THE Energy Regulatory Commission (ERC) resolved to allow First Gas Power Corporation (FGPC) and FGP Corporation (FGP) to use Liquefied Natural Gas (LNG) as an alternative fuel supply source to run the Sta. Rita and San Lorenzo Gas Plants,

respectively, but only in the case of the occurrence of a Fuel Supply Force Majeure Event.

The ruling stems from MERALCO’s application seeking the Commission’s approval to pass on to consumers the recovery and payment of LNG costs during “test and commissioning”, LNG costs during commercial operations and Malampaya Natural

Gas costs under its new Gas Sale and Purchase Agreement (GSPA).

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.

The Commission found that the subject PPAs allow for the supply from other sources of gas in cases of a “Fuel Supply Force Majeure Event.” 

The Commission further determined that the shortage of the Malampaya Natural Gas, the primary fuel being used to generate power for the Sta. Rita and San Lorenzo gas plants, qualifies under the terms defined in the PPAs as a Fuel Supply Force Majeure Event. 

Hence, the Commission resolved that LNG may be used by FGPC and FGP as an alternative fuel source to run the said plants, but only in case shortage or unavailability of natural

gas supply in the Malampaya field.

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, subject to verification by the Commission. 

Any cost other than the landed cost of LNG (such as the additional fixed costs resulting from storage, testing, and commissioning of LNG facilities) are not contemplated under

the PPAs. 

Thus, allowing these requires an amendment to the PPAs for which the parties may first seek proper approval from the Commission in a separate application to allow recovery from consumers.

Similarly, the ERC ruled that the terms of the new GSPA appear to be inconsistent with the PPAs requirement of Malampaya use as primary fuel for the plants. If LNG were indeed to be used as supplemental fuel during normal operations—instead of

alternative only during Fuel Supply Force Majeure Event—this would require an amendment of the PPAs. 

Amendment will need to first be approved by the Commission in a proper application before costs associated can be passed on to

consumers.

“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,” according to ERC Chairperson and CEO Monalisa Dimalanta.