San Miguel unit sets sights on selling power in WESM

BY LENIE LECTURA – OCTOBER 7, 2022
from Business Mirror

SMC Global Power Holdings Corp. (SMCGP) will terminate its two power supply agreements (PSAs) with the Manila Electric Co. (Meralco) and sell the output of the two power plants in the spot market and to other interested offtakers.

This move, it said on Thursday, will provide SMCGP “better financials” on a consolidated basis.

“Once the termination of the PSAs take effect, SPPC (South Premiere Power Corp.) and SMEC (San Miguel Energy Corp.) will have to sell its power to WESM (Wholesale Electricity Spot Market) and enter into bilateral contracts with other offtakers, pricing of which will be market-based, and thus will provide better financials and economics for SMCGP on consolidated basis,” SMC said in a disclosure.

The termination was supposed to take effect last October 4. However, the Energy Regulatory Commission (ERC) said SMCGP and Meralco should follow what is in the PSAs, which set 60 days before they can terminate the PSAs after the receipt of the ERC order.

It can be recalled that the ERC denied the joint plea to adjust their previously approved power rates by P0.30 per kilowatt hour (kWh) over a period of six months.

The ERC orders dated September 29 was received by SPPC and SMEC on October 3. “Within this 60-day period, SMEC and SPPC are required to continue the supply of power to Meralco at a cost higher than the contracted price under the PSAs. Nevertheless, SPPC and SMEC will continue to explore other legal remedies relating to the ERC orders,” SMC said.

Moreover, SMC said that based on internal evaluation, SMCGP and its subsidiaries will remain compliant with its financial covenants under all existing loan agreements and other debt instruments.

“These are not expected to have a material adverse effect on the consolidated financial of the company and as well as in the operations of SMCGP and its subsidiaries,” SMC said.

As it is now, SPPC and SMEC continue to operate at a loss because the costs of operating their power plants have increased. SMC has said the power plants have already posted staggering losses of P15 billion and the companies have already absorb more than P10 billion of the losses that were incurred last year.

SMCGP asked for a temporary and partial cost recovery relief only for the losses that SPPC and SMEC incurred from January to May 2022, in the form of a rate increase on their contract capacities under the PSAs they entered into with Meralco.

Meralco, for its part, said the other day that it has forged emergency supply deals with other power suppliers to ensure continuity of stable, reliable and adequate supply to its customers.

Meralco First Vice President and head of regulatory management Jose Ronald V. Valles said Meralco had received five lowest emergency power supply agreements (EPSA) offers from Consunji-led SEM-Calaca Power Corp. (SCPC-Calaca)-200 MW; GNPower Dinginin Ltd. Co. (GNPD)-300 MW from Aboitiz Power Corp.; Masinloc Power Partners Co. Ltd (MPPCL)-250 MW; SMC Consolidated Power Corp. (SCPC-Limay)-200 MW; and South Premiere Power Corp. (SPPC)-120 MW.

MPPCL, SCPC, and SPPC are units of SMCGP.

However, last September 16, Valles said SEM Calaca withdrew its offer due to “technical issues in its power plant, specifically that of Unit 2.” Thus, after immediately conducting rate simulations, Meralco said it will replace the 200 MW that should have been provided by SEM Calaca from the WESM as it has the lowest cost to Meralco’s customers, instead of taking such capacity from the other power suppliers that had the next lowest EPSA offers.

The said EPSAs are pending at the Department of Energy (DOE) for approval for a Certificate of Exemption from CSP (COE-CSP). And, until that is issued, Meralco cannot implement the EPSAs with the power suppliers.

“We are hoping for the swift action of the DOE in exempting the EPSAs from undergoing CSP. Without these EPSAs, our customers may become exposed to volatile prices,” said Valles.