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First Gen unit inks power supply deal with Meralco

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Electricians from the Manila Electric Co. is ready to maintain a secondary transmission line in Manila in this Aug. 11, 2015 file photo. -- AFP

By Victor V. Saulon, Sub-Editor

LOPEZ-LED First Gen Corp. said its unit had entered into a power supply contract with distribution utility Manila Electric Co. (Meralco) for the sale and purchase of around 414 megawatts (MW) of baseload capacity.

First Gen told the stock exchange that with the power supply agreement (PSA), Meralco had secured “competitively priced” baseload electricity, or steady 24/7 power, since its plant’s all-in tariff at an 80% capacity factor is P3.77 per kilowatt-hour.

The power will be sourced from the listed generation company’s wholly owned subsidiary First NatGas Power Corp.’s “already constructed and currently operational” San Gabriel combined cycle natural gas-fired power plant within the First Gen Clean Energy Complex in Batangas City.

Under the six-year deal, gas from the Malampaya field will be used, but in the event that liquefied natural gas (LNG) becomes available, the term of the PSA could be extended upon mutual agreement with Meralco, First Gen said.

“The San Gabriel PSA offers a number of benefits that will enhance the quality of Meralco’s power generation portfolio by providing: (i) competitive dependable baseload capacity; (ii) an immediate source of replacement power during outages of other baseload plants; and (iii) the option for mid-merit supply matched with Meralco’s ramping requirement since San Gabriel has the ability to rapidly ramp up and down upon notice,” it said.

Under the terms of the PSA, power from San Gabriel is available for purchase by Meralco immediately.

However, the sale of electricity to the utility will start only upon its approval by the Energy Regulatory Commission (ERC). The PSA is set to expire on Feb. 23, 2024, unless extended by the parties.

The new supply contract adds to Meralco’s pending PSA applications with the ERC. The country’s biggest utility is awaiting approval for seven PSAs covering a capacity of 3,551 MW, the biggest of which is with its power generation subsidiary.

Before First Gen’s announcement, Meralco President and CEO Oscar S. Reyes warned about the possible increase in cost to customers should the delay is extended further.

Unlike First Gen’s plant, the other PSAs are tied to power plants that are yet to be constructed. Financing institutions as well as engineering, procurement and construction (EPC) contractors require an approved PSA before they do business with power generation companies.

“It’s best if we can get hopefully the PSA approvals because there’s absolutely no reason why these projects would not be approved. They’re very competitive, they’re good, the Meralco franchise area needs them, the Luzon grid needs them and what we are concerned about is we might have a situation similar to the late ’80s and ’90s when projects were delayed,” Mr. Reyes told reporters.

“We’ve been talking to them [banks and contractors] and we’re asking them to stay on board. There are validity dates for our EPC. There are validity dates for our financing,” he said.

Any extension of the validity dates would mean an escalation of costs imposed by banks and EPC contractors, Mr. Reyes said.

“Because their own costs are increasing — their own material costs, equipment costs, labor costs. Time doesn’t stop and now we’re seeing foreign exchange rates increasing,” he said.

Mr. Reyes said when Meralco negotiated with the banks and the contractors, one US dollar was at P48 each. That rate has now reached around P52.

On Monday, shares in First Gen climbed 4.32% to P17.40 each, while those of Meralco rose 0.86% to close at P330 each.