Let’s Be Realistic on Nuclear and Solar Power Options

David Celestra Tan, MSK
23 Sept 2016

The new Department of Energy has floated the idea of nuclear power and the reviving of the never operated 600mw Bataan Nuclear Power Plant (BNPP) as a lower cost and cleaner power supply solution as opposed to coal and natural gas. Additionally people are intrigued by the claims of solar developer Solar Philippines of the Leviste and Legarda families that solar has achieved grid-parity. That means solar power being low enough to compete with the P4 and P5 per kwh of coal and natural gas. This contrasted with the P7.70 to 9.60 per kwh that the Solar Alliance lobby group and the government owned NREB continue in pushing as the consumer FIT subsidy level.

First things first though. Even if nuclear offers a really good option and solar is as competitive as claimed, all these will not really happen because there will be no major buyers of power. Why? Meralco would already be contracted for most of its base-load power requirements until 2035 if they get away with their seven (7) midnight coal power supply contracts totaling 4,100mw. And they are all on Luzon island, same island as the BNPP and of the 7,000mw of existing power plants. Unless of course the government agrees that nuclear will also be majority owned by the MVP Group.

That said, lets start with nuclear power.

There is no question that properly operated nuclear power is for now potentially the cleanest and cheapest power generation technology outside of large hydro. Well at least until fusion technology comes around. We can probably get a rate of P3.00 per kwh. It is also true that there are countries like Japan and South Korea who have long years of successful experience in operating and maintaining nuclear power plants using the same technology as the BNPP. The other truth is the Filipinos have just about paid for the Billion dollars that the government borrowed to finance it.

The question is can the 620mw BNPP technically still be operated after it has never been operated and mothballed for 30 years since 1987? The South Koreans, as pushed for by Cong. Mark Cojuangco of Pangasinan, are interested in studying the BNPP’s revival and estimated that it will cost $1 billion (P47 billion pesos) to revive and operate. We believe the study alone with cost $2 million.

Assuming that the government is willing to explore the revival of the plant, should the Filipinos be asked to pay for the attempt? What happens if the plant, after spending $500 million will cost another $1 billion to finally operate. Let us remember that a lot of the equipment and installations have either been pilfered or deteriorated the last 3 decades. We believe that what would be rational and fair for the consumers is if the government wants to do it and KEPCO of South Korea are sure that they can make it work, it should be done on an ROM basis, “rehabilitate operate and maintain”. An agreement can be signed so that the DU’s are willing to buy the nuclear power output at say P3.25 per kwh and if the Koreans are successful they are assured of a market for the output. But surely it would be unreasonable for the government to spend or borrow a single cent for this adventure and to make the taxpayers take the risk if the concept does not pan out.

As pointed out by columnist Boo Chanco, there are other newer, safer, and cheaper nuclear options that are even smaller in size that fits the archipelagic landscape of the Philippines.

We bet that the Koreans will not go for a “no cure no pay” arrangement like ROM because they must know there would be a lot of headaches and risks. Most power generation professionals will tell you that it is actually cheaper and predictable to build a new plant instead of reviving an old one using old technology.

If we add nuclear to our energy mix, lets go for the smaller and safer technologies in the 200 to 300mw range. Spread it out in several islands. As to the BNPP, lets not do it. It is too risky and will not save much. Just charge it as part of our price for regaining democracy and liberty from martial law.

How about Solar?

Young Leandro Levistes Solar Philippines came into the solar scene carrying a pedigree and lobbying power. His focus had been roof top solar and people are giving him the benefit of the doubt since theoretically roof-top solar specially on the expanse of mall and school rooftop would be viable specially if Meralco cooperates in implementing it under the Net Metering program of the ERC.

In the recent months Leviste went on a media blitz announcing that solar has achieved grid-parity. If he means rooftop solar, maybe. If he means grid connected solar we are not sure. And it seems he is referring to large scale solar because he was talking about 1,000mw in Batangas and the low prices in the bidding in Dubai where it is down to $0.04 or P1.92 per kwh.

Before we get too excited, let us consider a few things.

1) What conditions in Dubai allow foreign bidders to bid that low for 300mw of solar? For one the solar irradiance level of Dubai (and the middle east) is almost double that of the Philippines so they get more energy out of their installation by 25% to 40%. Some reports also say Dubai offers attractive project financing support with negligible interest rates.

2) The lesson of Dubai for the Filipinos is actually not they got lower rates but that they did by holding an open competitive bidding or CSP. Our Department of Energy while admitting that the cost of solar panels have gone down by 70 to 80% is still insisting on doling out high Feed-In Tariff to their chosen RE developers. The government paid NREB (National Renewable Energy Board) recently recommended a subsidized rate of P7.70 ($0.16!!) per kwh for the 3rd round of Solar FIT’s.

Cannot President Duterte order these people to hold a competitive bidding instead?

3) When Leviste talks about grid-parity, we are wondering if he also means grid-compatibility? The lesson of the Visayas is that these solar farms cause grid interruptions every time there are passing clouds. And who buys and pays for the regulating reserve that is needed by the grid to stabilize the system? NGCP who then passes it on to the consumers. We doubt that Solar Philippines is referring to self-regulating solar farms. If they are and the rate is in the range of P4.50 per kwh, let’s go!

Let us be realistic. And be realistic that if Meralco and the MVP Group are allowed to evade the mandatory CSP policy for power supply contracts, all these talk for nuclear and energy mix are moot.

Just saying!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
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Can there Still be A truly competitive CSP with 5 Major IPP’s Partnering with Meralco PowerGen in a Cartel?

David Celestra Tan, MSK

Meralco PowerGen’s cartel has currently proposed 4,100mw of coal projects with five (5) major erstwhile independent power generators that on their own also control about another 5,000mw of power plants. That’s 80% already of the country’s power generation supply and 90% of Meralco’s power market.

Erstwhile rival San Miguel is now partners with the MVP Group in two 528mw coal projects and may have entered into partnership in the 1200mw Ilijan natural gas plant. EGAT of Thailand is in a 49% partnership in the San Buenaventura 455mw coal project in Mauban. EGAT also has acquired a significant interest in the 460mw Masinloc plant controlled by AES. MVP Group has acquired 56% of GT’s Global Business Power and GT bought a 15.6% interest in Metro Pacific. Maynilad water partner DMConsunji is also now a partner of Meralco PowerGen for the 400mw Semirara coal project in Calaca. The Aboitiz group for its part is partners with Meralco for the 300mw Redondo Peninsula Coal project in Subic.

With so much concentration and cross-ownership of power generation in one aggrupation how can true competition still exist in the generation market place, both in competing for bilateral contracts and bidding for the WESM spot markets?

Let’s assume that the government realizes the importance of maintaining or restoring a truly competitive generation market and the devastating impact of cartelization, negotiated contracts, collusion to the people and national competitiveness. And it also decides to stop this crime against consumers and evasion of the CSP policy, can there still be a truly competitive bidding given the dominant concentration of generating capacity in the country in the Meralco group? Would they not just collude among themselves and bid even higher just to prove that their negotiated prices were the “least cost”?

The government should not be afraid. Luckily there are enough remaining independent players both local and foreign who can be the core of a truly robust bidding, the kind that will be least cost for the consumers.

