Viewpoint: Competitive Selection Process for Power Supply Agreements: The Supreme Court Decision and the Responses of the Energy Regulatory Commission and the Distribution Utility Companies

By David A. Tauli
President, Mindanao Coalition of Power Consumers

1. The Supreme Court issued its final decision on July 2019 which required all power supply agreements submitted to the Energy Regulatory Commission after June 30, 2015 to comply with the Competitive Selection Process as defined in the 2015 DOE Circular (DC2015-06-0008), “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).”

2. In response to the SC decision, the Energy Regulatory Commission has directed all distribution utility companies with power supply agreements that are affected by the decision to submit to the ERC by December 2019 their explanations for each PSA showing that they carried out a legitimate competitive selection process prior to entering into the PSA with the generating company that was awarded the power supply contract by the distribution utility company.

3. The majority of the current set of commissioners the Energy Regulatory Commission are untainted by the apparent corruption in the previous ERC regimes prior to the chairmanship of Agnes Vicenta S. Torres Devanadera. Only one commissioner still remains from the corrupt regimes of the ERC. So consumers can expect the current ERC to be fair in their determination of the power supply agreements that complied with the Competitive Selection Process as defined in the 2015 DOE Circular.

4. The result of the evaluations of power supply agreements by competent and honest ERC commissioners should be that the ERC will require all PSAs for which legitimate competitive selection processes were not done to be subjected to the least-cost supply provision of the EPIRA, of which the DOE-mandated CSPs are forms of compliance. (The LCS provision of the Electric Power Industry Reform Act of 2001, EPIRA, states in Rule 7, Section 4h, of the Implementing Rules and Regulations: “A Distribution Utility shall supply electricity in the least cost manner to the Captive Market within its Franchise Area, subject to the collection of Retail Rates duly approved by ERC.”)

5. But even if we assume competent and honest ERC commissioners, the consumer groups should prepare to study all the decisions that the Energy Regulatory Commission will be making in their review of the PSAs in order to ensure that all the PSAs that were not subjected to legitimate competitive selection processes will be required by the ERC to undergo honest-to-goodness CSPs. The ERC under CEO Devanadera has been making decisions that result in fair and reasonable rates, but most of the generating companies will likely try to suborn the ERC into approving PSAs that were not subjected to proper CSPs. If generating companies with illegitimate PSAs are required to go through CSPs, the result will be a great reduction in the prices of the power supplies from these generating companies. It is even possible that the contracted generating companies will not win in the CSPs carried out by the distribution utility companies. Corporate disaster, which could be avoided by bribing the ERC commissioners. The vigilance of consumer groups will discourage the ERC from yielding to the temptations of the generating companies.

6. EXAMPLES

Following below are statements from sample applications for approval of PSAs by the ERC that were submitted by distribution utility companies. It requires only an evaluation of such statements in the PSAs to determine whether a legitimate CSP or LCS was conducted by the distribution utility company that submitted the PSA application. In Example A, the DU obviously carried out an appropriate competitive selection process, and thereby complied with the least-cost supply requirement of the EPIRA. In Example B, the DU clearly did not carry out a generally-acceptable competitive selection process. Example C is a PSA application from a DU that purports to have conducted CSP, but probably carried out a moro-moro that the DU and their accomplice generating company used to fool or suborn the ERC into approving the PSA.

6.1 EXAMPLE A: Verbatim statements in the PSA application of CEPALCO concerning the CSP or LCS process that the DU supposedly carried out:
“CEPALCO solicited offers from potential power suppliers, including its affiliate MINERGY COAL. Evaluations conducted by CEPALCO on the offers received disclosed the following results (excluding Fuel Cost):

Offers Supplier A Supplier B Minergy Coal
PhP/kWh 3.63 3.77 3.56

Comments:

6.1.1 Specific offers are mentioned by CEPALCO, along with the respective prices, the truth of which can be verified from other documents submitted to the ERC by CEPALCO, or by asking CEPALCO to submit confirmatory documents if these were not attached to the PSA application.

6.2 EXAMPLE B: Verbatim statements in the PSA application of MORESCO II concerning the CSP or LCS process that the EC supposedly carried out. “Given its demand growth and in order to obtain a secure and adequate supply of electricity for its member-consumers during this time, MORESCO II sought out other generation companies and sources of electricity in the Mindanao Grid and solicited offers and/or expressions of interest from these power suppliers to supply its growing power requirements;
“Among the offers that MORESCO II considered was one from FDC MISAMIS which made an offer to MORESCO II to supply its power requirements….”

