed to join future power supply auctions, having proven that it cannot abide by these contracts once they start cutting into SMC's profits," Power for People Coalition convenor Gerry Arances said.
He said the ERC can go a step further after dismissing the SMC rate hike petition by extending the use of straight price provisions on all future PSAs of all distribution utilities and electric cooperatives.
"The records are clear. The Meralco franchise area did not experience the same level of spikes in electricity rates that other areas in the country did," Arances added.
SMC should be responsible enough to accept the consequences of its past actions.
Consumers must be spared from sharing in the cost of clearly boardroom blunders.
