By Victor V. Saulon, Sub-Editor
SOLAR Philippines Tarlac Corp. has secured the regulator’s approval to raise by 2% annually the P2.999 per kilowatt-hour (kWh) electricity rate it signed with distribution utility Manila Electric Co. (Meralco).
In an order promulgated on March 4, 2019, the Energy Regulatory Commission (ERC) has reversed its initial ruling that disallowed the annual price escalation after Solar Philippines presented evidence proving that even on the 20th year of the power supply agreement (PSA), the rate at P4.4577/kWh will still be the lowest among the previously approved applications for solar power plants.
“The Commission likewise took note that under [Solar Philippines’] proposal, the rate of return over the project’s 20-year term is only 0.05% which is much lower than the rate of return allowed by [it] in other applications,” the ERC said.
The regulator also noted that the project is not foreseen to earn any profit until several years from the start of operation. Denying the 2% annual escalation, which is part of the rate agreed by the contracting parties will deny Solar Philippines the opportunity to recover its investments in the project, the ERC said.
The ERC said a denial is deemed inconsistent with Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA), which mandates the commission to “fix rates that will allow the recovery of just and reasonable costs and a reasonable return on rate base” for investors to operate viably.
The commission also said that its current policy in evaluating PSA applications is to arrive at the generation rate after employing the cost-based methodology. It said Solar Philippines’ proposed rate of P2.999/kWh “was found to be significantly lower” than the calculated generation rate computed by the ERC using the said methodology.
The ERC ruling comes after the regulator issued an order on Feb. 20, 2018 provisionally authorizing Meralco and Solar Philippines to implement their PSA at the agreed rate but without the annual adjustment or escalation.
Solar Philippines is the price challenger to an offer made by Citicore Power, Inc. to Meralco for solar power at a price of P3.7144/kWh and a 2% annual price escalation. Citicore did not match Solar Philippines’ offer of P2.999/kWh.
On June 29, 2018 Meralco filed a manifestation wherein it informed the ERC of Solar Philippines’ refusal to accept the February order because of the disallowed 2% annual escalation rate.
On July 3, 2018, Solar Philippines filed a motion for partial reconsideration wherein it said, among others, that even with the application of the annual escalation, the PSA rate is still significantly lower than the prevailing feed-in-tariff rate for solar energy at P8.69/kWh and the approved rates for other solar power plants.
Solar Philippines had said should the price escalation still be rejected, the company should instead be allowed to charge the levelized average rate of P3.7144/kWh, a price Meralco objected because it was not the one agreed during the price challenge process.
Solar Philippines also sought to move the timeline for the performance of its obligation under the PSA from December 2017 to February 2018. It also said that for the first 10 years of the PSA, and based on the ERC’s simulation, the rates range from P2.999/kWh to P3.6569/kWh — all of which are lower than the 20-year average of the PSA amounting to P3.7144/kWh.
The company said without the escalation, the agreement will be financially unviable to the prejudice of Solar Philippines and the consuming public.