The Court of Appeals may have overreached its authority in its decision granting a preliminary injunction favoring Asian conglomerate San Miguel Corp.’s energy arm South Premiere Power Corp. after it provided a “chance to negotiate” provision.

“That provision was not understandable since we still don’t know the court’s final decision in the SMC case,” an energy sector source said yesterday.

“From all indications, the Energy Regulatory Commission through the Solicitor General will fight that to the end,” the source predicted.

The CA said in its ruling, which Daily Tribune obtained, that the writ of preliminary injunction or WPI suspended “the continued implementation of the PSA (power supply agreement) but does not terminate the same.”

Moreover, the tribunal said the WPI was issued “to allow the parties to negotiate the terms of the PSA.”

Thus, another energy source said, the CA would be encroaching on the quasi-judicial function of the ERC in its ruling to allow the possibility of a revision of the terms of the contract between SPPC and Meralco.

The ERC decision that the court suspended had rejected the petition of SPPC and its affiliate, San Miguel Energy Corp. or SMEC, to raise the agreed price in the power supply agreement.

The ERC had said the SMC subsidiary should honor the price provided in the PSA which couldn’t be changed since it was under a straight-pricing scheme.

While SPPC obtained a TRO and later an injunction order on the ERC decision, the court threw out SMEC’s almost identical petition.

The CA imposed a stunning P100 million bond that SMC must pay for the injunction to be implemented.

The amount, according to the court, will be used “to answer for any damages which respondents may suffer or sustain because of the issuance of the same should the court finally decide that the petitioner is not entitled thereto, and shall remain in full force and effect until the petition for certiorari is finally decided.”

A petition for certiorari is a court action questioning a state agency for having acted with grave abuse of discretion which in the SMC case was directed against the regulator ERC.

CA lifted SMC argument

In the “Chance to Negotiate” proviso of the ruling, the CA indicated that it is prudent for the parties “to take their time in finding the most equitable solution in addressing the problem of increased cost.”

The tribunal’s decision is aligned with the argument of SMC that its subsidiary’s petition for a temporary adjustment in the PSA rates constituted the lowest cost option.

SMC had claimed P15 billion in losses from the higher cost of coal and supply restrictions from the Malampaya natural gas field in the petitions with ERC to revise its PSA rate.

“The PSA itself provides for the mechanism for the parties to enter into good faith negotiations to agree on a satisfactory solution regarding the amendment of the PSA to restore petitioner’s commercial position before such ‘change in circumstances’ including an adjustment in the contract price,” the ruling read.

SMC also used the “change in circumstances” argument to justify the temporary revision in the contracted price of electricity with Meralco.

The problem with that argument, however, is that SMC had willfully entered into a PSA with a fixed price provision that did not allow costs to be passed on to consumers in their monthly bills.