Meralco: ERC approval to cancel supply contract ‘not necessary’

By Alena Mae S. Flores – September 15, 2023, 9:35 pm
from manilastandard.net

Power retailer Manila Electric Co. (Meralco) said Friday the Energy Regulatory Commission’s (ERC) approval to terminate the power supply agreement (PSA) contract between a distribution utility and a power supplier should only be “ministerial.”

“We respectfully submit that requiring ERC approval for PSA termination, when there is clear ground under the PSA, especially if the ERC has evaluated and approved its terms, is not only an unnecessary step but gives the ERC discretion to hold hostage the parties,” Meralco first vice president and regulatory management head Jose Ronald Valles said in a letter to the ERC.

Valles said a contract is the law between the parties, and if the termination is pursuant to the provisions of the PSA or EPSA (emergency PSA), “then there is no longer a need for a prior ERC approval for it to be effective.”

He said this position is strengthened under Article VII Section 28 of the PSA guidelines where ERC approval of a PSA already includes determination of the “PA’s reasonableness in terms of costs, risk allocation and other contractual terms.”

Valles said this includes remedies available to parties, and this concern is magnified in case of delay in approval or disapproval of termination.

“Should ERC release its decision on the termination several months after filing of the pleading for such purpose, parties will continue to suffer trying to implement the supply agreement (e.g., despite illegality of continued operations for DU that loses franchise or genco that has lacking permit such as COC) in the meantime,” he said

Valles cited as example the case of PSA for a greenfield project to meet the DU requirement with approaching operations date. He said the DU would be prevented from timely securing replacement PSA via CSP, and the delay in securing replacement PSA may eventually constrain a DU to get from, and expose its customers to the spot market.

“As another example, gencos will be forced to continue to incur losses even if termination is due to its financial inability to continue the supply or DU’s inability to pay for supply delivered, and the question arises on whether gencos will be allowed to recoup their losses incurred while awaiting ERC approval of the termination,” he said.

Valles said that if a generation company is already financially or physically incapable to supply, the guidelines does not provide any remedy to the DU to nevertheless require continuation of the PSA.

“It is unclear how a DU can enforce the ERC directive disallowing termination, to compel the genco to provide supply under the circumstances. Further, if genco appeals to regular courts, which subsequently issue a ruling in favor of the genco, it is unclear what happens for lapsed period (e.g., who shoulders losses incurred),” he said.

He said the ERC approval of termination should simply be ministerial.

“Approval is unnecessary as long as termination is in accordance with PSA provisions, except if (a) parties dispute if there is ground for termination under the PSA, and (b) questioned by customers, who would ultimately bear the cost/consequence of any delay in termination,” Valles said.

Meralco and San Miguel Corp. have pending requests for PSA termination of their supply contract with the ERC.