The decision was not surprising to say the least, but officials of San Miguel Corp. (SMC) were still hoping that the facts would speak for themselves and that reason would prevail.
Unfortunately, they did not.
Last Oct. 4, the Energy Regulatory Commission (ERC) denied a joint rate hike petition filed by SMC’s power units and Meralco that sought a temporary six-month adjustment in the fuel price being paid by Meralco for fuel supplied by the Sual coal plant and Ilijan natural gas plant under a fixed rate power supply agreement (PSA).
The petition was filed to allow San Miguel Energy Corp. and South Premiere Power Corp. to recover mounting costs brought about by unprecedented increases in the price of coal and natural gas in the international market, largely caused by Russia’s invasion of Ukraine.
In its ruling, the ERC said SMEC and SPPC as prudent business entities are expected to have risk-mitigating strategies in place to ensure compliance with its contractual obligations.
This, it emphasized, is even more expected when it enters into long-term contracts imbued with public interest, such as PSAs in this case.
For Meralco, the regulatory body said it is expected to have exercised prudence in ensuring that its suppliers would have the necessary fuel for the operation of their facilities when it participated in the competitive selection process and were awarded PSAs with a 10-year period.
The ERC added that its decision is in keeping with its mandate to protect consumer interests, guard against market abuse, and ensure transparent and reasonable prices of electricity as provided for under the Electric Power Industry Reform Act (EPIRA).
Of the five ERC commissioners who signed the order, two dissented and voted to grant the petition, saying it is just and necessary under the circumstances to grant motion to cushion the impact of high cost of fuels and so as not to disrupt the basic and essential services being rendered by Meralco and SPPC/SMEC to the consuming public.
SSPC and SMEC, administrators of the Ilijan and Sual plants, respectively, had already issued notices of termination effective Oct. 4 to Meralco of their PSAs, citing unexpected and unprecedented change in circumstances including skyrocketing global fuel prices.
Meralco earlier said preserving the two PSAs with SMC would be the least cost option for its consumers.
While the decision appears to be pro-consumer, unfortunately, it is not.
In denying the petition of SMC and Meralco, ERC may have doomed us all to much higher electricity prices.
This is because it chose not to see incontrovertible, real-world realities we already experience on a daily basis – rising food and energy costs and tightening supply due to the Russia-Ukraine war – and obvious outcomes, such as significantly higher electricity rates for the long term, a higher cost of living, and the very real risk of power supply shortages.
What the ERC chose to do, instead, was nitpick and argue interpretations and meanings of specific words in contracts, and question computations that were already based on voluminous data, significant experience, and expert opinion.
The simulations by Meralco, presented to the ERC, on estimated additional costs to consumers if the temporary rate hikes would not be granted, were clear: from P6/kwh if the relief was granted versus almost P8/kwh if Meralco contracts emergency power from other power suppliers and P8.94/kwh if it sources from the WESM.
While the ERC questioned these simulations, its own Regulatory Operations Service, as noted in the dissenting opinion of ERC commissioners Alexis Lumbatan and Marki Romeo Fuentes, validated all the data presented by Meralco.
More significantly, the ERC-ROS confirmed that the commission does not have any other data or information that could contradict or disprove the computations and simulations submitted by Meralco.
The same dissenting opinion also upheld SMCGP and Meralco’s stated reason for a temporary rate hike, which is the “change in circumstance”, that is part of the agreement, experienced by the power generator.
While the ERC said invoking a “change in circumstance” was essentially the wrong basis for the petition, the two commissioners asserted that their PSA allows for SMCGP and Meralco to claim a temporary price adjustment for a specific period.
They also found enough basis for a CIC, recognizing that a “change in law” also covers a change in policy direction by any government instrumentality.
They affirmed that natural gas restrictions, or the decrease or cessation of supply deliveries from the Malampaya Gas Plant, issued by the National Power Corp. (Napocor), a government instrumentality, unmistakably qualifies as a CIC.
While the ERC said the SMCGP could very well get supply from other sources, it is also a well-known fact that the Ilijan gas plant has no other viable fuel option apart from Malampaya gas, especially during the period in question.
The commissioners added that law and contracts are not the only things that matter; factual context does.
Denying the petition would not force the companies to continue losing billions, no company would. In fact, it would compel them to terminate the PSA, resulting in higher electricity prices.
There are also those who say that the ERC’s decision is heavily influenced by AboitizPower, whose former directors and executives now head government energy offices, SMC’s staunchest rival in the power sector.
Whether there is truth to this or not, the sad reality remains – ordinary Filipinos will have to pay the price.
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