ERC rules: ‘Longstop date’ is no longer valid as ground for PSA termination

The Energy Regulatory Commission (ERC) has firmly laid down that longstop date provision in power supply agreements (PSAs) will no longer be accepted downright as ground for unilateral contract pre-termination; and the allowable timeframe for regulatory approval shall also be within 270 days or at least nine (9) months.

The regulatory body has rendered this ruling based on the PSA joint applications of Manila Electric Company (Meralco) and supplier-firms GNPower Dinginin Ltd. Co. of the Aboitiz Group; Mariveles Power Generation Corp. of the San Miguel Group; and Excellent Energy Resources Inc. (EERI) which is a partnership between San Miguel, Aboitiz Power and Meralco PowerGen.

Longstop date would refer to the last day by which an approval to a PSA must be rendered or issued, following fulfillment of all conditions in a contract.

ERC Chairperson Monalisa C. Dimalanta clarified that none of the pending Meralco PSAs had sought pre-termination based on longstop date, hence, the ruling will serve as a guide to all similarly situated contracts that would be seeking approvals from the ERC moving forward.

“We ruled that such ground (longstop date) for termination under the PSAs cannot be invoked as currently worded because they have to comply with CSP (competitive selection process) guidelines – which require among others ERC approval; and EVOSS Act provision for 270 days from filing for ERC to act,” she explained.

In the Meralco-underwritten PSAs, the prescribed longstop date had been within six-month period from the joint filing of their application for PSA approval.

To recall, the lapse of the specified longstop date in the Meralco PSA was already invoked as legal justification for the March 2023 termination of the first contract that the utility firm had sealed with EERI for capacity delivery of 1,800 megawatts.

Nevertheless, in the recently issued ERC ruling, it stipulated that based on the provision of Section 13 (e) of Republic Act 11234 or the Energy Virtual One-Stop Shop (EVOSS) Act, “the ERC shall have 270 calendar days to issue an action from the submission of a valid application.”

The Commission further cited that since the Meralco PSAs with the three companies did not include in their joint filing the application for provisional authority (PA), which the regulatory body should have been mandated to act on within 75-day period, it is held then that the applicable timeline for the issuance of a final approval for the supply contracts shall be the 270-day prescription under the EVOSS.

The regulatory body similarly apprised Meralco and its supplier-generation companies (GenCos) that under Section 34 of the EVOSS law, it was provided that “no party to the PSA shall be allowed to terminate the contract within the validity period, unless expressly allowed under the guidelines.”

The ERC qualified that contract pre-termination shall only be permitted “upon compliance with the procedural requirements set forth in the PSA,” and that must also be done with prior approval from the Commission.

It further stated that the acceptable grounds for PSA termination shall only be anchored on conditions such as: bankruptcy or insolvency of the GenCo; expiration, reduction or revocation of the franchise of the concerned distribution utility (DU); breach of contract; default of either party without fault or negligence on the other party; force majeure rendering the supply of electricity impossible to accomplish; or any other circumstance analogous to the other cited reasons.