Lopez-led First Gen Corporation, via its subsidiary First Gas Power Corporation, is seeking approval from the Energy Regulatory Commission (ERC) for the extension of its power purchase agreement (PPA) with the Manila Electric Company (Meralco) covering its 1,000-megawatt Santa Rita gas-fired plant, situated in Batangas.

In a May 22, 2025 letter to the ERC obtained by the Manila Bulletin, the Lopez firm sought that “the PPA may be extended without the conduct of a CSP (competitive selection process)”, pursuant to Article 2.2 of the PPA that was signed between First Gas and Meralco on Jan. 9, 1997.

First Gas reckoned that the power supply deal extension for its Santa Rita plant gas plant could be excluded from the CSP exercise or the auction of power supply agreements (PSAs) by distribution utilities (DUs) because that specified PPA secured regulatory approval way back in 1997, which was long before the enforcement of the CSP policy by the Department of Energy (DOE) and that the mandate of the Supreme Court (SC) ruling on supply contracts requiring CSP for PSAs cover only the PSA applications that had been submitted to the ERC “on or after June 30, 2015.”

Article 2.2 (c) of the First Gas-Meralco PPA for the Santa Rita plant stipulated that: “the initial term, as extended pursuant to Section 2.2 (b) may be extended for up to three (3) additional periods of five (5) years each, provided that Meralco or seller requests an extension of (the) agreement not less than two (2) years nor more than three (3) years prior to the initial expiration of the term – in the case of the first extension; and not less than two (2) years nor more than three (3) years prior to each subsequent expiration of the term – in the case of all subsequent extensions.”

The PPA further provided that “if either Meralco or seller requests an extension of the term, the parties shall promptly enter into good faith negotiations to reach an extension agreement on terms and conditions acceptable to each party.”

The Santa Rita PPA will lapse on Aug. 17, 2025; and First Gas wrote to Meralco relative to its extension bid on April 12, 2023 – more than two years ahead of the supply deal’s expiration; and it asked that their contract be stretched for additional years under the same terms and conditions under the extension clause of the original PPA.

On this precept, First Gas is requesting guidance and clarification from the ERC “as to whether the extension of the PPA under the same terms and conditions pursuant to its extension clause is valid and enforceable.”

The company primarily highlighted that in the May 2019 high court decision on the conduct of mandatory CSP by the DUs, “the lack of retroactive effect of the ruling to PSAs executed prior to June 30, 2015 is a recognition by the Supreme Court that PSAs predating CSP regulations, including the subject PPA, remain valid and enforceable,” adding that “all the terms and conditions of PSAs entered into prior to June 30, 2015 should be respected, including the PPA.”

The Lopez firm conveyed that the PPA for the Santa Rita gas plant was approved by the Energy Regulatory Board (ERB), a precursor-agency of the ERC, on June 11, 1997; and the regulatory body then primarily acknowledged the project “as a pre-investment to build an entirely  new industry in natural gas,” and “it will also provide energy diversification that is critical  to the continued progress and security of the nation.”

In the evolution of the country’s gas sector, First Gas further stated that the propounded PPA extension shall be well-aligned with off-take contracts “enabling the implementation of the new gas sale and purchase agreement that sustains the continuity of the Malampaya project,” specifying that in the two decades of operations of the Santa Rita power facility, it has consistently drawn fuel for its electricity generation from the country’s sole commercial gas field.

Additionally, the power firm cited that “the respect accorded by the State to subsisting contracts is legislated in the Philippine Natural Gas Industry Development Act,” primarily under Section 43 of Republic Act No. 12120, which prescribes that “current and subsisting agreements shall remain valid and in force in accordance with the existing terms and conditions agreed to by the parties until the expiration or termination thereof.”

That law similarly sets forth that “it shall operationalize the mandated prioritization in Section 23 of power produced from indigenous natural gas over the conventional energy sources, which includes indigenous natural gas power supply contracting.”

First Gas expounded that the Santa Rita plant has “consistently demonstrated  the flexibility to  respond to demand variability of the grid, despite being a baseload plant,” emphasizing that “the ability to respond to unpredictable fluctuations is especially important with the increasing injection of variable RE (renewable energy) supply to the grid,” which is essentially an anchor to the energy transition agenda being advanced by the Marcos administration.