ERC grants bid of Meralco, PEDC to recover P884m in fuel costs from consumers

By Alena Mae S. Flores – August 31, 2023, 8:25 pm
from manilastandard.net

The Energy Regulatory Commission approved the petition of Manila Electric Co. and Panay Energy Development Corp. to recover from consumers P884.545 million due to high fuel costs.

It said in a decision dated March 8, 2023 but released on Aug. 29 it approved the joint motion for contract price adjustment filed by Meralco and PEDC and the joint motion for power supply agreement termination.

The ERC made the decision on a vote of 3-2, with chairperson and chief executive Monalisa Dimalanta issuing a separate opinion and commissioner Catherine Maceda issuing a dissenting opinion.

The commission, in granting the price adjustment motion, was unanimous in finding that the PSA allowed for price adjustments in case of “extraordinary event…that results in an increase of actual fuel costs from the fuel prices at the time of bid submission…” under certain conditions.

The parties filed the price adjustment motion on Jan. 20, 2022, citing the “change in circumstance” provisions in their PSA.

Meralco and PEDC said the significant increase in global cost of coal in 2022 led to the latter suffering losses of P962,240,261.00 as of September 2022.

The ERC computed an actual loss of P884,545,417 upon verification of document submitted by the parties. The regulator said the majority of the commission ruled that conditions specifically defined by the CIC provisions found in the PSA were present in the case.

Meanwhile, the majority of the commission, in granting the termination motion, also found that there was basis to end the PSA on the basis of mutual agreement of the parties.

Meralco and PEDC filed the termination motion on June 23, 2022, citing PEDC’s inability to meet its contractual obligations by virtue of the losses it incurred.

The ERC said Meralco and PEDC stipulated in the PSA that the parties had the option to terminate at the instance of a CIC.

Dimalanta said in a separate opinion that by filing the termination motion before the commission decided on the price adjustment motion, the parties were deemed to have abandoned their request for price adjustment and, hence, it could no longer be acted upon by the commission.

Dimalanta said while there was substantive basis to allow the termination of the PSA, “the parties should be penalized for failing to observe the procedural requirements provided in the PSA itself to effect such termination.”

Maceda voted to deny the termination motion, price adjustment motion and prayer for recovery of PEDC’s alleged fuel losses, principally for failure of the parties to observe the conditions and processes required under the PSA.

Maceda, in her dissenting opinion, said that while the PSA indeed contained a provision allowing for price adjustment in case of extraordinary increase in fuel cost, equally important is the parties’ strict compliance with provisions of the contract, particularly the conditions and processes required under Articles 11.3, 11.4, and 14.5.4 thereof, all of which provide for the need of good faith negotiation and clear mechanism for termination.

PEDC submitted the lowest bid for the supply of 70 megawatts to Meralco in a November 2021 bidding. It offered the lowest total headline rate of P2.9906 per kilowatt-hour and total levelized cost of electricity rate of P2.948 per kWh.

PEDC owns and operates the 164-MW and 150-MW coal-fired power plants in Iloilo City that utilize circulating fluidized bed boiler technology.