ERC extends Meralco-First Gen gas deal

MANILA, Philippines — The Energy Regulatory Commission has granted a five-month extension to a major gas supply contract between Manila Electric Co. (Meralco) and First Gen Corp., citing its critical role in ensuring energy security.

The ERC approved the parties’ proposed interim extension, allowing First Gen to continue supplying power to Meralco until Jan. 31, 2026, pushing their contract’s expiration date beyond the original August deadline.

“Although the motion evidently impacts Meralco’s generation charge… there exist other equally compelling and urgent reasons that justify the proposed extension,” the regulator said in an order dated Aug. 27.

“These reasons are anchored in policy considerations, such as ensuring grid and supply security and reliability, which fall more appropriately within the purview of the Department of Energy (DOE),” it said.

First Gen, owned by the Lopez Group, has been delivering electricity to the power utility led by tycoon Manuel V. Pangilinan through a power purchase agreement (PPA) executed on Jan. 9, 1997.

The supply comes from the 1,000-megawatt Santa Rita natural gas-fired power plant owned by First Gen subsidiary First Gas Power Corp. (FGPC) in Batangas.

To assess the proposed extension, the ERC tasked the Independent Electricity Market Operator of the Philippines (IEMOP) with simulating the potential rate hikes that could result if Santa Rita operates as a merchant plant.

IEMOP, which operates the country’s power spot market, found that electricity prices could jump to as high as P6.23 per kilowatt-hour compared to the average market price of P3.08 per kWh with the PPA in place.

“This increase in spot prices affects not just Meralco customers but all those distribution utilities with spot exposures,” the ERC emphasized.

The commission also sought guidance from the DOE to ensure compliance with the competitive selection process (CSP) rules and a Supreme Court decision that mandates the ERC’s adherence to the DOE’s policy directives.

Energy Secretary Sharon Garin, in response, affirmed that there is “no legal impediment” in the Meralco-FGPC gas deal, clarifying that the interim extension is not also subject to CSP requirements.

Under existing CSP rules, distribution utilities are required to procure all power supply through a “transparent, competitive and timely conduct” of CSPs, with resulting supply deals submitted to the ERC for approval.

However, the PPA between Meralco and FGPC secured regulatory approval long before the enforcement of all CSP policies issued by the DOE under the Electric Power Industry Reform Act.

“Nevertheless, the commission remains cognizant of the difficulties imposed on Meralco’s consumers in the pursuit of energy security for the entire power system,” the ERC said.

As a result, the ERC noted that the pass-through costs under the interim extension would be based on the previously set rates but calculated at an 83 percent capacity factor, even though the actual dispatch is limited to the plant’s minimum level.

Meralco is also ordered to comply with its approved contracts with other generation firms and “nominate all its contracted capacities in a manner that would yield the least cost supply to its captive market.”