ERC seeks clarity over Meralco-First Gen contract extension

MANILA, Philippines — The Energy Regulatory Commission wants Manila Electric Co. (Meralco) and First Gen Corp. to outline the potential implications of extending their 1,000-megawatt (MW) gas supply deal.

The ERC has ordered Meralco and First Gen’s First Gas Power Corp. (FGPC) to clarify whether the proposed extension could lead to an excess contracted capacity.

The power regulator likewise directed the parties to submit a simulation of the impact of the move on the generation charge, which is passed on to consumers.

This comes after Meralco and FGPC filed a joint manifestation and motion before the ERC, seeking an interim extension for their power purchase agreement (PPA).

The contract, which covers FGPC’s Santa Rita natural gas-fired power plant in Batangas, is scheduled to expire this month.

The companies reportedly have also sought regulatory approval for the recovery of attendant costs – associated expenses related to maintaining and operating the gas plant – during the contract extension.

“Furthermore, applicants are directed to explain how they intend to utilize or dispatch its existing contracted plants, including Santa Rita,” stated the order signed by ERC chairman and CEO Francis Saturnino Juan.

Meralco and FGPC were given three days from the receipt of the order to file their explanation.

Aside from Santa Rita, Meralco is also sourcing a 500-MW gas supply from First Gen’s San Lorenzo plant, whose contract is set to end in 2027.

In its earlier filings, First Gen requested the commission to extend its PPA with Meralco without conducting a government-mandated competitive selection process.

The ERC, however, advised the parties to comply with the appropriate remedy and proper procedure when requesting a contract extension.

With time running out, the Santa Rita plant risks facing the same fate as First Gen’s San Gabriel plant, now operating as a merchant facility after its PPA with Meralco expired in February 2024.

The contract expiration for the San Gabriel plant continued to deal a significant blow to First Gen’s natural gas business in the first half.

The “depressed” earnings from San Gabriel’s merchant sales position outweighed the increase in the recurring income of other First Gen gas plants, company data showed.