SMC says power unit ‘stable’ despite ERC's rejection of rate hike appeal

Diversified conglomerate San Miguel Corp. (SMC) on Friday said its power unit, SMC Global Power Holdings Corp. (SMCGP), has strong financial fundamentals despite the recent rejection of the Energy Regulatory Commission (ERC) of its joint power rate hike petition with Manila Electric Company (Meralco).

“While we find the recent decision by the ERC denying our petition for temporary relief from skyrocketing global fuel prices unfortunate, SMCGP remains in a stable position to navigate these circumstances. We have never been more confident of the fundamental strength of our businesses,” SMC president and CEO Ramon Ang said in a statement.

Ang said the company remains fundamentally strong, “with a sound strategy to manage all of its financial covenants and obligations, even as it pursues its expansion and transition to Battery Energy Storage and cleaner power technologies.”

The ERC denied the joint motion by SMCGP’s South Premier Power Corporation (SPPC) and San Miguel Energy Corp.’s (SMEC) and Meralco to hike the generation charge.

Meralco and San Miguel earlier cited the higher prices of coal and natural gas materials used to produce electricity.

With this, Ang said that while ERC's decision will significantly impact its two power facilities with fixed-rate power supply agreements (PSAs), it “would have no adverse implication on a consolidated basis for SMCGP.”

“We’re confident that we will be able to manage the company’s maturing obligations in 2023 and beyond. If necessary, there will be SMC parent support. For our bondholders, SMCGP will continue to be fully-compliant with its financial covenants at all times,” he added.

The SMC chief said that as of June, SMCGP no longer needed to pay P12 billion per annum in capital lease payments under its Independent Power Producer Administration (IPPA) contract for the Ilijan plant.

This will have a full-year positive impact for the company in 2023, according to Ang.

“[T]his provides the company a lot of financial flexibility whether it opts for capital expenditure, refinancing, or paying down debt,” Ang said.

By 2023, the SMC chief said, SMCGP would be realizing at least P8 billion to P10 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) from its Battery Energy Storage System (BESS) project.

“Also by next year, the company’s new Mariveles power plant is expected to come online, contributing an additional P5 billion to P6 billion in annual EBITDA,” he said.

Ang said that SMCGP will also no longer make capital lease payments of about P14 billion per year under its Sual power plant IPPA, effective October 2024.

“By this time, its full 1,000 MW (megawatts) BESS project would be contributing anywhere between P12 billion to P15 billion EBITDA per annum,” he said.

Ang said that all of SMCGP’s capacity is fully contracted.

Meanwhile, he said that the company continues to evaluate legal remedies to strengthen its claim for cost recovery, or possibly reverse the “unfavorable” ERC ruling, “even as termination remains a recourse for the company, as affirmed even by the ERC in its decision and a provided for in its PSAs with Meralco.”

“With a termination of the PSA, the company can eventually dispatch the capacities originally covered by the PSAs, to supply either the Wholesale Electricity Spot Market (WESM); Meralco, for its emergency power requirements, or distribution utilities and electric cooperatives at prevailing market terms. These would allow it to recover in full its power generation costs,” Ang said.

“The ERC ruling is a significant blow, not just to us, but more significantly, to the public, which will have to contend with higher electricity costs with the termination of the PSAs. That is why we are weighing all possible options,” he said. 

Earlier, SMCGP said it would not disrupt its supply of electricity to Meralco, despite the rejection of their joint petition to hike power rates, while it continues to explore other legal remedies “to allow us to sustainably provide for the increasing power needs of our country while meeting our obligations to our various stakeholders.” 

SMCGP is the holding firm of SMC’s interests in the power sector.—LDF, GMA News