SMC opposes PSALM proposal on trading of Ilijan output

By Danessa Rivera (The Philippine Star) | Updated October 9, 2017 - 12:00am
www.philstar.com/business/2017/10/09/1746773/smc-opposes-psalm-proposal-trading-ilijan-output

MANILA, Philippines — San Miguel Corp. (SMC) warns the Power Sector Assets and Liabilities Management Corp. (PSALM) is exposing consumers to price volatility in the wholesale electricity spot market (WESM), if it pushes to trade the output of the 1,200-megawatt (MW) Ilijan power plant on the spot market.

SMC president and COO Ramon Ang said PSALM’s insistence on trading the output of the Ilijan power plant on the spot market is a blatant disregard for the welfare of power consumers who should be shielded from, and not exposed to, price volatility.

WESM, the country’s trading floor where power is bought or sold, has seen spikes over the years, burdening consumers as a result of high electricity charges, he said.

Ang said Ilijan is a base load plant, thus, its output must not be traded in the WESM to protect consumers.

“The Ilijan power station is used to continuously supply electricity to the grid, including hours when the demand is high. If we sold to the WESM, small consumers would have to pay higher electricity bills. Even businesses, which are the largest consumer of energy, would suffer,” he said.

PSALM is arguing that South Premiere Power Corp. (SPPC), SMC’s unit and the the independent power producer (IPP) administrator of Ilijan, should have sold its generated power to the WESM instead of selling to the Manila Electric Co. (Meralco), especially during the contested period November and December 2013, which could have optimized revenues from the high prices.

SPPC has an existing power supply agreement (PSA) with Meralco that was approved by the Energy Regulatory Commission (ERC) in 2012 for 1,180 MW capacity from the Ilijan plant.

In approving the PSA between Meralco and SPPC, the ERC said “the approval will ensure continuous and reliable supply of electricity to Meralco’s customers and will minimize, if not avoid, its exposure to volatile prices in the WESM. The proposed rate is also lower than the rate under the Napocor transition supply contract (TSC).

Meralco, in its intervention to the case against PSALM, said the termination of the Ilijan IPPA “will prevent it from purchasing electricity from SPPC. Consequently, Meralco will lose 1,180-MW of electricity supply from Ilijan under the terms of the ERC-approved Meralco-SPPC PSA which provides cheaper electricity to Meralco’s end-users.”

“Meralco will have to purchase electricity from the WESM to cover for the lost 1180-MW worth of electricity, which will expose Meralco and its end-users to the price volatility of the market,” it said.

The Meralco PSA with SPPC covers 18.74 percent of its peak power requirements in its franchise area amounting to at least 2.7 million households with 200 kWh consumption a month.

“This is a huge volume that has a great impact in bringing cheaper electricity to the public. PSALM’s act in terminating the Ilijan IPPA threatens to remove this benefit from the public. If Meralco is prevented from purchasing power from the Ilijan plant, this will thwart its efforts in bringing down the electricity cost for its end-users causing serious and irreparable damage to Meralco and its consumers,” it earlier said.

PSALM earlier terminated the Ilijan IPPA for alleged non-payment of generation charges that it computed using WESM rates instead of the ERC-approved rates. The state-run firm also claimed that SPPC has unpaid obligations.

SPPC eventually filed a complaint against PSALM due to willful breach of contract, resulting from a flawed interpretation of certain provisions related to its generation payments, under the administration agreement.

It said it has honored its contractual obligations under the agreement, paying P239 billion as of August 2017 representing energy fees and capacity fees. For the same period, PSALM has also gained P30 billion from its Administration Agreement with SPPC.