Terminated Meralco and SMGPH PSAs will be reviewed

The Energy Regulatory Commission (ERC) will review the terminated power supply agreements (PSA) of Manila Electric Company (Meralco) and subsidiaries of San Miguel Global Power Holdings (SMGPH) Corp. for possible violations.

“[The] The ERC will review the legality of the termination and the parties’ compliance with due notice and procedures to see if there are any violations,” ERC Chair Monalisa S. Dimalanta said in a text message.

Meralco said Friday night that it had been informed by SMGPH that the 1,800 megawatt (MW) PSA between Meralco and Excellent Energy Resources Inc. (EERI) and with Masinloc Power Partners Co. LLC has been discontinued.

“We acknowledge receipt of the notices from San Miguel Global Power,” said lawyer Jose Ronald V. Valles, head of Meralco’s Office of Regulatory.

These two PSAs are expected to supply Meralco with 1,800 MW from 2024 to 2025. Under the PSA, EERI is to supply 1,200 MW of gas capacity starting in December 2024 and the remaining 600 MW from Masinloc Power starting in May 2025.

Valles said Meralco will run out of options to replace capacity under the terminated PSAs, which were competitively selected (CSP) in February 2021. The PSAs were submitted for ERC approval in March 2021.

“We intend to re-apply for the same capacity for the same period. Let’s wait for the results of these auctions,” he answered a question about the impact of terminated production sharing agreements on Meralco consumers.

One more round

WALLES said Meralco will require the Department of Energy (DOE) to conduct another round of CSP “as soon as possible.” However, Meralco will first have to submit a proposed terms of reference for the CSP to the DOE.

When asked for comment by Energy Minister Rafael Lotilla, he said in a text message that his office would be waiting for the application to be submitted.

Meanwhile, Dimalanta commented that cutting off supplies will affect “deliveries in 2023-2024 because those PSAs should start then.”

San Miguel Global Power has not yet commented on the reason for the dismissal.

Consumer advocacy group People for Power (P4P) said the reason for the shutdown was “the unavailability of selling electricity using coal and gas.”

“We welcome this development. In the past, P4P has also filed objections to CSP, which put forward these contracts, which would allow SMC and Meralco subsidiaries to pass on additional costs to consumers due to highly volatile coal and gas electricity prices.

With EERI and Masinloc Power opting out, consumers are spared the undeniably expensive bills they would have to pay on two contracts,” P4P chief executive Jerry S. Arances said in a statement.

“Best” rates

HOWEVER, EERI and Masinloc Power were the two “top” offerings, which offered a low levelized cost of electricity (LCOE) of 4.1462 pesos per kilowatt hour (kWh) for EERI and 4.2605 pesos per kWh for Maisnloc Power. Both proposals were below the LCOE reserve price of 5.2559 pesos per kWh.

Then the tender offers of Mariveles Power Generation Corp., Atimonan One Energy Inc. (A1E) and GNPower Dinginin Ltd. co. (GNPD), which were 4.3321 pesos/kWh, 4.6338 pesos/kWh and 5.2500 pesos/kWh, respectively, were considered by the Third Party Nominations and Rewards Committee as “Possible Next Best Offers”.

Previously, two SMGPH subsidiaries terminated production sharing agreements with Meralco after the ERC rejected their request for a temporary increase in electricity prices due to financial losses caused by rising fuel prices and inflationary pressures.

The Court of Appeals (CA) granted a motion for an injunction filed by South Premiers Power Corp. (SPPC), effectively suspending the contract for the supply of electricity for 670 MW, which was to be received from the Ilijan gas plant and supply power to Meralco.

“The purpose of an injunction is to prevent threat or permanent irreparable harm to the parties before their claims can be carefully examined and decided,” the SA explained. “His only goal is to maintain the status quo until the case is fully considered on the merits.”