In asking the Court of Appeals to lift the temporary restraining order that basically allowed Meralco and San Miguel Corp.-unit South Premier Power Corp to suspend their fixed-rate power supply agreement, the Energy Regulatory Commission said that the SPPC is to blame if electricity prices go up.
ERC chairman Monalisa Dimalanta explained that it was this fixed PSA of Meralco with SPPC, along with the other fixed rate PSAs, that have shielded Meralco consumers for the past months from the volatility from the wholesale energy spot market or WESM and automatic fuel pass-through PSAs.
The ERC chief seems to have a wrong understanding of its mandate.
This is probably the reason why, in deciding whether or not to grant the joint Meralco-SPPC petition before the ERC to temporarily increase SPPC’s power rates to recover change in circumstances (CIC) brought about by external factors beyond its control, the ERC was for the first time split. Two voted to grant the petition and two voted to deny. Dimalanta broke the tie and voted to deny.
The ERC is mandated to equitably promote and protect the interest not only of power consumers, but also of other stakeholders as well, including power producers, to enable the delivery of long-term benefits.
As explained by Meralco and SPPC in their petition to the ERC, allowing it to recover part of the additional costs brought about by the CIC – to be spread out over a six-month period – will stem SPPC’s losses and allow it to preserve the PSA, which should be beneficial for consumers in the long run.
The fixed-rate PSA between Meralco and SPPC did not provide for the power company to assume all the risks when it allowed an adjustment in rates due to CIC. It was a private agreement that had the imprimatur of government, but the ERC chose to look the other way.
Private investments rely largely on stability in the business environment, which includes rules and regulations issued by government agencies.
Our country has been adopting laws and rules to make the regulatory environment conducive to business operations. ERC’s decision is a move in the wrong direction.
Meralco and SPPC asked for a temporary increase. In addition to denying it, ERC said SPPC cannot terminate its PSA with Meralco. This is the reason why SPPC went to the CA on certiorari with a prayer to permanently enjoin the ERC ruling.
In its main petition with the CA, which included a prayer for the issuance of a TRO (granted by the CA and now being questioned by the ERC), SPPC noted that for reasons known only to it, the ERC shunned its duty to balance the interests of power suppliers, distributors, and consumers as an incident of its rate-making function and refused to acknowledge and give due account to the sudden and unprecedented surge in fuel costs.
It said the ERC decided to deny relief to SPPC despite the more than P1.3 billion losses it incurred from January to May this year alone in the operation of the Ilijan plant, even in the face of substantial evidence showing that the grant adjustment is, indeed, the most cost effective alternative available to consumers.
In its petition, SPPC added that making matters worse, the ERC interfered with the parties’ exercise of contractual rights under the PSA and even enjoined Meralco from acceding to any attempt by SPPC to exercise its right to terminate the same, effectively sentencing SPPC to continue incurring billions of losses for the public service it renders pursuant to the PSA.
This, it pointed out, was attended with grave abuse of discretion amounting to lack or excess of jurisdiction when the ERC violated their constitutional right to due process when it interfered in commercial acts and resolved an issue that was not before it and beyond its jurisdiction.
It emphasized that the ERC order is fundamentally destructive and unsustainable, and ultimately, the consumers will be the ones prejudiced and burdened with billions of pesos in additional electricity costs, all because the ERC virtually refused to perform a duty required under the EPIRA Law.
In the case of SPPC, the change in circumstance was brought about by the restriction starting March 2021 imposed by the NPC, and this was until further notice, on the supply of natural gas sourced from the Malampaya gas field.
SPPC explained that the notices of gas restrictions provided on outlook on the level of natural gas supply to be provided Ilijan plant. The gas restrictions, it said, were sudden and transpired even before the end of the term of their gas supply agreement, which could not have been reasonably foreseen at the time of the execution of the PSA.
Meanwhile, San Miguel Energy Corp., which operates the Sual coal power plant, and whose joint petition with Meralco for a temporary increase in rates on its fixed-rate PSA was also denied by the ERC, also filed a petition for certiorari before the CA, also with a prayer for a TRO.
SMEC explained in its petition that the ERC shirked its duty when it refused to acknowledge and give due account to the sudden and unprecedented surge of more than 400 percent in fuel costs brought about by geopolitical events, such as the Indonesian coal export ban and the Russian invasion of Ukraine.
It said that the ERC denied SMEC the relief it was due to it under contract and law despite staggering losses suffered of more than P3.7 billion from January to May this year in the operation of the Sual plant.
In granting SPPC’s prayer for a TRO, the CA itself acknowledged the fact that the PSA with Meralco allowed SPPC to claim a temporary price adjustment for a certain period based on CIC.
The CA added that, as correctly pointed out by the dissenting minority in the ERC, what is clear in the simulations made by Meralco is that the grant of the price adjustment is actually the cheapest option available, which was also confirmed by ERC’s own regulatory operations service.
It added that ERC was not even in possession of any data that contradicts and disproves the simulations submitted by Meralco, which are reasonably true and valid.
It ended by saying that it emphathizes with SPPC’s serious losses, which are capable to render it insolvent due to unforeseeable cause.
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