MANILA - The Manila Electric Co. (Meralco) is asking the Pasig Regional Trial Court (RTC) to uphold a 2006 agreement with state-led National Power Corp. (Napocor) to settle billions in debt owed by the power utility, which could later on be passed to consumers.

Meralco, however, said whether the amount would indeed end up in household electric bills should be settled by industry regulators.

In a 20-page petition for declaratory relief, Meralco asked the Pasig RTC to “declare that the settlement agreement, independent of the pass-through provision which is reserved for approval by the [Energy Regulatory Commission or ERC], is valid and binding.”

This stemmed from the intervention by state lawyers in ERC hearings over the Meralco-Napocor deal last year. The Office of the Solicitor-General argued that the settlement agreement was invalid as Napocor did not secure its consent.

The deal was also “contrary to law, morals, and public policy,” specifically its pass-on provision which would put an additional burden of P0.12 per kilowatt-hour on consumers, state lawyers had claimed.

The debt pertains to a 10-year take-or-pay power supply contract inked by Meralco and Napocor in 1994. Meralco sought a renegotiation in 2001 to obtain a transition supply contract or TSC that had better terms, but Napocor insisted on billing Meralco under the existing contract.

In 2004, Napocor estimated Meralco’s debts at P42 billion. Meralco, in turn, asked Napocor to pay almost P10 billion, claiming transmission delays and other penalties.

Back then, critics accused Meralco of unduly favoring private power suppliers such as the Sta. Rita and San Lorenzo gas plants, which were its sister firms, being controlled by the Lopez family. Meralco previously agreed to get 85% of its requirements from the state power producer.

In 2006, Meralco and Napocor brought down the former’s liabilities to P14.3 billion. That same year, they inked a TSC, in which Meralco agreed to buy 6,600 gigawatt-hours of electricity from Napocor for five years.

Unlike the old take-or-pay deal, TSCs set a duration and minimum energy offtakes, except that the contracts must expire a year after the declaration of open access in the power sector.

In a decision last September, the ERC granted Meralco’s motion to suspend the proceedings, tossing the case to the courts.

Meralco yesterday pointed out in its petition that “no law requires Napocor to obtain OSG (Office of the Solicitor General) approval for its compromise or settlement agreement with Meralco.”

“The settlement agreement was entered into directly by the president and chief executive officer of Napocor, duly authorized by its board of directors, which is the sole corporate organ that can authorize the corporation to enter into contracts or compromises,” Meralco said.

Meralco has since taken in new shareholders, with San Miguel Corp. acquiring 27% last year and Philippine Long Distance Telephone (PLDT) Co. and sister Metro Pacific Investments Corp. obtaining 34.7% early this year.

The Lopez family, which held control since buying Meralco from its American owners in the 1960s, still owns 13.4%, but has agreed to sell half of that to the PLDT-Metro Pacific bloc by next year. The Lopezes, PLDT, and Metro Pacific share management control.

Meralco had been unable to get the government’s nod to adjust rates since 2003, until the entry of San Miguel and PLDT this year.

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