Hounds let loose
The ERC simply does not have any option but to dismiss the petition for rate increases, temporary as it may be, since the PSAs do not allow it.
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Daily TribuneThe ERC simply does not have any option but to dismiss the petition for rate increases, temporary as it may be, since the PSAs do not allow it.
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A vicious campaign has been launched against the Energy Regulatory Commission which seems like a heavily-funded endeavor following the regulator's decision to deny a P4.80 rate increase for San Miguel Corp.'s generator companies.
The SMC attack dogs argue that the regulator committed a blunder in its decision while pointing to the unprecedented split decision in the highly-anticipated ruling.
They warned of a price shock beginning in December based on the several hints being dropped about an SMC Global Power plan to withdraw from the power supply agreements in compliance with a 60-day notice requirement based on SMC's interpretation of the PSA provisions.
Oppositors of the SMC petition for a rate increase, however, said the PSA requirement is an allowance of six months for a mutual termination of the PSA.
In 2019, SMC Global Power units South Premiere Power Corp. which operates the Ilijan natural gas plant, and SMC Energy Corp. which runs the Sual coal plant, sealed PSAs under a straight pricing scheme that provides price escalation but does not allow pass-through costs to consumer's electricity bills.
The ERC simply does not have any option but to dismiss the petition for rate increases, temporary as it may be, since the PSAs do not allow it.
ERC issued a reminder to the contracting parties of "their obligation to preserve the PSA they have voluntarily entered."
The PSA provides no room for price adjustment but only a guaranteed supply of energy to consumers at a fixed price.
The argument that allowing a temporary rate increase would be the best option for consumers in terms of prices can't be valid.
Other holders of the straight pricing PSA with Meralco said the ERC ruling should apply to all not just SMC Global Power.
Had the temporary rate increase been allowed, other PSA holders would demand that the same temporary rate increase applies to them since they are similarly affected by the factors the SMC energy arm cited in its petition.
SMC Global Power referred to a change in circumstances to justify its petition, arguing that the CIC provision in the contract with Meralco included the spike in the global cost of coal and the supply restrictions of the depleting Malampaya natural gas field.
Other similarly situated rivals of SMC Global Power had a good sense of anticipating the price and supply trends through hedging thus, they did not consider seeking a temporary rate increase with ERC.
It would then not be the best price option for consumers if ERC rules in favor of SMC Global Power since it would open the floodgates for rate hike petitions.
Since there would be a precedent in ERC intervening in a PSA, the contracts become useless since the government can dictate how the private sector conducts its business.
That would be the ultimate blunder when the ERC ruling results in the private sector losing faith in the sanctity of contracts.