Ayala Energy, Filinvest of the Gotianuns, TeamEnergy of Japan, Kepco of Korea, AES of the USA, Energy World of Australia, First Gen and EDC of the Lopez Group, and more local groups TransAsia, GNPower, Conal of the Alcantara Family of Mindanao, and PeakPower Group of the Ng Family. Not to mention additional Japanese, Korean, and Canadian companies who are actively looking at Philippine projects. If Ayala and GNPower end up the partner of Meralco in the 1200mw Atimonan Energy One, then they also lose their independence.

These are highly qualified power generating companies with the kind of resources to offer truly competitive energy supply packages and innovative ideas and technologies. They have not yet been conflicted by a partnership or cozy relationship with Meralco PowerGen or the MVP Group.

The Aboitiz and San Miguel Groups participation in the Meralco cartel is not beyond repositioning and they may still be genuine players in a truly competitive bidding.

Only three serious bidders are needed for a healthy competition as long as at least two of them are not from the Meralco cartel.

We don’t believe potential independent bidders will be the problem in trying to hold a truly competitive CSP. It would be administering properly the bidding so that Meralco cannot tilt the playing field and favor their partners.

These still independent companies need to be assured and see that this type of open and competitive bidding will be implemented by the government at least through the 6 year term of President Duterte. Otherwise they will hesitate to offend the Meralco group if there is a chance that down the road they will need to beg for power supply contracts with them. It costs million dollars to prepare a good bid for major projects.

These independents will be looking for signals that it will be truly open, competitive, and transparent.

1. The government must reiterate a commitment to the CSP policy and the ERC must send the signal that it is honestly implementing it.

2. There must be an independent Third Party bid administrator to assure a proper bidding of proper capacities.

3. The winner must be objectively determined and truly awarded.

4. The CSP is the opportunity for the DOE to put an imprint on the nations power supply with its energy mix strategy.

For all its loopholes, the Epira Law is clear in its mandate that the generation sector shall be “competitive and open”. When we do that, we are able to achieve the twin goals of the Epira Law. 1) adequate power supply in the country for the long term is assured by keeping the market open to new and competitive investors. No barriers to entry. and 2) to achieve fair and reasonable rates supplied in the least cost manner through the maintenance of healthy competition in the market.

In addition to the Epira Law, Let us hold true to the spirit of the Philippine Competition Act, a landmark milestone for maturation of the Philippine government and society. It took us decades to get this far in anti-trust protection of consumers. Let us show that we are mature enough to implement seriously such an enlightened law.

Let us not be afraid in preventing Meralco and the MVP Group from monopolizing and cartelizing the power generation sector. If that is allowed to happen the EPIRA law would be for all intents thrashed as a law and aspiration. Let us not kid ourselves anymore. The millennials? They are still unaware because we the parents are paying for the monthly electric bill. It is supposed to be up to us adults who should try protect their generation. And we are failing. Ironically it can happen under an era when we are supposed to be determined to fight crime and corruption.

Franchise holders of public utility services must be expected to serve the public interest and not be exploitive. There are still enough highly qualified power generation players comfortable with the Philippines who can participate in an honest to goodness bidding. It is not yet very late!

Do we have what it takes? We owe it to our people.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
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It’s Time for a Permanent Energy Planning Commission

David Celestra Tan, MSK
4 September 2016

All these confusion in the energy development strategy for the country happens because the Philippines does not have a long term energy development plan. Every time there is a new government, new energy committee chairmen in the Senate and in the House and everytime there is a new energy secretary we tinker with an energy mix, power cost reduction, power supply procurement for pass on charges to consumers, clean energy, renewable energy, climate change, grid system reliability.

It is time that we learn the realities of power, its development, and rates.

1. Power Development and Strategy is so important to the country, its industry and economy, and well being of consumers that it needs focused attention and clear direction from a very qualified government agency with consistent stewardship.

2. Power projects and solutions require advance planning and implementation. Economical and clear power require 3 to 4 years to build and quick power sources are both dirty and expensive.

3. Power supply is imbued with public interest and the people will hold the government responsible, regardless of privatization and deregulation, whenever there are power problems: shortages, rates spikes, environmental damage. The government cannot cop out and wash their hands and say it is sorry it cannot do anything because the sector is privatized and deregulated. The sooner we all realize this the better.

4. It cannot be left totally in the hands of the private sector that naturally will gravitate towards what’s faster and what’s more profitable and investment safe.

Power Planning and the Department of Energy

Currently the task of preparing a Philippine Energy Plan, the closest we have in terms of energy planning, is with the Department of Energy as mandated under Section 37 of the Epira Law.

The DOE is required to “prepare and update annually a Power Development Program and integrate the same into the Philippine Energy Plan. The PDP shall consider and integrate the individual or joint development plans of the transmission, generation, and distribution sectors of the electric power industry which are submitted to the Department.”

The DOE will also “develop and update annual the existing Philippine Energy Plan. It shall include a policy direction towards the privatization of government agencies related to energy, deregulation of the power and energy industry, and reduction of dependency on oil-fired plants.

Said Plan shall be submitted to Congress not later than the fifteenth day of September and every year thereafter.

Annually the Department of Energy goes through the ritual of complying with this mandate. Every year it dutifully submits a beautiful and colorful glossy book bound Plan.

The DOE even goes on a road show in various regions of the country to present their plan, actually their hopes and dreams. The DOE Secretary for his part uses the plan for his policy statements. Everyone including the local government officials come away from those presentations expecting that these are the direction for the future and what they should be expecting including energy mix. The precepts of the plan are even used as the justification by the DOE and ERC for the approval of projects.

However, by this time, power industry practitioners know two realities of this plan:

1) The proposed power projects were nothing more than a tally of projects that are being pursued by the private sector;

2) The Department only use persuasion and has no real enforcement teeth to force the private sector to follow the plan.

As an example, the DOE has been announcing that it targets an energy mix of 30% coal, 30% natural gas, 30% clean energy, and 10% others. In total disregard of this energy mix, Meralco signed 4,100 mw of coal projects that will tie up the largest distribution utility of the country for the next 25 years. That means coal will be about 90% of the Energy needs of Meralco and that’s easily 56% of the coal energy for the next 25 years. If we add the coal projects outside the Meralco area in Mindanao and the Visayas, the national share of coal would be easily 80%.

The Competitive Selection Process (CSP) policy of the DOE and ERC that was supposed to be implemented starting on November 6, 2015 was going to give the DOE its long missing opportunity for enforcement of its energy mix policy. Until the CSP was inexplicably postponed by the implementation agency the ERC, paving the way for the signing and filing of seven (7) midnight contracts that will evade the CSP.

Some parts of power development planning specially transmission development is performed by the Grid Management Committee of the ERC that is staffed with power professionals. But then their work and ideas are limited to grid issues and not much in power supply development.

Power Development is a three-legged tower. Adequate supply, fair and reasonable rates, and environmentally responsible. We also need an archipelagic generation and transmission strategy that is best suited for our 10 major islands. Lastly, the country must decide whether low cost power would be a national policy as part of our industrial and commercial strategy. Remember Asian integration is here and import tariff barriers are coming down. Our industries will be slaughtered by foreign competition because all of Asean has lower costs by as much as 40% than the Philippines. We don’t even have a national economic plan to give Philippine companies chances versus the incoming foreign competition. Such neglect.

The drug problem is important but there are so many areas in the country with even larger and urgent implications that need government attention.

Ironically, a lot of sensible power and energy development plans have been donated to the Philippines by the World Bank and the Japan International Cooperation Agency and maybe even by the Asian Development Bank. They are just on the shelves, drawers, and archives.

