In an unprecedented move, the Energy Regulatory Commission (ERC) has allowed First Gas Power Corp. (FGPC) and FGP Corp. (FGP) to use liquefied natural gas (LNG) as an alternative fuel to natural gas.
ERC explained that the move was meant to ensure a stable and affordable power supply nationwide and it will be allowed only in addressing a force majeure.
The two entities were allowed to run the Sta. Rita and San Lorenzo natural gas-fired power plants with LNG but only on extraordinary events.
The ERC said the ruling stemmed from Manila Electric Co.’s (Meralco) application seeking approval to pass on to consumers the recovery and payment of LNG costs.
The Meralco request covers the “test and commissioning” LNG costs during commercial operations and natural gas costs under the new Gas Sale and Purchase Agreement (GSPA).
Meralco claimed that FGPC and FGP were allowed to use other sources of gas, provided that the same is under competitive price and supply terms.
However, locally sourced natural gas must still be the priority for the use of local gas-fired power plants, according to ERC.
ERC added 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 should be based only on the landed cost, subject to verification by the commission.
Costs to recover
The regulatory body said that any cost such as the additional fixed costs resulting from storage, testing, and commissioning of LNG facilities are not present under current agreements but the parties may seek proper approval from the ERC in a separate application to allow recovery of such expenses from consumers.
In a separate statement, Joe Zaldarriaga, Meralco vice president and head of corporate communications, said they welcome the ERC’s decision.
“Being a highly regulated entity, we strictly abide by the rules and regulations governing our franchise. This includes being very transparent about our power supply sources and energy mix,” 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.
Meralco remains committed to fulfilling its mandate of delivering stable, reliable, and continuous electricity service to its customers at the least cost possible,” Zaldarriaga added.
Separately, the ERC also ordered both the Philippine Electricity Market Corp. (PEMC) and the Independent Electricity Market Operator of the Philippines Inc. (IEMOP) to suspend the implementation of a section on billing and settlement of the price determination methodology (PDM) for the implementation of the co-optimized energy and reserve market in the Wholesale Electricity Spot Market (WESM).
The suspension will cover the March 2024 billing period and will be in place until the ERC finalizes its evaluation of the PDM used by IEMOP, likely by May 2024.
The ERC earlier granted interim relief in August 2023 for the implementation of the then-proposed PDM.
The ERC also highlighted then the need to assess the outcome of the then-ongoing trial operations program for the reserve market, stressing the importance of the audit of the PDM.
This includes findings and recommendations from PEMC and IEMOP for the final evaluation and eventual approval of the proposed software for running the co-optimized market.
However, the Department of Energy issued an advisory mandating the full implementation and commercial operation of the reserve market on 26 January 2024.