DOE: Lessons learned from MERALCO-SMC supply deals

DOE-diesel plant

The possible termination of the power supply agreements (PSAs) between San Miguel Corp. (SMC) and the Manila Electric Co. (MERALCO) after their joint petition for a rate hike was denied should be a “learning experience”, the Department of Energy (DOE) said. 

In a report by BusinessMirror, Energy secretary Raphael Lotilla said that the recent events serve as a learning experience for all that if the DOE and regulatory board provide for fixed-rate contracts then “there must be other terms and conditions that will make the contract implementable notwithstanding the highly volatile prices in the commodities market.” 

With regards to the fixed-rate term of MERALCO and SMC’s PSAs, Lotilla said that the two power companies should have included conditions of their contracts viable despite changes in circumstances. 

Following ERC’s denial of the rate hike plea, SMC said that it will terminate its PSAs with MERALCO 60 days after receiving the ERC orders, which were received on October 3.

SMC’s energy arm, SMC Global Power Holdings Corp. (SMCGP), said that it will continue to supply power to MERALCO even after its rate hike petition was denied. 

Should the contract termination push through, South Premiere Power Corp. (SPPC) and the San Miguel Energy Corp. (SMEC) would have to sell their power supply to the Wholesale Electricity Spot Market (WESM) and enter bilateral contracts with other off-takers, of which the pricing will be market-based. 

MERALCO earlier said that it will exert remedies to prevent the termination of the PSAs. 

The distribution company’s first vice president and regulatory management office Atty. Jose Ronald Valles said that should San Miguel pursue the contract termination, MERALCO will ensure continuity of stable, reliable, and adequate supply from other sources like WESM and other Generation companies. 

Whether or not the rules on the competitive selection process (CSP) should be amended following concerns raised by the Energy Regulatory Commission (ERC), as well as petitions of MERALCO and the San Miguel energy companies, Lotilla said that there are more parties involved in administering the rules for the auction. 

Nevertheless, Lotilla said that there is a need “to make a clear distinction” between DOE’s policy role and ERC’s regulatory aspect.