When government officials and the private sector only talk about adequate supply and when threats of power shortages are emphasized, you know that the other two will be jettisoned. It requires a well thought off long term plan that is implemented consistently by competent and incorruptible people to create a truly sensible and holistic power development.

It is time now that the country remedies the short term and revolving nature of energy policy and planning at the DOE and create a Philippine Energy Planning Commission. We can use as models the Energy Planning Commissions of California and other American states and adopt it to Philippine conditions.

Energy Planning has been a crying need for the country.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
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The Betrayal and Treason of Rule 11 of the Epira IRR On Limits of Cross-Ownership

David Celestra Tan, MSK 26 August 2016

How can Meralco, a power distributor, legally arrogate unto itself an unlimited cross-ownership with sister power generators when there was supposed to be a 50% limit?

The Epira Law already allowed Meralco under Section 45 a generous permission to enter into bilateral power supply contracts with affiliated companies of up to 50% of its demand and no bidding required. The Lopez Group that used to control Meralco at least stayed within this limit and only had 2,000mw of First Gas power supply or about 40% of Meralco’s 5,000mw peak demand.

When the MVP Group took over Meralco in May 2010 they clearly believed that the sky is the limit on the generating capacity cross ownership they can have. They proceeded to create a not so subtly named generation company, Meralco PowerGen, with an openly announced objective of 3,000mw of power generating capacity. Obviously all by leveraging their control of off-taker Meralco, the distribution utility, to negotiate sweetheart contracts.

Why do Meralco and MVP’s topnotch lawyers believe that they are allowed under the law to breach the 50% limit set by the Epira Law? Not that the MVP group is bashful about pushing the borders on the ownership and monopolization limits to get their business take over desires as in the foreign ownership limits of utilities like PLDT and Meralco.

They must have discovered, or were told in the process of negotiating the purchase of Meralco, the big monopolization loophole provided by Rule 11 of the Epira IRR and the huge profit opportunities that the MVP Group can have in self-negotiated generation contracts. Imagine having control of the “gold” of the power market and the power to choose and own the generating companies that can get into the Philippine market? That alone could justify the premium they paid for buying control of Meralco.

The MSK organization is not against capitalism and entrepreneurism. We are against monopolization and exploitation of the helpless consumers especially in the provision of public utility services.

Epira Laws Limit on Cross-Ownership

The initial drafts of the Epira Law called Omnibus Power Bill and the myriad of foreign consultants set out to unbundle the power sector with no cross ownership among them. But powerful lobbyists through the series of changes in Energy Committee Chairmen in the Senate and Congress from 1995 to 2001 prevailed. In the final bill only cross-ownership between the Transmission company and the others was prohibited.

Section 45 provided that “to promote true market competition and prevent harmful monopoly and market power abuse, the ERC shall enforce the following safeguards..(b)….For the purpose of preventing market power abuse between associated firms engaged in generation and distribution, no distribution utility shall be allowed to source from bilateral power supply contracts more than fifty percent (50%) of its total demand from associated firm engaged in generation”.

Clearly the Epira Law recognized that there would be market power abuse between associated firms engaged in generation and distribution.

It defined “An associated firm with respect to another entity refers to any person which, alone or together with any other persons, directly or indirectly, through one or more intermediaries, controls, is controlled or is under common control with, such entity”.

Section 45 also defined “affiliate” to mean any person which, alone or together with any other person, directly or indirectly, through one or more intermediaries, controls, is controlled, or is under common control with another person. For good measure it defined “control” to “mean the power to directly or cause the direction of the management policies of a person by contract, agency, or otherwise”.

Unknown to most people, in the finalization of the Epira Law in the 2nd week of June 2001, a pitch battle went on the issue of cross-ownership between us who were fighting for safeguards for consumers and the lobbyists of the vested interests who were putting in loopholes in the law as much as they can get away with. The dark forces succeeded in inserting in the last two days of finalizing the Epira Law at the Bicam committee that Distribution Utilities can enter into power supply contracts with affiliated companies up to 50% of their demand. Meralco was only lobbying for 35%. You can guess how it became 50%.

Allowing this 50% cross-ownership is already one of the major weaknesses of the Epira Law and its failure to require that these pass on charges to consumers should be subjected to competitive bidding was a major betrayal of the consumers.

Still this generous 50% limit is being breached by the new Meralco. How is this legally possible?

The Betrayal and Treason of Rule 11 of the Epira IRR

Apparently not happy with a 50% limit, the same vested interests succeeded in finishing the job for monopolization and unlimited cross-ownership between a DU and a generator and redefined the limits set by Section 45 with its own creative language of Rule 11.

The Implementing Rules and Regulations of RA 9136, otherwise known as the Epira Law of 2001 was finalized and passed by the Department of Energy in June of 2002. As an IRR it is supposed to only turn the language of the mother law the Republic Act 9136 into implementable and clearer language. For the most part they have done that.

Except for Rule 11.

Rule 11 Titled “Cross Ownership, Market Abuse and Anti-Competitive Behaviorinitially stayed faithful to the words and spirit of Section 45 of the Epira Law.

It established under its Section 4 the Limits on Concentration of Ownership, Operation or Control of Installed Generating Capacity. —

“ No company, Related Group or IPP Administrator, singly or in combination, can own, operate or Control more than thirty percent (30%) of the installed generating capacity of a Grid and/or twenty-five percent (25%) of the national installed generating capacity”

Under Section 5 it also set Limits on Bilateral Supply Contracts by a Distribution Utility.

“No Distribution Utility shall be allowed to source from bilateral power supply contracts more than fifty percent (50%) of its total demand from an Affiliate engaged in generation”

Then it delivered the coup de grace in redefining cross ownership limits under Section 4(b)

The capacity of such facility shall be credited to the entity controlling the terms and conditions of the prices or quantities of the output of such capacity sold in the market in cases where different entities own the same Generation Facility.

In cases where different Persons own, operate or Control the same Generation Facility, the capacity of such facility shall be credited to the Person controlling the capacity of the Generation Facility”

This is a total redefinition of the cross-ownership limit contrary to the clear vision of the Epira law. Generating capacity limit is now determined by who is selling the capacity and output to the power market which by its warped language is the one “controlling the capacity”.

This is also a total revision of the Epira Laws definition of “control” which was “ the power to directly or cause the direction of the management policies of a person by contract, agency, or otherwise” under Section 45. That kind of “control” mostly come from ownership and membership in the board and management committees.

Central to the question of “control” is the ability to decide the price and availability of the generating unit to the market. And who is going to believe that “power to directly or cause the direction of the management policies” of a multi billion peso enterprise like a generating company will not be influenced by its stockholders and officers?

Here is another case where we are now lost in why we are doing things. Why the Epira Law is endeavoring to limit concentration of capacity towards the objective of assuring competition in the market place and why it is limiting cross-ownership between distribution utilities and generating companies.

The whole idea is assuring there would be enough independent power generators competing with each other to truly create the kind of honest to goodness competition that will bring down power to “least cost” for consumers. It includes competing for bilateral contracts and the WESM spot market. That cannot be achieved if the DU is allowed to pick and choose its own generators, negotiate sweetheart deals, and cartelize the generation sector.

Cross-ownership between the Distribution Utility and the generator put them in positions to negotiate sweetheart prices, sweetheart terms, and sweetheart administration of the power supply contract. When faced with a decision to generate revenue for its generating company or to protect the public from unnecessary and avoidable pass on charges, which do you think the conflicted cross-owners will choose?

