Meralco presses more changes in IPP contracts

Energy Secretary Vincent S. Perez has asked the independent power producers of Manila Electric Co. (Meralco) – First Gas Power Corp. (FGPC) and Quezon Power (Phils.) Ltd. (QPPL) – to seek more improvements in their contract negotiations to realize more savings for Meralco customers.

"We are pleased to hear that there have been significant developments in the negotiations between Meralco and its IPPs which hopefully will yield savings to Meralco and to the end-consumers in terms of lower power costs. But we believe there are still aspects in the IPP contracts where we can see more improvements," Perez said.

Perez supported Land Bank of the Philippines president Margarito B. Teves’ call for FGPC and QPPL to accommodate the proposals by Meralco in the on-going negotiations of power supply contracts the parties have signed.

FGPC supplies electricity to Meralco through its 1,000-megawatt (MW) Sta. Rita plant and 500-MW San Lorenzo plant. QPPL provides power to Meralco through its 440-MW Mauban coal-fired plant in Quezon.

In particular, Perez urged FGPC and QPPL to strongly consider Meralco’s position to reimburse the distribution utility of the amount equivalent to the fixed operating and maintenance (O&M) costs plus the capacity fee when the IPPs fail to deliver the required amount of electricity.

The IPPs, on the other hand, have proposed that the penalty for failure to deliver electricity be pegged at 98 centavos per kwh, with a $10.6 million yearly cap.

Teves earlier said it is only fair that the IPPs pay Meralco the same amount it pays them for the energy delivered when they don’t perform.

"We totally agree with the proposal by Meralco and the independent review committee. It is only fair and just that Meralco be reimbursed by their IPPs the amount paid for energy not delivered," Perez pointed out.

The energy chief noted that based on the initial results of the study, the proposed negotiated agreements with FGPC and QPPL could result in immediate savings of over P10 billion for consumers, equivalent to about 15 centavos per kwh savings.

The review of Meralco’s IPP contracts is similar to the on-going review on contracts entered into by the National Power Corp.

The settlement of 18 IPP contracts has resulted in savings to Napocor of about $832 million in net present value.