Power distributor Meralco is exerting all efforts to come up with the "least cost" alternative to the 670 megawatts shortfall in electricity supply after San Miguel Corp. bolted a power supply agreement.

A company source said Meralco is negotiating with the Lopez group's First Gas to share its banked gas allocation in Malampaya to Ilijan if it decides to take San Miguel Corp.'s offer for the use of the 1,200-megawatt natural gas power plant.

The Department of Energy already issued Meralco a Certificate of Exemption to procure an emergency power supply from the spot market to cover the 670 MW supply lost from its system due to the effectiveness of the PSA suspension.

Despite SMC unilaterally suspending its PSA after it obtained a temporary restraining order from the Court of Appeals on the Energy Regulatory Commission's decision to dismiss a rate hike petition, its offer remained on the table.

SPPC ended a fuel supply deal with the Malampaya consortium last June, which was also when SMC took over ownership of the giant facility in Batangas from the state-holding firm Power Sector Assets and Liabilities Management.

In 2010, under a government privatization program, SMC unit South Premiere Power Corp. obtained in 2010 an independent power producer agreement in which it will have ownership of the plant last June.

Long bumpy history
PSALM, however, tried to cancel the IPPA in 2015 after SPPC ran obligations of more than P6 billion due to a dispute over the formula of computing the government's share in the proceeds from Ilijan's operations.

The collectibles accumulated to P34 billion when ownership was turned over to SMC.

SPPC obtained an injunction order from the Mandaluyong regional trial court on Psalm's effort to dissolve the IPPA, a court order that had persisted until now thus frustrating the government's effort to collect from the SMC unit.

Since Ilijan is on an extended shutdown, without a fuel supplier, the offer means that Meralco would purchase the natural gas Ilijan needs.

SPPC bought from Psalm the banked gas meant for Ilijan plant last June for $1.2 billion but First Gas already has the first crack at the Malampaya allocation for this year.

The Ilijan plant is thus idle when SMC offered it for Meralco's use.

Nonetheless, a Meralco source said aside from the P1 capital recovery fee under the SMC offer, operations and maintenance will be around 30 centavos plus P5 for fuel or P6.30 per kilowatt hour "all in."

Consumer groups have a higher computation, resulting in a total of P9 per kilowatt hour. "Most of these are pass-through costs. Thus, it is important to press SMC to pay liabilities and pursue damages," according to consumer group Power for People Coalition convenor Gerry Arances.

The fixed price PSA of Meralco with SPPC covers 670MW of supply, which, along with the other fixed price PSAs, has shielded Meralco consumers for the past several months from the volatility of costs from the spot market and automatic fuel pass-through PSAs.

The ERC said the cessation of the PSA effectively set aside the required proper observance of its terms.

Arances said using the Ilijan plant may have legal complications.

"This is the same plant SMC was supposed to use for its SPPC PSA that the CA suspended through a TRO. Unless this is resolved Ilijan should not be allowed to join any competitive selection process," Arances said.