SPPC gets permanent relief

The Court of Appeals has issued a writ of preliminary injunction (WPI) which in effect permanently suspended the power supply agreement (PSA) between San Miguel Corp’s power generating subsidiary South Premiere Power Corp. (SPPC) and Meralco.

In its ruling dated Jan. 25, the CA 13th division, in issuing the writ of preliminary injunction, explained that the WPI will preserve the status quo until the merits of the case (petition for certiorari) are fully heard.

The CA however emphasized that the grant of the WPI does not terminate the PSA between Meralco and SPPC but allows the parties to negotiate the terms of the agreement, thus ordering the parties to enter into good faith negotiations.

In its order granting the WPI, the CA noted that it is prudent for the parties to take their time in finding the most equitable solution in addressing the problem of increased cost. It said that the PSA itself provides for the mechanism for the parties to enter into good faith negotiation to agree on a satisfactory solution regarding the amendment of the PSA in order to restore SPPC and SMEC’s commercial position prior to such change in circumstances, including an adjustment in the contract price.

It cited paragraph 11.4d of the PSA which provides that if the parties fail to reach a mutually satisfactory resolution within 60 days from the commencement of negotiations, then the power supplier shall be entitled to terminate the agreement.

It will be recalled that the Energy Regulatory Commission (ERC) not only denied two petitions filed by Meralco together with SPPC and SMEC for recovery of losses due to change in circumstances (natural gas supply restriction from Malampaya and soaring coal prices, respectively) via a temporary increase in power rates to be spread out over a six-month period but also prohibited the two SMC companies from terminating their respective fixed-rate PSAs with Meralco.

The two separate petitions filed by South Premiere and SMEC for certiorari with applications for the issuance of a writ of preliminary injunction have been consolidated with the 13th division of the appellate court.

The original petition for certiorari with petition for WPI was filed by SPPC with the CA 13th division while that of SMEC was filed with the CA 16th division. The 13th division earlier granted the prayer for issuance of a temporary restraining order by SPPC, which has now become a permanent restraining order due to the issuance of the WPI.

Meanwhile, the prayer for TRO sought by SMEC, which operates the Sual coal-fired power plant, as well as for the issuance of a WPI was denied by the 16th division. However, it granted the consolidation of the two cases with the 13th division.

The CA 13th division in another order, this time in connection with the petition for certiorari filed by SMEC against ERC, said that without necessarily giving due course to their petition, ERC, Meralco and other respondents were directed to file a comment, not a motion to dismiss, within 10 days from notice.

This means that while SPPC’s PSA with Meralco is suspended permanently, that of SMEC is still in effect pending final resolution of the main case for certiorari, which alleged grave abuse of discretion amounting to lack or excess of jurisdiction on the part of ERC when the commission not only denied SMEC and Meralco’s joint petition for an increase in rates but also prevented SMEC from terminating its PSA with Meralco, despite evidence presented by Meralco and uncontroverted by ERC’s regulatory operations group that even with the proposed increase, the implementation of the PSA still provides the least cost option for Meralco and the electricity consumers as well.

In its order granting SPPC’s prayer for issuance of a WPI, the CA noted that since the notice of natural gas fuel supply restriction was issued by the operators of Malampaya, the continued implementation of the PSA and its continued power supply to Meralco has caused SPPC, which operates the 1,200-megawatt Ilijan natural gas-fired power plant, to suffer millions in losses every day.

The CA explained that in refusing to allow SPPC and Meralco to terminate the PSA and in denying the proposed rate increase, SPPC was being forced to sell on a negative margin, which produces an untenable situation because the more SPPC sells, its business losses become greater.

The CA 13th division pointed out that while there is nothing in dispositive portion of ERC’s order that enjoined the preservation of the PSA with Meralco, a reading of the body of the order would show that it imposed, specifically upon Meralco, to continue implementing the PSA and to take all available remedies available to it under the PSA.

It will be recalled that the fixed-rate PSAs of Meralco with SPPC and SMEC allow the termination of the agreement due to change in circumstances (CIC) in case the ERC would not allow a recovery of the additional power generation costs via an increase in the selling rate to Meralco. Despite this, the ERC did not allow a termination of the PSAs.

The issuance of the WPI, the CA said, is precisely the remedy available to SPPC in order to prevent the continued implementation of the PSA. It added that the issuance of the writ is urgent since the SMC power company will not only be left with an economically idle property, but rather it will be forced to cease its operations all together.

It noted that significantly, from the January to May 2022 billing periods alone, SPPC has already incurred staggering losses of more than P1.3 billion. And this amount still does not include future losses that it would incur due to the continued implementation of the PSA without any relief it may have thereunder.

The court likewise emphasized that the intention and spirit of the law (EPIRA) is not to lead petitioner to its financial ruin. It added that in fact, petitioner can only remain in business for the next 10 months if the effectivity of the PSA is not suspended.

It stressed that without the issuance of the WPI, the judgment being prayed for by petitioner in the main case will be rendered ineffectual since the private companies might cease to exist by that time.

The two cases were consolidated with the CA 13th division precisely because they involve the same parties and/or related questions of fact and/or law and also so that the business of the court may be dispatched expeditiously while providing justice to the parties, to avoid multiplicity of suits, and attain justice with the least expense and vexation to the litigants, as explained by the Supreme Court in an earlier ruling.

It remains to be seen, after hearing, how the CA will resolve the main petition. But hopefully, in the end, justice will prevail and the courts will decide what’s best for both private business and the consumer in the long run.

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