Comments:

6.2.1 No mention is made of other generating companies that submitted proposals to MORESCO II, so it is certain (unless the lawyer was lazy in writing the PSA application) that MORESCO II did not send solicitations to other generating companies, nor did it post any public advertisement for its power supply requirement, thereby violating a basic requirement for acceptable CSPs and LCS processes. It can be verified, by examining the documents that were attached to the application submitted to the ERC by MORESCO II, that MORESCO II did not send solicitations to other coal generating companies (such as GNPower and the San Miguel power corporation that were marketing power supply at that time), and did not make any public advertisements. And upon such verification this PSA would be declared “null and void ab initio” for having violated the EPIRA.

6.2.2 This PSA application was submitted to the ERC before July 30, 2015, so it is not among those that will be reviewed by the ERC as a consequence of the Supreme Court decision. But it is expected that petitions will be submitted by consumers to the ERC to also review PSAs submitted before July 30, 2015 in order to verify compliance with the LCS requirement of the EPIRA.

6.3 EXAMPLE C: Verbatim statement in the PSA application of BUSECO concerning the CSP or LCS process that BUSECO supposedly carried out.

“Competitive Selection Process. BUSECO invited interested bidders to supply its 5 MW peaking power requirements for the 2nd quarter of the year 2018 pursuant to Energy Regulatory Commission Resolution No. 13, Series of 2015 directing all Distribution Utilities (DUs) to conduct a Competitive Selection Process (CSP) in the procurement of their supply to the captive market and in accordance to BUSECO’s duly approved Competitive Selection Process Guidelines through Board Resolution No. 2016-013. The public bidding was participated by two (2) interested bidders, namely, Bukidnon Power Corporation (BPC) (now assigned to NBPC with consent of BUSECO) and Solar Eagle Renewable Energy Corporation.”

Comments:

6.3.1 Based on the statement, it appears that BUSECO conducted a CSP in accordance with the ERC resolution. But, from an examination of the documents submitted to the ERC in the PSA application, it could be found that BUSECO conducted a fraudulent CSP, as evidenced by the following facts:

6.3.1.1 Other generating companies, generally known to electric cooperatives in Mindanao that could supply the particular power supply required by BUSECO, were not invited to submit proposals.

6.3.1.2 The only other generating company that submitted a proposal was a solar renewable company, which could not possibly supply the PEAKING power requirements being solicited by BUSECO. Of course, BUSECO ruled out the proposal of Solar Eagle, leaving it with the generating company that it pre-selected prior to initiating its moro-moro of a competitive selection process. (Truth be told, bidder no. 2, the solar energy company, also was pre-selected by BUSECO so that two proposals could be submitted, thereby complying with the CSP requirement for at least two bidders, without jeopardizing the proposal of the favored generating company.)

6.3.2 Verification by the ERC of either of the foregoing two facts through an examation of the documents submitted by BUSECO should result in the ERC deciding that this particular PSA did not carry out an acceptable CSP. Of course, this assumes (which is reasonable to do so at this point) that there is at least one
honest and competent commissioner in the ERC who participates in the evaluation of the PSAs. Here, I reiterate this requirement for competent and honest commissioners who will carry out evaluation because the fraudulent PSA submitted by BUSECO was approved by the ERC.

6.3.3 The main intention of the Supreme Court decision, which is also the main intention of the EPIRA in requiring “least cost supply”, and also the main intention of the ERC and DOE directives on “competitive selective process”, is that competition among suppliers should prevail in the acquisition of power supply by the distribution utility companies.

6.3.4 If a distribution utility company enters into a power supply agreement but acts in an anti-competitive manner in the process (e.g., not sending requests for proposals to known power suppliers, specifications in the terms of reference that restrict competition, advertisement in newspapers with limited circulation – all of which were committed by BUSECO in this case), the ERC should not approve the PSA. If the ERC approves such PSAs, which happened in this case, the ERC commissioners are culpable and could be sued for corruption.

