ERC allows limited use of LNG for gas-fired power plants

The Energy Regulatory Commission (ERC) said it is allowing the subsidiaries of First Gen Corp. to use liquefied natural gas (LNG) for their gas-fired power plants that supply power to Manila Electric Co. (Meralco).

In a statement on Wednesday, the regulator said it has approved the use of LNG as an alternative fuel supply source to power the Sta. Rita and San Lorenzo gas plants operated by First Gas Power Corp. (FGPC) and FGP Corp., respectively.

But this only applies if there is a shortage or unavailability of natural gas supply in the Malampaya field, it added.

To recall, Meralco sought confirmation from the ERC to pass on to consumers the recovery and payment of LNG-related costs.

Meralco’s application covers the LNG costs during test and commissioning and commercial operations, as well as the Malampaya natural gas costs under First Gen’s new gas sale and purchase agreement (GSPA).

According to the regulator, the power distributor claimed that FGPC and FGP are allowed to use other sources of gas besides the Malampaya field, “provided that the same is under competitive price and supply terms.”

The ERC said that the shortage of the Malampaya gas — which is the primary fuel being used to generate power for the said plants — falls under the terms in the power purchase agreements as a “fuel supply force majeure event.”

While the pass-through to customers and Meralco’s payment to First Gen subsidiaries for the LNG costs during commercial operations is allowed, the ERC said that the “recovery shall be based only on the landed cost,” which is subject to verification by the ERC.

Meanwhile, the ERC found that the terms of the new GSPA is “inconsistent” with the power purchase deal requirement of Malampaya, thus requiring an amendment subject to ERC’s approval.

“The commission will continue to impress upon distribution utilities their obligation to diligently comply with their least cost obligation, particularly in passing on fuel costs to consumers,” ERC Chairperson and Chief Executive Officer Monalisa C. Dimalanta said.

“We have consistently ruled that if recovery of certain costs has no basis…, these cannot be passed on to end users,” she added.

Meralco welcomed the ERC’s decision, saying the company strictly abides by the rules and regulations.

“This directive will help Meralco ensure affordable, reliable, and continuous electricity supply within our franchise area, especially during the dry season when demand surges,” Joe R. Zaldarriaga, Meralco’s vice president and head of corporate communications, said in a statement.

RESERVE MARKETThe ERC has temporarily suspended the billing and settlement of amounts in the reserve market due to issues arising from the implementation of the system.

In an order dated March 26, the ERC directed the Philippine Electricity Market Corp. and the Independent Electricity Market Operator of the Philippines, Inc. to suspend the implementation for the co-optimized and reserve market.

The suspension covers the March billing period and will be lifted until the ERC finalizes its evaluation of the price determination methodology used by the Independent Electricity Market Operator of the Philippines, which is likely in May, the commission said.

The reserve market allows the optimization of the market operator and system operator interfaces and automated real-time dispatch of committed ancillary services.

Ancillary services are deployed by grid operators to support the transmission of power from generators to consumers to maintain reliable operations.

The full commercial operations of the reserve market commenced in January.

The ERC said there has been a significant price increase in reserve costs for March compared to February, which will impact the total price of electricity charged to consumers.

The Independent Electricity Market Operator of the Philippines also observed the “high volumes of ancillary services” purchased from the market by the National Grid Corp. of the Philippines, as a system operator, despite its “contracted reserve volumes.”

“The commission raised concerns on the reasonableness of such cost increases as well as on the mechanics of co-optimization in light of existing policies and regulations,” the ERC said.

The ERC has directed the two entities to submit audit results of the software not later than April 15 “to identify and address” the issues and immediately resume normal operations of the market. — Sheldeen Joy Talavera