ERC rejects rate hike sought by Meralco, SMC power subsidiaries

MANILA, Philippines — The Energy Regulatory Commission (ERC) has denied the joint petition of Manila Electric Co. (Meralco) and listed conglomerate San Miguel Corp. (SMC) for higher power rates.

Meralco and electricity suppliers South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC), both owned by SMC, earlier filed the petition as a temporary relief measure to cushion the impact of skyrocketing coal and fuel prices caused by the Russia-Ukraine war.

In its decision dated Sept. 29 and released on Tuesday, the ERC said that “after due deliberation and thorough evaluation of all arguments submitted and all information gathered by the Commission pursuant to its regulatory powers, the Commission denies applicants’ joint motion for price adjustment.”

It noted that its ruling was anchored on its mandate to protect consumers’ interests under the Electric Power Industry Reform Act (Epira), specifically to safeguard consumers “against market abuse and to ensure transparent and reasonable prices of electricity.”

Three ERC officials, namely Chair Monalisa Dimalanta and Commissioners Catherine Maceda and Floresinda Baldo-Digal, voted for the denial of the petition, while Commissioners Alexis Lumbatan and Marko Romeo Fuentes voted in favor and gave their dissenting opinions (See related story in Biz Buzz, Page B1).

The ERC said it was clear there was no basis for such relief under their power supply agreements (PSA) that have “the nature of a financial contract with a fixed price,” and the suppliers, in this case SPPC and SMEC, assumed all risks relative to market conditions and economic realities.

Supply deal termination

The regulator said it had to decide based on the provisions of the supply deals entered into by Meralco with SPPC and SMEC “on their own free will, without pressure or intervention from anyone.”

SMC said it had incurred losses amounting to P15 billion from 2021 to date for running its coal-fired power plant in Sual, Pangasinan, and its natural gas-fired power plant in Ilijan, Batangas, due to soaring fuel prices.

SMC formally lodged last August a “notice of termination” for two PSAs with Meralco, emphasizing then that the termination of the supply deals would be effective Oct. 4 “if no relief is given,” or if the ERC would not act favorably on its rate hike bid.

The Inquirer on Tuesday reached out to SMC but it is yet to issue a statement on the matter as of press time.

In its order, however, the ERC said it found it “appropriate to remind (Meralco and SMC) to faithfully adhere to the terms and conditions of, as well as the obligations under, the PSA” and that “the termination of the (supply) contract will directly or indirectly violate the policies laid down in Sections 2 (b), (c) and (f) of the Epira.”

The regulator said that to terminate the supply deal, the parties needed to observe the 60-day period following the receipt of the ERC’s denial of the price adjustment or no earlier than six months following the receipt of the termination notice.

Consumers win

Civil society group Power for People Coalition (P4P) welcomed the ERC ruling, which it described as “historic.”

“The ERC’s recent history has made consumers pessimistic about the willingness of the agency to defend consumer rights. We are glad to have been proven wrong in this case,” said P4P convener Gerry Arances.

Renato Redentor Constantino, executive director of Institute for Climate and Sustainable Cities, said the latest development served as a reminder for industry players to uphold their responsibilities under their respective power supply deals.

“PSAs, unlike ordinary commercial contracts, are imbued with public interest and thus subject to strict regulation by the government,” Constantino said.

“Under this financial agreement, power suppliers must bear all the risks of market volatilities,” he added.

Consumers, however, might end up paying more for consuming electricity as Meralco is scurrying to find alternative but more expensive sources of electricity to avert the potential impact of SMC’s termination of its supply contracts due to the ERC’s decision.

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