7. CONCLUSIONS

7.1 By objectively evaluating the power supply agreements, the Energy Regulatory Commission should be able to determine which of the PSAs did not carry out a generally-acceptable competitive selection process or least-cost supply process.

The distribution utility companies that entered into PSAs without legitimate CSPs should be required to carry out CSPs or LCS processes for the power supplies that were already contracted.

7.2 If a competitive selection process or least-cost supply process is carried out for an illegitimate power supply contract and the same generating company wins, then the price offered by the generating company, which probably will be much lower than the price in the original power supply agreement, will be made effective from the date when consumers started paying for the power supply from the generating company. Power consumers win.

7.3 In order to ensure that the commissioners of the Energy Regulatory Commission are not suborned into approving power supply agreements that have not gone through a legitimate competitive selection process (it can be shown that such anomalous approvals have been done many times in the last two ERC regimes), consumer groups should participate in the evaluation process if this is made public by the ERC, or study the decisions of the commissioners on the PSAs if the ERC carries out the evaluations behind closed doors. As the foregoing examples show, straightforward evaluation of the documents submitted by the distribution utility companies and simple verification of the facts need to be done in order to recognize when generally-acceptable CSP or least-cost supply process has been carried out by distribution utility companies. Legal expertise is not required to determine illegitimate power supply agreements; only due diligence.

8. IMPLICATIONS of the SC Decision for Power Supply Contracting in the Electric Cooperatives (which, with MERALCO, have been blatantly anticompetitive in their purchase of power supplies for consumers)

8.1 The SC decision on competitive supply procurement will be the start towards ensuring affordable rates for power supply for consumers of electric cooperatives, not only in Mindanao but throughout the Philippines. It means that the electric cooperatives will have to conduct honest-to-goodness competitive selection processes or least-cost supply processes for all their purchases of power supplies. And the electric cooperatives will no longer be able to pre-select the “winning” bidder for their power supply contracts.

8.2 The pre-selection of generating companies for PSAs by the electric cooperatives has been the main driver for the corruption of the officers of the electric cooperatives (the general managers and the members of the Boards of Directors, but these officers have also corrupted their upper level management employees). From the year 2012, the officers of most of the electric cooperatives in Mindanao established an S.O.P. in their power supply contracting in which the preselected generating company pays to the EC officers a minimum of one million pesos per megawatt of power supply contracted by the EC. This money goes to the officers of the electric cooperative; it has never been reflected in the books of accounts of the electric cooperatives. The SC decision has effectively eliminated this source of funds for EC officers, so there is now little inducement to spend money in order to be elected as a member of the board of directors. There is still money to be stolen from purchases of materials and equipment by the EC’s, but the amount from this is small in comparison to what was made available by the dirty generating companies. Power consumers win.

8.3 Even so, the current officers of the electric cooperatives, most (maybe 99%) of whom spent a lot of money to be elected to their positions, should be expected to continue to look for other ways of cheating their consumers in order to enrich themselves. The only way to stop corruption in the electric cooperatives is to organize and educate consumer groups in the franchise areas of the electric cooperatives to work as watchdogs over their ECs.

8.4 All power consumers should give thanks to God for the work that was done by the Alyansa Para Sa Bagong Pilipinas, Inc. (ABP), which moved the Supreme Court, against the objections of the ERC, to bring about a regime of justice in the determination of the rates that should be paid by consumers for their power supplies. In December 2016, the ABP filed the petition at the SC versus the ERC, DOE, MERALCO and a number of generating companies that were contracted by MERALCO. The petition asked that the SC should order the Energy Regulatory Commission to require the distribution utility companies to carry out competitive selection process in entering into power supply contracts with generating companies. (Why the ERC has to be ordered by the SC to do something which the EPIRA mandates as the prime responsibility of the ERC is another, long and sordid, story.) It is a result of this petition filed by the ABP that all power supply agreements submitted to the ERC after July 30, 2015 will be required to undergo CSP if the ERC determines that legitimate CSP was not done by the distribution utility companies in contracting for their power supplies.

8.5 As mention by the recently-retired Associate Justice Antonio T. Carpio, the Supreme Court is upholding the Philippine Constitution in the decision that resulted from the petition filed by the Alyansa Para Sa Bagong Pilipinas. Section 19, Article XII, The Philippine Constitution of 1987: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

David A. Tauli
November 2, 2019

Headline: Duterte orders strict compliance by power plants.

