ERC’s work not done with rate hike ruling



The Manila Times


IN an uncharacteristically favorable decision for consumers, the Energy Regulatory Commission (ERC) last Monday rejected a joint petition by electric distributor Meralco and generator SMC Global Power Holdings Corp. (SMCGP) to increase the price of electricity set forth in their 2019 power supply agreement (PSA). SMCGP is the energy business of leading conglomerate San Miguel Corp. (SMC). The ruling by the ERC was absolutely logical and correct, but the work of the commission does not stop there. Both companies, particularly Meralco, have rather darkly suggested ways in which they may bypass the decision. It is up to the ERC now to ensure that all applicable rules and regulations are strictly enforced to prevent this from happening, lest the two petitioners’ subsequent actions open the door to more widespread abuses. We have no doubt that both Meralco and SMC would object to our using strong language like “abuses” to describe their efforts, but it seems appropriate given the circumstances that brought their petition to the ERC. In 2019, Meralco and SMCGP entered into a PSA for electricity to be supplied by the latter’s Sual coal-fired power plant and Ilijan liquefied natural gas plant. The contract was a “fixed-price” contract, meaning that SMCGP would sell the electricity it generated to Meralco at a constant price throughout the terms of the contract. However, due to the energy price crisis of last year and into this year, SMCGP said, it was actually losing money due to its not being able to raise the price of electricity to compensate. The company claimed to have lost P15 billion. SMCGP initiated the petition to adjust the contract price; as generation charges are a pass-through to consumers and do not affect Meralco’s financial performance one way or another, it readily agreed to support SMCGP’s request. One key point that is lost in all of this is that while world energy prices were indeed high in 2021 and most of this year, they were incredibly low during the pandemic-affected year of 2020. SMCGP made no request to adjust its prices downward to reflect its lower costs during that period. If the rate adjustment had been approved, it would have amounted to a 30-centavo per kilowatt-hour (kWh) increase in the generation charge, spread out over six months. For a typical household using 400 kWh per month, that would be an increase in the monthly electric bill of P120 per month. That, however, is academic; the ERC took the proper view that a legally binding contract it had already approved should be honored as written, unless the petitioners could present compelling evidence that the prior approval of the PSA was an error on ERC’s part. The rebuke issued by the ERC in its 40-page decision was rather stinging, and essentially informed SMCGP that it would simply have to live with its poor business decision. “The fixed price nature of the subject PSA is meant precisely to protect consumers from market volatilities, such risks being assumed by the supplier,” the ERC said. “The commission, therefore, cannot afford relief to any party for its miscalculations, imprudence or inadvertence, at the cost of consumers.” In the aftermath of the decision, SMCGP has stated that it is “exploring legal remedies” to the ERC’s rejection of the petition, which we might guess would mean seeking relief from the Supreme Court. For Meralco’s part, it has suggested that the decision might result in SMCGP not being able to supply the electricity as contracted due to its “financial difficulties” which would oblige Meralco to purchase up to 1,000 megawatts of supply on the much higher-priced wholesale spot market. If that were to occur, it is almost certain that at least a portion of that supply would come from SMCGP’s Sual and Ilijan plants anyway, allowing the company to sell its electricity at a rate even higher than the rate it was seeking in the rejected petition. Thus, ERC must carefully monitor the business between Meralco and SMCGP, and ensure that the latter supplies the electricity as specified by the terms of the PSA. Having established the principle that consumers should not pay for business mistakes, it is imperative that the ERC maintain it.