THE Energy Regulatory Commission (ERC) has approved the limited use of liquefied natural gas (LNG) for the power purchase agreements (PPAs) between Manila Electric Co.(Meralco) and First Gen Corp.
In an order released on March 26, 2024, the ERC said it resolved to allow First Gas Power Corp. (FGPC) and FGP Corp. (FGP) to use LNG as an alternative fuel supply to run their plants, namely the Sta. Rita and San Lorenzo gas plants, respectively. FGPC and FGP are companies under First Gen.
The ERC clarified, however, that the usage will only be in cases when there is a "fuel supply force majeure" event.
The agency said the ruling stems from Meralco's application seeking the commission's approval to pass on to consumers the recovery and payment of costs related to LNG utilization.
These are: LNG costs during "test and commissioning"; costs during commercial operations; and Malampaya natural gas costs under its new gas sale and purchase agreement (GSPA).
According to the ERC, Meralco claimed that FGPC and FGP are allowed to use other sources of gas other than from the Malampaya field, provided that the same is under competitive price and supply terms.
In light of this, the agency found that the subject PPAs do allow for the supply from other sources of gas in cases of a fuel supply force majeure event.
Force majeure is a clause that is included in contracts to remove liability for unforeseeable and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling their obligations. These clauses generally cover natural disasters, armed conflict, and similar events.
With this in mind, the ERC ruled that the shortage of Malampaya natural gas, the primary fuel used to run the Sta. Rita and San Lorenzo gas plants, qualifies under the terms defined as a force majeure type of event.
For its part, Meralco said it is thankful to the ERC for approving the use of another source of fuel that will ensure reliable power supply, especially in the summer months.
"We welcome the decision of the ERC allowing the use of liquefied natural gas as an alternative fuel during fuel supply force majeure events for the gas-fired power plants contracted with Meralco," Meralco Vice President and Head of Corporate Communications Joe Zaldarriaga said.
"This directive will help Meralco ensure affordable, reliable and continuous electricity supply within our franchise area, especially during the dry season when demand surges," he added.
The ERC clarified, however, that while the pass-through to customers and Meralco's payment to FGPC and FGP of the costs of LNG during commercial operations is allowed, recovery shall be based only on the landed cost that will be subject to verification. Landed cost is the total price of a product or shipment once it has arrived at a buyer.
The agency added that any other cost of LNG, such as the additional fixed costs resulting from the storage, testing and commissioning of LNG facilities, is not contemplated under the PPAs and will require proper approval in a separate application.
"The Commission will continue to impress upon distribution utilities (DUs) their obligation to diligently comply with their least cost obligation, particularly in passing on fuel costs to consumers," ERC Chairman and Chief Executive Officer Monalisa Dimalanta said.
"We have consistently ruled that if recovery of certain costs has no basis under the PPAs or power supply agreements, these cannot be passed on to end-users. DUs remain as regulated entities, and there are basic regulatory frameworks that must be observed in all their dealings," she added.
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