What President Duterte Said and Did not Say about Meralco’s More Advanced Technologies.

Meralco’s 2nd CSP Round

 

David Celestra Tan, MSK
30 October 2019

President Rodrigo Duterte was invited to the recent inauguration of Meralco PowerGen’s 500mw San Buenaventura Power Corp.,the country’s first “super critical coal technology” with high efficiency and low emissions or HELE. It was held at the Grand Hyatt Hotel in Fort Bonifacio last October 16, 2019.

The President was quoted to have ordered the Department of Energy “to ensure that the power plants operating in the country are strictly complying with operational efficiency standards as well as environmental laws and regulations.” The President is also calling on investors – primarily power plant project sponsors and developers – to take steps on deploying more advanced technologies even in coal-fired power ventures, chiefly those that shall be spewing lower emissions”, the news report further quoted.

“I ask you to follow the lead of San Buenaventura Power by investing in the generation of clean energy. I can assure you that you’ll be able to pursue more effective and efficient business strategies, as long as you give utmost importance for the protection of our environment and the welfare of your host communities” Duterte reportedly stressed.

The Meralco press release published last October 25, 2019 evidently tried to ride on the President’s statements and added “the P56.2 billion San Buenaventura power project is the first to be equipped with super-critical boiler technology among all coal-fired power facilities in the country. This is a technology in the high efficiency, low emissions (HELE) genre which has up to 45% efficiency compared to the more than 30% of the older technologies and also has the potential to bring down carbon dioxide emissions by up to 25% more”.

Clearly Meralco’s public information strategists are trying to spin a stinging endorsement from the President no less for its “super critical technology, HELE” which happens to be the same technology being restricted by Meralco for the 1,200mw Atimonan One competitive selection process.

Was the President actually endorsing Meralco’s “super critical HELE technology”? Let us breakdown what apparently the President said in the above press account.

1. PRRD Ordered the DOE “to ensure that the power plants operating in the country are strictly complying with operational efficiency standards as well as environmental laws and regulations.”

2. “The President is also calling on investors – primarily power plant project sponsors and developers – to take steps on deploying more advanced technologies even in coal-fired power ventures, chiefly those that shall be spewing lower emissions”

3. “I ask you to follow the lead of San Buenaventura Power by investing in the generation of clean energy”.

The Presidents statements were valid, legitimate, and entitled from the country’s chief executive. And let us grant that PRRDs words can be yarned to actually saying that advanced technologies like super critical HELE that was adopted by Meralco’s San Buenaventura is good for the country.

Those are however actually not issues.

Without trying to play Presidents mind reader, President Duterte did not say however the following in case there is an attempt to take the interpretation that far:

1. that Meralco should be allowed to restrict in the terms of the bidding of their CSP for the 1,200mw greenfield project to only super critical coal HELE.

2. That the DOE is ordered to allow Meralco to do so.

3. That Meralco should be allowed to manipulate the CSP by insisting on 1,200mw and allowing a limited time for potential bidders to prepare the bid and hence restrict competition.

It is HOW Meralco is acquiring and contracting for those technologies and the rates they are charging to the consumers that are the real issues.

MERALCO’s Second CSP Round

Meralco announced that it will proceed with the second CSP round for the 1,200mw greenfield project where in the first round only its sister company Meralco PowerGen submitted a bid under Atimonan One Energy. One more failed bidding and the 20 year contract will be allowed to be negotiated between Meralco and its sister company Meralco PowerGen.

Meralco announced

1) they will retain bidding the 1,200mw as a greenfield project, meaning brand new power plant “to boost the supply in the power grid at the least cost possible”.

2) “To accommodate more prospective bidders”, Meralco would relax the terms of the second round of CSP by lowering the power plants configuration and moving away from a single location requirement. Instead of only blocks of plant configuration of 600mw, Meralco is bringing it down to 150mw as opposed to just a block of 600mw or 1,200mw.

