SMC Global Power Holdings Corp. (SMCGP), the power arm of San Miguel Corp. (SMC) said Tuesday that it has already notified the Manila Electric Co. (Meralco) of its intent to terminate their power supply agreements (PSAs).
SMCGP cited “unexpected and unprecedented change in circumstance,” including sky-rocketing global fuel prices brought on by multiple factors including the war, in terminating the PSAs. The termination is effective starting October 4, if no relief is given.
The relief pertains to the joint petition of SMCGP units–South Premiere Power Corp. (SPPC) and San Miguel Energy Corp. (SMEC)–with Meralco for a temporary and partial cost recovery relief on their power supply agreements (PSAs).
SPPC and SMEC are administrators of the Ilijan and Sual plants, respectively.
They recently filed a temporary and partial cost recovery relief only for the losses incurred from January to May, in the form of a rate increase on its contract capacity under the PSAs to be amortized over a period of 6 months.
The SMGCP units said this would allow the power generation facilities to continue sourcing the necessary fuel and allow it to viably operate and supply power. While this will result in a temporary increase in prices, the grid would continue to have adequate supply of reliable base load power.
SMCGP said electricity prices in Metro Manila and nearby provinces might rise by as much as 30 percent starting October if regulators will not act on the petitions.
If the temporary relief is granted by the Energy Regulatory Commission (ERC), electricity prices in Luzon will go up by only P0.30 per kwh over a period of 6 months. However, without it and with the termination of the PSAs, Meralco has estimated an increase of at least P0.80 up to P1.30/kwh in the price of electricity over the next 3 to 4 months, as it will have to find alternative sources that will most likely be costlier, including the Wholesale Electricity Spot Market (WESM).
Should Meralco opt for emergency power supply procurement, the rate of increase is expected to accelerate with the weakening peso and surging global fuel prices. Coal prices in the world market continue to hover beyond $400 per metric ton, threatening to push electricity bills even higher.
Petition
SMCGP President Ramon S. Ang issued a statement asking the ERC for “a fair and objective assessment” of its petition, which it filed back in May, seeking a temporary increase for six months for the combined capacities supplied by its Sual Coal Plant and Ilijan Natural Gas plant to Meralco, following the record rise in global fuel prices that were driven by economic and geopolitical forces.
“With much regret, we have to admit to the public that the current situation is seriously jeopardizing our other critical operations, projects, and financial obligations. We are only seeking partial adjustment in price so we can continue supplying to Meralco and minimize the impact of termination on industries and consumers, particularly those from the lower-income households who will get hit harder,” Ang said.
The company also expects hefty price increases over the term of the contracts until 2030 if the temporary relief intended for partial cost recovery is not acted upon.
The temporary rate hike is meant to allow the Sual and Ilijan facilities to not only recover some P5 billion in losses but also ensure their fixed-rate PSAs are maintained over the longer term, which will continue to mitigate the soaring cost of electricity for consumers.
Ang said SMGCP’s current PSAs actually help keep electricity low for consumers, as they are among the last of the fixed-rate power supply agreements that do not pass on any additional costs to consumers.
Essentially, the facilities had been softening the impact of record fuel prices on consumers, which other generation companies have been passing on to them. If they are terminated, consumers will no longer enjoy such benefits under new PSAs.
“We know any price increase is unpopular, and normally we never ask for one—which is what we did for all of last year, when we absorbed expanding costs that we do not pass on to consumers. The war in Ukraine has taken prices far beyond what we and Meralco, could have even imagined in 2019, when we signed the PSAs. At the time, the forecast for coal was only $65 per metric ton for 10 years. Now it is already at $400/MT,” Ang said.
Ang is hoping that the ERC “will not merely try to prevent a temporary increase, but will take a whole-of-industry approach,” as no company or business can sustain operations with these unprecedented and continuing rise in costs.
He said these power plants account for 25 percent of the net reliable capacity of the Luzon grid. “They are a major part of the country’s already fragile power supply. We ask that in this time of extraordinary circumstance and difficulty, please, let’s not cripple them.”
Further, Ang said that the company is one with government in protecting the consumers, and it has remained committed to that even as most power producers have been passing on costs to consumers.
“That is why we absorbed losses last year. And that is also why electricity prices in Metro Manila and some parts of Luzon have not gone up as much compared to other parts of the country.”
Ang said the company continues to hold the door open for further discussions with relevant government agencies, and would work with Meralco to ensure supply through October, when the termination takes effect.