 

What are the betrayals and treason of Rule 11?

1. It redefined the Epira laws definition of “control” as the marketing of the capacity and not considering ownership and operations.

2. In determining concentration of capacity, it restricted the counting of the generating capacity to the party “controlling” it as defined above and not counting it to the owner and operator.

3. These two just about totally removed the 50% cross-ownership limits already generously allowed by the Epira law between the distribution utility and the generating companies.

4. This means a distribution utility can own even 100% of a generating facility and it will not count against the limit of cross-ownership of 50% as long as he doesn’t do the marketing of the power capacity, which is the new definition of control per Rule 11.

5. With Meralco’s generators all interlocking in ownership, there cannot be true competition in the generation sector in bidding for bilateral power supply contracts and in the WESM spot market. How can related generators honestly compete with each other? What chance do the consumers have against coordinated action and collusion and price manipulation among them?

Whoever perpetuated the mangling of Rule 11 betrayed the Filipino consumers and committed nothing less than treason against the people and the Philippines as a country. What right do you have to deprive our people of their right to competitive power, to protection against manipulation, to be treated fairly. To deprive them, on a monthly basis, of their hard earned income with overpriced electricity?

To make a mockery of the Epira Law that took the country more than five (5) years to deliberate and pass? In the pursuit of competitive power, the government privatized Napocors generating assets and contracts at firesale prices, leaving the people with P500 billion in stranded loss and liabilities that will again be passed on to us.

Because of this Rule 11, all these severe costs to the country and the people is coming to naught.

For all its deficiencies, the Epira law was correct in trying to limit the installed generating capacity that a company or related group can “own, operate, or control” (Section 45(a)) for any one of those can give a party in the position to control, price, and withhold the generating capacity from the market, which will manipulate the “supply” that impacts market prices.

Section 45 of the Epira Law and Rule 11 of its IRR were there in the law and rules before the MVP Group took over Meralco in May 2010. But they are exploiting the loopholes to the limit and actually openly monopolizing, negotiating, and cartelizing the sector.

Ownership, Cross-ownership, and Cartelization of the Generating Capacities by Meralco and the MVP Group?

We already know that the MVP Group controls Meralco, the largest power distribution utility with a demand of 6,000mw, more than 62% of national demand.

On the generation side, We already know that they ended up owning 51% of the 455mw San Buenaventura expansion in Mauban. We also know their control of the 600mw Redondo Peninsula coal project in Subic.
They got bolder and more voracious in the recent months.
In May 27, 2016, the MVP Groups affiliate First Pacific bought 56% of Global Business Power of the George Ty Group which in turn bought 15.6% of another Meralco affiliate Metro-Pacific Investment (MPIC). MPIC already owns 49.96% in Meralco in addition to a 50% ownership in Beacon that owns 35% also in Meralco.

Two of the seven (7) midnight power supply contracts of Meralco totaling 670mw were signed with Global Business Power. The 70mw is for a coal plant as far away as Iloilo that will go through 800 kilometers of power transmission and several submarine cable systems. That is clearly self-dealing to the detriment of the Metro-Manila consumers.

In July 14, the joint venture between Meralco and San Miguel was signed on Mariveles Power Generation which got a 528mw contract. Meralco would own 49% and San Miguel 51%. On July 29, Meralco announced a 50:50% joint venture with DMCI/Semirara for the St.Raphael Power Generation Corp. which got a 400mw among the seven (7) midnight contracts.

Redondo Power that got a 225mw contract is owned 51% by Meralco in partnership with Therma Power of the Aboitiz Group. The Atimonan Energy One to which Meralco assigned 1200mw of power is majority owned by Meralco but it is not yet announced who will be its partner with Aboitiz and Ayala as rumored possibilities.

Before these new joint ventures and alliances, the other Meralco owner with 27.1%, favorite white knight JG Summit, bought 30% of Global Business Power where Meralco PowerGen had bought 20% in 2013. New Meralco partner EGAT of Thailand under its investment arm New Growth BV own 49% of the 455mw San Buenaventura. EGAT had bought 40.95% of Meralco supplier Masinloc Power Partners of the AES Group. EGAT owns 98% of QPL Mauban which has a 460mw coal power contract with Meralco.

In all these generation projects, Meralco PowerGen or any of the MVP group affiliates will own anywhere from 49% to 60%. Because of Rule 11 and its redefinition of “control” and how installed capacity for purpose of determining market domination and capacity concentration, NONE OF THESE 4,100MW will count against the ownership and market control of the MVP Group.

If we consider that Meralco’s various partners control an additional 5,000mw of the country’s power generating capacity, 9,100mw of the country’s 14,000mw capacity would be in the hands of one Meralco Cartel. That’s 65%, way over the limit for any affiliated group.

And we are only considering generating capacity. If we base it on the guaranteed contracted energy in kilowatthours stated in the seven (7) midnight power supply contracts, the Meralco cartelization will in run into 95% of the energy needs of Meralco. Meralco buys another 5% of energy from WESM, where the majority of the energy supplied also come from their affiliated generators.

Congress can annually conduct an investigation into suspicious simultaneous downtime of power plants, periodic spikes in power rates and the spot market prices. The ERC can issue show cause orders. They can do table evaluations of power rates negotiated between and among sister distributors and generators. If we as a people, as a nation, as a government, are incapable of stopping this market domination and conspiratorial cross-ownerships, the above actions will be nothing but exercises in futility and incapability in the face of the giants that the country allowed to grow beyond controllable. That would be oligarchy and oligopoly.

Rule 11 is a abhorrent betrayal of the Filipino consumers, nothing less than treason to the country and its industrial competitiveness.

Cross-ownership, monopolization, and cartelization of the generation sector only deal with domination of Capacity. Sweetheart negotiations of pass on charges to consumers is another and it would have been partially corrected by the CSP policy. We don’t know if the MVP group had something to do with the mysterious moving by the ERC of the CSP midnight by five (5) months. We just need to follow the trail of sweetheart financial benefits from the seven (7) midnight contracts totaling 3,551mw that the CSP extension would allow to evade the competition policy.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

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Disclaimer

David Celestra Tan is a pioneer in the IPP industry and a founder and former President of the Phil.Independent Power Producers Assn. A CPA by education, he has been in the power industry for 35 years and evolved into utility economics. Was active as volunteer in finalizing the Epira Law to some key Senators. Through his blog matuwid.org in retirement he only seeks to share his expertise in power policy and strategy for the public good towards reducing the power cost in the country and eliminating abuses and monopolization. He assures the consumers and participants in the movement that he has no vested interest other than as a consumer and will not benefit financially from any of the advocacies and certainly will not participate directly or indirectly with any potential bidders in a true CSP.

IPP’s Surrender to Meralco’s Market Capture and the Rise of the Power Oligarchy

“We know we wanted to deregulate, we just forgot why we are doing it!” a USA regulator lamented. That in a nutshell is the state of the deregulated and privatized power sector in the Philippines, resulting to one of the highest electricity rates in Asia, and headed towards uncontrolled concentration, domination, and abusive rates and terms.

