Meralco-First NatGas power supply deal gets ERC go signal

By Victor V. Saulon, Sub-Editor

THE Energy Regulatory Commission (ERC) has granted Manila Electric Co. (Meralco) and First NatGas Power Corp. (FNPC) the authority to implement their power supply agreement (PSA) in an “interim relief” that sets certain conditions.
“In the event that the final rate is higher than that granted in the interim, the resulting additional charges shall be collected by FNPC from MERALCO. On the other hand, if the final rate is lower than that granted in the interim, the amount corresponding to the reduction shall be refunded by FNPC to MERALCO,” the ERC said in its order.
In March, Lopez-led First Gen Corp. said its unit had entered into a power supply contract with distribution utility Meralco for the sale and purchase of around 414-megawatts (MW) of baseload capacity.
With the PSA, First Gen said Meralco had secured “competitively priced” baseload electricity, or steady 24/7 power, since its plant’s all-in tariff at an 80% capacity factor is P3.77 per kilowatt-hour.
The power will be sourced from FNPC’s already constructed and currently operational San Gabriel combined cycle natural gas-fired power plant within the First Gen Clean Energy Complex in Batangas City.
The term of the PSA is six years using gas from the Malampaya field, but, in the event that liquefied natural gas (LNG) becomes available, the term of the PSA could be extended upon mutual agreement with Meralco, First Gen said.
In their joint application in March, Meralco and FNPC said the timely implementation of the PSA would best serve the interest of electricity consumers.
They said the simulated delivered price of P3.8637 per kWh provides for a lower cost of power compared to the simulated effective cost at the wholesale electricity spot market (WESM) of P4.4405 per kWh.
Compared with the simulated effective cost at the spot market, the two companies said capacity and corresponding net electrical output from the existing San Gabriel plant at the contract price can reduce Meralco’s cost.
Any delay in the implementation of the PSA would translate into foregone savings of about P0.0561 per kWh and missed economic opportunities for Meralco’s captive customers, the two firms said.
The ERC order came after Meralco filed an urgent motion for issuance of provisional authority in April alleging that the supply condition in the market is tight, “gravely affecting the prices” at the WESM.
Meralco said it was projecting a capacity deficit in its portfolio because of the expected high demand and the possible occurrences of outages.
Based on its distribution development plan, Meralco said its aggregate demand from 2018 to 2023 is expected to grow by a compounded average rate of 4.13%.
Last May 29, Meralco and FNPC filed a joint motion for issuance of provisional authority, which repeated the same allegations in the distribution utility’s filing in April. FNPC’s natural gas-fired power plant has been operating since January 2018.
In its order, the ERC said the applicants have satisfied the substantial requirements for the grant of interim relief. Based on its rules of practice and procedure, the agency may act on applications with or without hearing based on allegations, supporting documents and evidences presented by the applicants.
The PSA between Meralco and FNPC was forged after the power utility invited price challengers in December 2017, which resulted without any challenger submitting qualification documents. A second round of invitation came out with no qualified price challenger, prompting the award to FNPC.