Unfortunate intervention
President Marcos Jr. waded into a potential legal and regulatory quagmire by issuing a statement describing as “unfortunate” the decision of the Court of Appeals (CA) to temporarily suspend a power supply deal between an electricity generating unit of San Miguel Corp. (SMC) and the Manila Electric Co. (Meralco).
The statement issued by Malacañang Palace last Sunday further quoted the Chief Executive as saying, “We hope the CA will reconsider and include in their deliberations the extremely deleterious effect this will have on power prices for ordinary Filipinos.”
The issue stems from a 2019 contract of SMC’s unit, South Premiere Power Corp., to sell electricity to Meralco at a fixed price for 10 years. But the combined effects of the unexpected pandemic and the equally unexpected Russian invasion of Ukraine pushed up the price of the fuel for SMC power plants by over 500 percent, resulting in over P15 billion in losses this year, according to the conglomerate.
Backed by Meralco, SMC asked the Energy Regulatory Commission (ERC) for a temporary 30-centavo per kilowatt hike in generation charge to reduce its losses, citing unforeseen circumstances. Both firms say the change in circumstances caused by the sharp spike in the fuel prices merit an adjustment in its contract or, barring that, allow the conglomerate to walk away from the deal altogether.
If this happens, Meralco will have to source electricity from the spot market, where prevailing prices are substantially higher than the increase that both firms have asked the ERC to grant.
The regulator denied the petition, saying that the agreed price in the power supply agreement (PSA) was fixed in nature and that the grounds for the increase cited by the two companies were not among the exceptions that would merit a price adjustment. SMC then appealed this decision with the CA, which recently granted the temporary restraining order (TRO) suspending the PSA between SMC and Meralco.
The President said the TRO on the implementation of the PSA could “cause further dislocations and possible price increase for power.” But two of the five ERC commissioners who dissented with the decision to reject the rate hike presented three scenarios in which consumers would pay much higher electricity rates compared to what SMC had asked for.
It is certainly within the President’s prerogative to make the necessary decisions to cushion the impact of high prices on the public. But it is unfortunate that he felt the need to take sides in a dispute currently before the courts.
There is a reason the Constitution guarantees the independence of the judiciary from other branches of government. The fair administration of justice, whether in criminal or civil issues, depends on this independence from undue influence.
We recognize that the President wants to ensure the best outcome for Filipino consumers. He can do this in several ways that do not interfere with the independence of the judiciary.
For one, the President can order his appointees in various energy sector offices to fast track the development of indigenous energy sources that can cushion the blow of soaring fossil fuel prices around the world.
He can also order them to double down on renewable energy sources, which can provide consumers with substantial amounts of electricity drawn from abundant solar and wind power sources in the country.
And most importantly, the President can encourage the warring stakeholders in the energy sector, especially the conglomerates that generate the bulk of the country’s electricity, to resolve their differences by finding a middle ground that satisfies the needs of all parties involved.
The President can shield Filipino consumers from the full brunt of higher energy prices by mediating a win-win solution among stakeholders that will be beneficial for everyone.
Lest anyone forget, a power supply shortage is looming next year and in the coming years as the economy fully reopens from the pandemic. The Philippines will need the financial muscle of private sector investors more than ever to ensure that its citizens have continued access to products and services like electricity at reasonable prices.
To attract this kind of money, the government should promote an environment that gives investors the confidence to commit billions of pesos in capital for the long term.
The good news is that the President has so far defied the naysaying of his critics and doubters by making, for the most part, all the right moves in shepherding the country’s economy toward the right path during a time of great global uncertainty.
He can sustain this by reassuring investors that legal and regulatory mechanisms can resolve disputes independently and allowing market forces to work without succumbing to the temptation of political interference.