Concept of the EPIRA Law

The whole idea of the EPIRA law of 2001 is to reduce power costs by creating true competition in the different sectors of the Power Industry. Generation was unbundled from transmission and distribution and there was not supposed to be cross ownership among them to assure this healthy competition for the benefit of the consumers.Assuring there is a fully functioning competition especially in the generation sector, and its spot market called WESM, seems an idea that is totally lost now among the government policy makers, regulators, and legislators.

There can be a functioning competition in the generation sector only if there are enough independent players competing against each other. The private sector however will not do it on their own because alliances, market cooperation, and coordinated strategies will tend to be more convenient and lucrative. It is up to the government to create and guard an industry structure where competition among generators is assured to safeguard consumers.

Self-Contradicting Provisions

One of the most self-contradicting provisions of the Epira law is Section 45 that ironically professed to prohibit market domination and anti-competitive behavior but proceeded under its own paragraph b to allow distribution utilities like Meralco to enter into bilateral contracts with affiliated companies up to 50% of their demand and is silent on the need for competition. Hence, negotiation between affiliated companies obviously became allowed. (What the law does not prohibit, the law allows!) This is the handiwork of the powerful lobbyists to tilt the rules in their favor.

That put Meralco the largest power distributor with 5,000mw demand the ability to choose who they will contract with and 50% or 2500mw allowed to be with their affiliated generators. In essence to also choose who gets in to be major players in the generation sector. That is so much market power. Meralco serves 75% of Luzon, equivalent to 62% of the country’s energy needs.

Independent Power Producers (IPP’s)

Until a few months ago the Philippines had an appearance of a robust generation sector with sufficient independence and competition among them. Top tier Power generators San Miguel Corp, Semirara, AES of USA, EGAT of Thailand, Kepco of Korea, TeamEnergy of Japan, Therma Power of the Aboitiz Group, First Gas of the Lopez Group have power supply contracts with the new Meralco but they are nonetheless independent.

There is also Global Business Power that concentrated in the Visayas, the Ayala Energy in coal and wind in Luzon, Transasia trying to do projects in Luzon and the Visayas, the Filinvest Group of Gotianun mostly in Mindanao, the Alsons Group also in Mindanao, Salcon Power in the Visayas, GN Power in Mariveles and Mindanao. Then there are the 2nd and 3rd tier players in renewable energy mainly solar, run of river hydro, wind, biomass and pocket players in diesel plants.

New Era of an Open and Competitive Power Generation Sector

When the Department of Energy passed in June 2015 a new country policy of requiring mandatory bidding for bilateral power supply agreements specially base-load, it ushered in a new era stopping self-negotiated power supply contracts whose sweetheart rates are passed on to the consumers. It was a major boost of commitment to upright regulation when the then new ERC Chairman Jose Vicente Salazar led the issuance of the ERC Resolution 13 mandating that the DU’s conduct a CSP for the power supply contracts that they will submit to the ERC after November 6, 2015.

The CSP rules created an open and competitive power generation sector where the willing and able power generators, local and foreign, can come into the market by being competitive , efficient, and innovative with technology. No barriers to entry. No need to have special connections with the DU. Just good old fashioned competitively priced power.

While the government was promoting the CSP policy the Meralco group continued announcing its target of 3,000mw of power projects for its subsidiary Meralco PowerGen, as if telling the government “stop us if you can”.

The independent power generators were calculating their moves. Some sharpening their organizations for the open bidding that might happen. Others discussing schemes with Meralco and the MVP group, who cannot be ignored because they “control the gold” of the power generation market which is the power distribution utilities, the largest of which is Meralco. Lets remember the “golden rule”. He who controls the gold makes the rules, courtesy of Section 45 of the EPIRA law.

When independent generator, EGAT of Thailand approached Meralco for a 460mw expansion of the Mauban coal facilities, insiders said they only offered P3.80 per kwh. By the time the negotiation was finished, Meralco PowerGen became the 51% owner of the project and the rate became P4.35 per kwh. Within the same timeframe a group of eight (8) electric coops in the north got a bid of P3.78 per kwh for only 135mw of aggregated demand.

After November 6, 2015, Meralco had been lobbying at both DOE and ERC to be allowed to hold their own CSP bidding, for “swiss challenge” biddings where they preselect the original proponents of an unsolicited proposal which most likely will be their own affiliate, and strong lobby against an independent bid administrator to conduct a bidding as envisioned by the DOE Policy. They also threatened both DOE and ERC to take them to court on the CSP policy.

The independent generators were waiting if the government specially the ERC will be steadfast in its commitment to CSP especially when the ERC Chair was quoted to have said “we lament the failure to see the public’s clear benefit from the CSP. We will respect the legal process even as we seriously consider our own legal options to make sure we defend the public interest, as well

Moving the Midnight and Parting the Red Sea

Things changed however when the ERC announced on March 15, 2016 that it was “restating” the effectivity of the CSP requirement to April 30, 2016. This signaled to the power generators that Meralco and the MVP group can really make things happen, like Moses parting the red sea with the wave of his wand. (Actually some of them heard weeks before March 15 that ERC will move the CSP midnight.)

Even the likes of Ramon Ang of San Miguel, who until then have been a staunch competitor of MVP, can see who is the “Moses” in the power generation landscape and will not be so impractical as not to surrender to the MVP group who obviously can make things happen, has market control, and now regulatory capture.

(As a consumer group we were rooting for Mr. Ang because he represented an entrepreneurial force that can bring consumer-beneficial competition in the cellphone sector with Telstra and the power generation sector, two hopes and dreams that banished)

After clearly one of the most frenetic periods of negotiations to finalize 3,551mw of power supply contracts in 60 days, Meralco and their new subsidiaries and allies signed the PSA’s on April 26, 2016 and filed the applications with the ERC at 7am on the 29th, a day before the April 30 midnight set by the ERC.

1. 300mw with RP Energy in Subic with Aboitiz
2. 400mw with St. Raphael in Calaca with Consunji group
3. 1,200mw with Atimonan One. With Aboitiz or Ayala?
4. 528mw with San Miguel’s Central Luzon Premiere in Pagbilao Quezon
5. 528mw with San Miguel’s Mariveles Power in Mariveles, Bataan
6. 70mw with Panay Energy Development in Iloilo with Global Business
7. 600mw with Global Business Power in La Union

While the 3,551mw of contracts represent only 59% of the projected 6,000mw power demand of Meralco, the minimum off take energy total 24.885 Billion kwh is equivalent to 75% of its energy requirement. If we add the 455mw San Buenaventura and the remaining contracts with QPL and former Affiliate First Gas, most of Meralco’s base-load power requirements for the next 25 years are tied up with these negotiated contracts.

The seven (7) power supply contracts have amazingly identical language, pricing formula, and ERC application, apparently using the 300mw RP Energy as the template that was finalized and signed on April 20, 2016. Imagine five (5) of the largest power generation groups and their lawyers in one room hammering power supply contracts that will tie up the Meralco consumers for the next 25 years in a race to beat the new 45 day opening provided by the ERC. Three of them (Ayala, MVP Group, and RSA Group) just had the competitive barrier broken down among them when they signed the Telstra frequency buy off.

If that is not enough, the new Cartel is trying to push an era of non-transparency in the regulatory approval process. Their ERC applications are asking for identical and unprecedented “motion for confidential treatment of Information”. Among the information being withheld from the public? 1) Purchase Power Rate and breakdown of rates, 2) data on operating and maintenance expenses, 3) cost analysis, and 4) operating expenses. These are critical information needed to determine whether the rates are fair and reasonable.

