Asian conglomerate San Miguel Corp. pulled the plug on its fixed-price power supply agreement yesterday but distributor Meralco guaranteed that it will look for ways to find the least cost of electricity to augment the lost supply.

"There is no expected electric rate hike yet as Meralco looks for options either through an emergency supply agreement or the Wholesale Electricity Spot Market where prices are bound to soften in the cool month of December," Joe Zaldarriaga, Meralco spokesperson and head of corporate communications, assured consumers.

Zaldarriaga belies SMC and its allies' pronouncements of an immediate increase in monthly electricity bills as a result of the suspended PSA.

The Energy Regulatory Commission said SMC can't avoid its obligations even with a Court of Appeals temporary restraining order in effect.

It will force distributor Meralco to secure 670 megawatts of electricity from the spot market but which Meralco said will not automatically result to higher prices as the industry is betting on prices to trend lower this month.

Zaldarriaga said since electricity use tapers off during the cool months, the December spot market prices may be softer.

He added Meralco now sources power covered by the PSA from the WESM, but it is negotiating with other generation companies to look for alternative suppliers "to secure the 670 MW supply and shield our customers against volatile and potentially higher WESM prices."

ERC chairperson and CEO Monalisa Dimalanta reiterated that the cessation of supply from a bilateral contract or PSA does not excuse the parties in the contract from their obligations under Section 23 of Republic Act 9136 or EPIRA "to supply the electricity in the least cost manner to its captive market."

SMC has kept the regulator in the dark about the details of its unilateral termination of the power supply agreement with Meralco but the Energy Regulatory Commission said SMC can't escape its PSA obligations.

SMC notified Meralco on Tuesday that it will stop supplying electricity out of its Ilijan natural gas plant, starting yesterday.

Dimalanta said the Commission has not received any official communication about the PSA suspension.

"It is not yet clear to us at this point. If SPPC (SMC unit South Premiere Power Corp.) serves a notice of PSA termination or merely a suspension of supply considering that the case before the Court of Appeals filed by SPPC involving the said PSA is still for final resolution," she said.

In a report to the stock exchange, SMC said the SPPC "will stop supplying Meralco with electricity generated from the Ilijan Power Plant commencing on 7 December 2022 in accordance with and for the entire duration of the effectivity of the temporary restraining order issued by the 14th Division of the Court of Appeals."

She said the ERC is still waiting for the action by the agency's counsel, the Solicitor General, after the matter was referred for undertaking to the SolGen for appropriate legal remedy.

Likewise, she affirmed that the termination of SPPC's PSA, with the grounds, procedure, and timelines provided in the contract, "was discussed extensively by the Commission," as noted in the Manifestation filed by Meralco on the day after it received the Notice of Termination from SPPC on 4 August.

Based on Energy Regulatory Commission records of Meralco billings for November, the 670-MW PSA of SMC unit South Premiere Power Corp. accounted for 13.4 percent of the power distributor's supply and was priced at a fixed P4.2455 per kWh. The average Wholesale Electricity Spot Market price for the same period was P8.47 per kWh or double the PSA price.

Meralco gets SMC notice

Zaldarriaga confirmed that the company received a notice of cessation of supply from SMC Global Power, covering the 670-megawatt power supply agreement with SPPC.

Meralco already secured a certificate of exemption from the Department of Energy last week allowing it to procure an emergency power supply from the spot market to cover the supply lost with the unilateral PSA termination.

However, power sourced from the spot market usually costs higher than those procured through a competitive selection process.

Meralco said it will take the company about two weeks to come up with a simulation on how much power cost will be adjusted as an effect of the PSA termination.

"Our priority is to ensure continuity of stable, reliable, and adequate supply for all our customers. We are exhausting all efforts to mitigate any impact of these developments on our customers' electric bills."

The ERC denied the petition of SMC for a rate increase since the regulatory body ruled that the agreed price in the PSA is fixed in nature, and the grounds for the increase cited by SPPC and Meralco were not among the exceptions that would allow for price adjustment.

ERC maintained that the fixed price nature of these 10-year PSAs is precisely intended to act as a natural barrier protecting Meralco consumers from external threats, such as market volatilities.

Pass-on rates under scrutiny

Relatedly, the ERC has launched an investigation on the "accuracy and reasonableness" of the generation rates passed on by Distribution Utilities to its consumers.

Prompted by the recent increases in electricity rates and the numerous complaints received from consumers, the nationwide investigation will cover all Private Utilities and Electric Cooperatives in the country and their respective power suppliers under their PSAs.

"In the course of ERC's monitoring of monthly submissions from PUs/ECs of their generation charges, we have identified the need to conduct a more thorough validation of the passed-on or pass-through charges under certain PSAs," Dimalanta said.

She said the ERC wants to confirm if the charges pass on to the consumers are only eligible costs and whether there are no hidden charges.

Based on the findings, the DUs will not only be required to refund the excess amounts collected but may also be imposed appropriate penalties when warranted.

Under Republic Act 9136 or the Electric Power Industry Reform Act of 2001, the ERC, as the sole regulator of the energy industry, has the power to investigate and act against any participant or player in the energy sector for violations of any law, rules and regulations. It is also mandated to ensure transparent and reasonable electricity prices.

DENR queried on CDO

Meanwhile, the sustainability think tank Center for Energy, Ecology, and Development wrote the Department of Agrarian Reform yesterday requesting updates on the cease-and-desist order it issued against Linseed Field Corporation and SMC unit Excellent Energy Resources Inc. in light of the liquefied natural gas project that caused the collapse of the Batangas-Tabangao-Ilijan-Lobo road on 27 November.

CEED requested for the date and manner of serving the cease-and-desist order and proof of receipt of Ilijan Primeline Holdings, Inc., which held the lease of the project site of the two companies, and that a criminal complaint be filed for premature conversion against Ilijan Primeline, Linseed, EERI for the continued development of the project site despite the DAR order.

Primeline claimed it only received the order on October 20 despite the order being issued on 8 August.

According to Republic Act 8435, "any person found guilty of premature or illegal conversion under RA 8435 shall be penalized, in accordance with Section 11 thereof, with imprisonment of two to six years, or a fine equivalent to 100 percent of the government's investment cost, or both at the discretion of the court, and an accessory penalty of forfeiture of the land and any improvement thereon."