The Rise of the Power Oligarchy and Oligopoly

The Power generators surrender to Meralco’s imposing market (and now regulatory) power is evidenced by the spate of dizzying controlling acquisitions as everyone succumbs to MVP’s “dealmaking” legacy. Now Meralco, the largest utility supplying the energy needs of the center of commerce and industry of the Philippines with 75% market share in Luzon, is now controlled by a few inter-linked generators.

In May 27, 2016, the MVP Groups affiliate First Pacific bought 56% of Global Business Power of the George Ty Group which in turn bought 15.6% of another Meralco affiliate Metro-Pacific Investment (MPIC). MPIC already owns 49.96% in Meralco in addition to a 50% ownership in Beacon that owns 35% also in Meralco.

Two of the seven (7) midnight power supply contracts of Meralco totaling 670mw were signed with Global Business Power. The 70mw is for a coal plant as far away as Iloilo that will go through 800 kilometers of power transmission and several submarine cable systems. One wonders about the technical and economic advantage to Meralco consumers of buying power that far from the Meralco load center when there are so many other options closer to home for 70mw.

In July 14, the joint venture between Meralco and San Miguel was signed on Mariveles Power Generation which got a 528mw contract. Meralco would own 49% and San Miguel 51%. On July 29, Meralco announced a 50:50% joint venture with DMCI/Semirara for the St.Raphael Power Generation Corp. which got a 400mw among the seven (7) midnight contracts.

Redondo Power that got a 225mw contract is owned 51% by Meralco in partnership with Therma Power of the Aboitiz Group. The Atimonan Energy One to which Meralco assigned 1200mw of power is majority owned by Meralco but it is not yet announced who will be its partner with Aboitiz and Ayala as rumored possibilities.

Before these new joint ventures and alliances, the other Meralco owner with 27.1%, favorite white knight JG Summit, bought 30% of Global Business Power where Meralco PowerGen had bought 20% in 2013. New Meralco partner EGAT of Thailand under its investment arm New Growth BV own 49% of the 455mw San Buenaventura. EGAT had bought 40.95% of Meralco supplier Masinloc Power Partners of the AES Group. EGAT owns 98% of QPL Mauban which has a 460mw coal power contract with Meralco.

Even the Visayas Grid will be dominated by four main players Meralco through GBP, Aboitiz Power, Green Core of the Lopez Group, and Kepco.

It’s all now in a family. How can there be true competition in CSP biddings and even in the WESM? If their cartel and interrelated power players get away with the seven (7) midnight contracts there would be no meaningful CSP biddings for Meralco consumers for the next 25 years, only gesture biddings for minor and shorter term contracts like peaking and reserve power. There would not be a credibly functioning power spot market. Sadly, this is happening at a time when the Philippines just passed The Philippine Competition Act (Republic Act 10667) which defines, prohibits and penalizes three types of anticompetitive conduct: anticompetitive agreements, abuse of dominant position, and anticompetitive mergers and acquisitions. If what is being done to the power generation sector is not against all these, we don’t know what is. If this is not a cartel, we also don’t know what is.

What we have is now a Power Oligarchy and Oligopoly. What chance do the consumers have of getting honestly competitive power?

Things will change only if the government recognizes this crime against consumers and country and would be willing to act to prevent it. This actually is the more productive subject of the Senate investigation on power.

Next: How is Meralco able to negotiate most of its power supply with affiliates? Who is the Culprit?

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org

Disclaimer
David Celestra Tan is a pioneer in the IPP industry and a founder and former President of the Phil.Independent Power Producers Assn. A CPA by education, he has been in the power industry for 35 years and evolved into utility economics. Was active as volunteer in finalizing the Epira Law to some key Senators. Through his blog matuwid.org in retirement he only seeks to share his expertise in power policy and strategy for the public good towards reducing the power cost in the country and eliminating abuses and monopolization. He assures the consumers and participants in the movement that he has no vested interest other than as a consumer and will not benefit financially from any of the advocacies and certainly will not participate directly or indirectly with any potential bidders in a true CSP.

Stealing President Rody’s Thunder

Meralco’s Seven (7) Midnight Coal Contracts Pre-Empted Duterte Government’s Say in Energy Mix, CSP, Electricity Rate Reduction, and Economic Development.

David Celestra Tan, MSK
14 August 2016

Part 2

It is not an exaggeration to say that Meralco, by moving fast before the elections, actually checkmated any new Government, which turned out to be Duterte, before they could sit in the table and learn how to play power chess.

President Rody won because of his promise to eradicate drugs, crime, and corruption. But that would be only a third of his legacy. The other third would be infrastructure development and the last third would be in economic and fiscal policies and programs.  In the latter, Meralco and its cartel are stealing his thunder if they can get away with it.

  1. Energy Secretary Al Cusi’s Energy Mix Target Subverted Before it Could Start.

By forcing the issue on these 4,100mw of coal projects, Meralco  subverted any effort of the Department of Energy to rationalize the country’s energy mix under which they initially hope to limit coal to 30%.  These new coal projects will supply easily 90% of Meralco’s needs for the next 25 years. Since Meralco uses 62% of the country’s energy needs, their coal contracts is equivalent to 56% of the country’s power supply. Add to that the 3,000mw of coal projects in Mindanao and the Visayas and it’s easy to see the Philippines will not come close to limiting coal to 30%.

Meralco has a long record of overcharging the public and still say with a straight face that they are doing the consumers a favor. Things have not changed under the MVP Group and now it appears they are hoodwinking even the government and its new team.

The Philippine Star reported as recently as July 29 (90 days after the Meralco signed the coal contracts) that “Business titan Manuel V. Pangilinan has been among those pressing the government to come up with a clear-cut policy direction on the appropriate power fuel mix the country needs as it pushes for cleaner technologies.” “We need a policy direction (on) what is the appropriate fuel mix for our people. And once that’s decided businesses will build the plants, whether it’s a gas plant, coal plant, or renewable plant. So we just need direction” MVP said. This after being fully aware that the 4,000mw coal midnight contracts Meralco signed will preempt any government goals in energy mix.  It was a regrettable double talk, the equivalent of a head fake and back door play in basketball. In trying to justify their opposition to CSP and insisting on self-negotiating power supply contracts, MVP also has been quoted in interviews that “the CSP policy is illogical as it allows gencos to decide whether or not to participate. This gives gencos the ability to dictate prices. You shifted the power to price over to the gencos and we’ve seen what happened in December 2013 when prices spiked. The 2013 incident pertains to when Meralco’s rates shot up by P4.15 for December and P5.30 for January because it had to source power from the WESM where distributors such as Meralco buy their power supply from Genco’s”. “The market power should be with the DU’s which are obligated by law to find the least cost. But if you are a power generation firm then you are not under that obligation.” Well said concept.Meralco’s President Oscar Reyes for his part came up with a new spin. “Without any generation capacity Meralco would effectively be only a price and supply taker”meaning by negotiating they have a say in the generation buying price and not just the generator or the WESM. He implies that by negotiating it would be good to protect the consumers.

Wonderful words….sana!. But the truth is since Meralco as the “price setter” is negotiating with sister company generators, they become one as the price setters and the Meralco captive consumers the helpless price takers. Consumers are the ones paying for the charges but they have no say in it. In the least the DU power supply that will be charged to them will have to be subjected to a true competitive bidding, giving them an ounce of safeguard against pricing abuse.  This is exactly the reason for a Third party administered CSP.

Meralco buys only 5 to 8% from WESM, the price of which skyrockets when Meralco’s own contracted generators go out and supply is reduced. This  includes the periods of generous downtime allowances provided by Meralco when the generators are still being paid their capacity fees. It’s a double whammy to consumers because the consequent higher prices of WESM are passed on to them. (Consumers really get no respect).

 Remember also that during the crisis of December 2013, Meralco was reported by the market investigators to have instructed their IPP Therma Marine to bid the highest P62 per kwh contributing significantly to the higher market settling price that ravaged the consumers.

The country’s energy had already been mixed for us by the MVP group and its cartel.All coal and worse they are all negotiated sweetheart deals. Did someone say Indonesia is a major source of Coal which also happens to be the country of the reported owner of Meralco?

Secretary Cusi may need to stick around for 25 years before he could start reducing coal’s share to 30%.

 

  1. Aspiration to reduce power rates in the country

Any aspiration of the new government to reduce power costs will have to start with power generation because that is 60% of the total bill. And it is the sector that had been non-transparent with negotiated sweetheart prices since 2001 when the power industry was privatized and deregulated. These Seven (7) negotiated contracts will effectively shoot down any meaningful power cost reduction program of the new government and the succeeding governments for the next 25 years.  

 

  1. National Integrity and Governance

Only a few months ago the Philippines was about to make its power generation sector truly competitive with a new policy to stop self-negotiated power supply contracts that are passed on to the consumers and to require competitive bidding by the DU’s including Meralco which will make the procurement process competitive and transparent and will open the power generation sector to more independent generation companies. We were so proud and everything was in place. The ERC only needed to implement.

Faced by a Meralco threat,  ERC Chairman Jose Vicente B. Salazar said “the commission would exercise its legal authority to defend the issuance of ERC Resolution 13 if challenged in court”.“While we respect anyone’s right to take legal action, we lament the failure to see the public’s clear benefit from the CSP. We will respect the legal process even as we seriously consider our own legal options to make sure we defend the public interest, as well,” Salazar was quoted to have said in a text message.

Then the unthinkable happened on March 15, 2016. Out of nowhere and without much public debate, the ERC moved the effectivity date of the CSP rule to April 30, 2016, thus parting the red sea for the filing and exempting of any new power generation projects Meralco wanted.

It is perplexing that the ERC, instead of coming up with judicious transitional rules for the country, threw in the towel, essentially abandoning the whole ideal of competitive generation rates to consumers for the next 25 years at least in the premier Meralco area and abdicating on its mandate to safeguard the interest of the consumers.  They moved the midnight and parted the red sea. What made them do it?

 

  1. Who would care enough to stand up for the Filipino electric consumers? A defining moment for the Filipino spirit.

Meralco’s package of seven projects and contracts, if they really are allowed to avoid the CSP policy,  would be damaging for the consumers and the country in more ways than one.

 

    1. a) It would be a disgraceful circumvention of our law. A damning indictment of our integrity and ability as a nation and people to implement our rules that are clearly made to protect the public interest. It is regrettable to see that our temerity to fool around with our own rules knows no limit for propriety and patriotism.
  1. b) Monopolization, or its buyer side cousin, Monopsony, are not just “high fallutin” terms for economists. They are actually blatant subversions of the rights of consumers to fair charges and to be treated with respect. In the power sector, what is involved is the provision of public services in least cost manner as clearly provided by the Epira Law of 2001.Activities by the private industry participants to subvert these rights, and to deny them least cost electricity, are nothing less than crimes against the consumers.There cannot be least cost power unless it is market determined through an honest to goodness competitive bidding. Our anti-graft laws have indicted government officials for using people’s money without bidding. Passing on generation charges to the people without bidding is like dipping into their pockets monthly. At easily P20 billion a year in higher charges nationwide, this is as big as drugs, crime, and corruption. Government officials who facilitate these subversions and who look the other way are even more guilty because it is their job to uphold and protect the public interest.

Who would care enough to stand up for the Filipino electric consumers? This is a defining moment to the modern day Filipino spirit.

  1. Economic Sabotage

It is also a subversion of the country and economic sabotage to perpetuate schemes that will preclude competitive power for it deprives the country its ability to be economically competitive, to create jobs and to assure the right of 90% of our 100 million people to make a decent living and take care of their families.

The next 40 years is predicted by Japanese business leader Lee Sawaki to be the golden age for the Philippines whose young productive population of 20 to 65 years and average of only 23.5 years, gives it a “population bonus”. Japan, Taiwan, Singapore, Korea,  and even Thailand had become prosperous because of it. But they had finished their “population bonus”. It’s the Philippines turn. Those countries were able to capitalize because they also had low power costs that made their manufacturing and commerce competitive. The Philippines cannot achieve its growth opportunity unless it brings down its power costs. Do we have the national resolve to do what is right to make this country truly great?

That economic growth can be sabotaged by Meralco’s cartelization of power generation with the era of arbitrary power charges if the government and regulators would allow them to evade CSP and impose their will on the government officials who were duly elected by the Filipino people.

Should we not wonder why every time approving power supply contracts need to be justified, there is a corresponding threat of brownouts and power shortages? Of the 4,100mw of Meralco coal contracts, only 70mw will come in this year, 455mw in 2018, 928mw in 2020, and 2,553mw in 2021 to 2023, 5 to 7 years from now. 3,551mw of them rushed to signing on 26 April 2016 to beat the new ERC deadline of April 30, 2016. There is time to do a proper CSP. vNow that power generation is a cartel what is there to assure that there is no orchestration of power supply?  Who will protect the consumers?

It is not Too Late for Pres. Duterte’s Government to Arrest this Crime Against Consumers. Those negotiated coal projects still need to be accepted and approved by the ERC.

We appeal to President Rody to help rescue the electric consumers nationwide especially in the Meralco area. Let us hope he will not allow Meralco’s Power Cartel to steal his thunder for good governance.

Next: IPP’s Surrender to Meralco’s Market Domination, and The Rise of The Power Oligarchy

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org

Disclaimer
David Celestra Tan is a pioneer in the IPP industry and a founder and former President of the Phil.Independent Power Producers Assn. A CPA by education, he has been in the power industry for 35 years and evolved into utility economics. Through his blogmatuwid.org in retirement he seeks to share his expertise in power policy and strategy for the public good towards reducing the power cost in the country and eliminating abuses and monopolization. He assures the consumers and participants in the movement that he has no vested interest other than as a consumer and will not benefit financially from any of the advocacies and certainly will not participate directly or indirectly with any potential bidders in a true CSP.

Meralco’s Seven (7) Midnight Coal Power Supply Contracts If Allowed will Define us as a People and Nation Beyond Electricity

David Celestra Tan, MSK
August 8, 2016
Part 1

The MVP Group Struck like lightning to cartelize the country’s Power Generation sector while the country was engrossed in choosing its new President. It hurriedly signed Seven (7) midnight long term power supply contracts using coal totaling 3,551mw, and an estimated project cost of P417 billion, with various majority owned companies and new partners and alliances last April 26, 2016, two (2) weeks before the May 9 elections. They filed with the ERC at 7am on April 29, 2016 a day before the six (6) month postponed deadline of April 30, 2016 inexplicably done by the ERC.

1. Power Generation Will Now Be A Cartel and True Competition Will Be in “ICU” if Not Yet Dead.

Meralco’s seven (7) midnight power supply contracts will have larger implications on us Filipinos as a people and a nation in many aspects beyond electricity but let us start there.

Charging the Consumers Whatever they want. vThe midnight contracts, all amazingly with uniform wording and contract provisions and pricing formula, effectively cornered for the next 25 years the Meralco consumers with sweetheart contracts and prices, totally brushing aside the words and spirit of the DOE’s policy on Competitive Selection Process (CSP) or Bidding that the ERC is supposed to be implementing faithfully.

Mandatory CSP as a policy and power cost reduction strategy was adopted by the Department of Energy to stop the long practice of distribution utilities like Meralco to negotiate power supply contracts with its sister and affiliated companies at sweetheart prices and terms which are then passed on to the helpless consumers. Obviously the prices and terms are much higher by 10 to 20% than what it would be had there been an honest to goodness competitive bidding.

The CSP policy would also open the power generation sector to more independent investors thus assuring long term supply at competitive rates. Currently, only those generators who are favored by the DU’s like Meralco can enter the power generation market. Normally they are sister companies.

The DOE under the bold and prescient leadership of then Energy Secretary Carlos Jericho Petilla passed its Circular in June 2015 adopting competitive bidding for bilateral power supply contracts as a national policy. It was a new dawn of enlightened government leadership.

The then new ERC, as the implementing body and regulator in rate setting approvals, took five (5) months until November 6 2015 to pass a Resolutionrequiring that electric distributors must subject to mandatory competitive bidding the power generation contracts they will submit to the ERC for approval. Enough time for Meralco to file an ERC application for any projects and contracts it may have in advanced stages.

Meralco’s seven (7) projects originally failed to make it to the CSP deadline of November 6, 2015. These “pinapalusot” contracts is trying to outmaneuver the Competitive Selection Process (CSP) policy. It involve approximately P99.5 billion a year in generation charges to consumers with a sweetheart premium in the range of P12 billion a year or P240 billion over the next 20 years. Or more once we see their escalator clauses, down but being paid provisions, and minimum payment guarantees that would be charged to the consumers.

Power Generation Will be a Cartel And we know what that means to prices and consumers.

The seven (7) midnight contracts effectively cartelized the power generation sector where most major local generation players have become partners and the country and consumers can no longer expect the kind of genuine competition that will bring down rates. No more truly bidding against each other in bilateral contracts and in the WESM.

This is totally against the EPIRA law’s aspirations for a truly competitive power sector and its admonitions against market power abuse and anti-competitive behavior.

Meralco kept fighting the CSP initiative tooth and nail, at the DOE and at the ERC. They threatened to sue ERC. They were against Third Party bid administrators. They wanted a delay. They wanted to run their own bids and lobbied ERC to allow swiss challenge bidding where again their sister generators will be the unsolicited offeror with the privilege of right to match. For good measure Meralco again threatened ERC with a lawsuit. The DOE for its part told Meralco there will be no extension.

The private sector is profit oriented and they will exploit all opportunities offered by law and rules. It is up to a vigilant and righteous regulatory agency to safeguard the interest of the consumers against exploitation.

The CSP was in place with the DOE and ERC on board. All we had to do as a country was stay the course and implement it properly and honestly! We were at the Throes of Greatness, a chance to demonstrate the Filipinos ability as a nation and race for fortitude to reform and do what is right.

Then something happened on the way to consumer purgatory.

In March 15, 2016 the ERC, claiming “several stakeholders had written them raising issues on the constitutionality on the effectivity of the CSP Resolution”, incongrously extended the CSP applicability deadline to April 30, 2016 almost half a year beyond its original November 06, 2015 effectivity and ten (10) months after the Department of Energy made it a policy for the country to require CSP for bilateral power supply contracts. Enough time to create new projects on paper. ERC’s Resolution 1 Series of 2016 curiously worded it as a “clarification” and a “restatement” of the date and consequently many people did not notice the tectonic shift.

With the CSP Protection Gates opened you don’t know the kind of elephants and gorillas will walk through the opening. Then they came roaring and stampeding through the gates trampling the consumers rights and honor. Except their rampage was not noticed at that time due to the defeaning thunder of President Digongs overwhelming victory.

Meralco’s Seven (7) Power Supply Projects

A few days after the new April 30,2016 deadline, the MVP owned newspaper Philippine Star announced on May 4 Meralco’s signing of Seven (7) power supply agreements totaling 3,551mw and filed with the ERC on April 29 “just before the new effectivity date of the CSP policy” as their press release said.

1. 300mw with RP Energy in Subic with Aboitiz

2. 400mw with St. Raphael in Calaca with Consunji group

3. 1,200mw with Atimonan One. With Aboitiz or Ayala?

4. 528mw with San Miguel’s Central Luzon Premiere in Pagbilao Quezon

5. 528mw with San Miguel’s Mariveles Power in Mariveles, Bataan

6. 70mw with Panay Energy Development in Iloilo with Global Business

7. 600mw with Global Business Power in La Union

MSK and its member cause oriented groups were dumbfounded.

Seven (7) power projects, all coal, and all negotiated, totaling 3,551mw. If we add the 455Mw coal project in Mauban called San Buenaventura, they corner most of Meralco’s energy needs for the next 25 years, more than two decades of no real CSP. If approved it would be the death of consumer “least cost” power, transparent dealing, and the country’s yearning for more competitive power.

Erstwhile truly independent power generators Semirara of Consunji Group, Global Business Power, San Miguel, AES, and EGAT represented very able local and foreign independent power generators that we hoped will be key players in a robust competitive bidding that will truly benefit the consumers with lower rates. They can compete and give Meralco PowerGen a run for its money in a true CSP if and when that happens. Ayala is heard to be a partner in the proposed Atimonan.

Now they are all part of Meralco Power Gen’s Cartel.

Undoubtedly the Meralco cartel will try to justify that the contracts are necessary to assure that the country will not be short of power and avoid brownouts. But more than half of the Seven (7) will not come in until 2020 to 2022. It only takes 6 to 8 months to complete a true bidding for these big projects. Had they started in January 2016 after the November 2015 deadline for the CSP, Meralco would be close to awarding this year and power will start flowing in 3 years or 2019.

Commenting on the list of projects that Meralco applied for to beat the new CSP deadline, even the energy writer of the Manila Bulletin could not help but observe on May 4 that “This comes with striking prominence on a 1,200MW contracted capacity from a subsidiary’s yet-to-be developed Atimonan One Energy, Inc. coal-fired power plant in Quezon province, as well as with other affiliate firms”.

Yes, a “subsidiary’s yet-to-be developed Atimonan One Energy was hurriedly signed and applied for to beat the deadline and escape CSP.

Curiously, their ERC applications were not posted in the ERC website until seven weeks instead of the usual two weeks.

Next: Stealing President Rody’s Thunder

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Matuwid.org

Disclaimer

David Celestra Tan is a pioneer in the IPP industry and a founder and former President of the Phil.Independent Power Producers Assn. A CPA by education, he has been in the power industry for 35 years and evolved into utility economics. Was active as volunteer in finalizing the Epira Law to some key Senators. Through his blog matuwid.org in retirement he only seeks to share his expertise in power policy and strategy for the public good towards reducing the power cost in the country and eliminating abuses and monopolization. He assures the consumers and participants in the movement that he has no vested interest other than as a consumer and will not benefit financially from any of the advocacies and certainly will not participate directly or indirectly with any potential bidders in a true CSP.