3) They will move away from single location requirement, basically allowing multiple requirements. Again, to make sure those who are willing to bid for a 1,200mw greenfield have the ability to put up these plants in multiple locations

Things Meralco is not changing

The misnomered Third Party bid and award Committee will remain to be glaringly Non-Third Party. Consequently there would be questions on whether the CSP will really be revised to enable serious bidders to participate:

a) Will they allow enough time for potential bidders to study their participation, buy documents, and to undertake meaningful due diligence?

b) Will they remove the restriction to super critical HELE and instead specify the low emissions that must be met.

c) Will they open the technology and fuel and not limit it to coal?

d) Will they be accepting bids for less than 1,200mw? And in case there is no one bidding a total of 1,200mw, will it be a failed bidding? Hence the PSA will be negotiated with Atimonan One?

It appears from the changes being made by Meralco, that they are doing their best to tweak the bidding rules just enough to make it look like they are opening it to more bidders but not really making the kind of changes that will make the CSP truly competitive. The kind that will really give the consumers genuine least cost power. And that can come only from a truly robust competition among unrelated parties.

We wonder what’s in the revised TOR that they have been tryng to get the DOE to approve? As they say in the power industry, the devil is in the details.

This game Meralco is playing, trying to dance around true CSP rules is fascinating to watch. Unfortunately until the CSP rules are changed there would only be one ending when the music stops, and that is the electric consumers will be charged high rates, screwed completely. What do we expect from a system where the bidding is run by an in-house bid committee of the DU and the participants are their sister companies and or business partners?

By the way, when the PSA is finally negotiated between Meralco and its sister company Meralco PowerGen, what rules are in place to give consumers a measure of protection from being abused? When will we ever believe that “competition beats regulation” in protecting the consumers from being overcharged?

A blessed All Saints Day Weekend to everybody.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Meralco’s CSP HELE HELE with Super Critical Coal Technology

David Celestra Tan, MSK
11 October 2019

Meralco has been super publicizing its adoption of this ultra super critical coal technology with high efficiency and low emission (HELE) for the 1,200mw Atimonan One project. It is supposed to be the country’s first (after Mauban’s San Buenaventura) and implying a high bar for high efficiency and low emission. Such high standards and big project size of 1,200mw were the reasons there were no bidders other than Meralco’s own Atimonan One Energy Corp.

(Not to mention that Meralco’s “Third Party” Bid and Award Committee gave bidders only 7 days to pay P6 million to buy the bid documents and only 40 days to do technical studies, due diligence, and prepare a bid for the approximately $ 3billion project!)

One more “failed bidding” for such super critical technology would mean a legal negotiated contract for the 1,200mw project in Atimonan, Quezon.

Meralco ally San Miguel Corp. who won most of the initial CSP for the 1,200mw and 500mw  brownfield projects due for delivery in December 2019, had his two companies (Panasia and Mariveles Power) withdraw from the bidding. (Paying P12 million for bid documents is small change in this game). SMC President and COO Ramon Ang is quoted in the press saying “allowing power plants with a wide range of technology to join the bidding would allow a level playing field in Meralco’s bid. We want to make an offer, so allow us to join the CSP”. “We did not join the bidding because CFB plants do not meet the requirements” the SMC COO continued. Meralco’s President Ray Espinosa said “we want all gencos to join, but we have considerations why the terms of reference for the greenfield supply are stringent”.

So What’s Ado with Meralco’s Ultra Super critical HELE technology?

Supposedly the high efficiency part (HE) means an improvement in energy efficiency from about 34% to 44%. To you and me it means supposedly lower fuel costs that are passed on to us consumers. The “low emission” (LE) part means it will have much lower harmful emissions specially CO2 and contribute less to global warming.  The ultra super critical part I think refers to the much higher combustion temperature and other thermal processes in the system.

As you can guess, this is much more expensive technology. Meralco had been announcing a project cost of $3 billion for the 1,200mw capacity or $2,500 per kw capacity compared to less than $2,000 for circulating fluidized bed or CFB.

In other words, Meralco is nobly trying to “introduce” this advanced coal technology to be charged to the consumers, who is supposedly going to benefit from “HELE” or high efficiency and low emission.  In so doing, they are able to restrict the CSP to this particular technology and project magnitude, effectively discourage competition and hence be able to negotiate among themselves a rate and terms of PSA. In the past, Meralco evidently tried to secure an “unsolicited proposal status for Atimonan One for a “swiss challenge” type CSP where A1E will have the right to match, another way to tilt the playing field for MeralcoPowerGen.

By super publicizing this super critical HELE technology, Meralco is evidently trying to acquire entitlement to the preferred status in biddings as provided for under Sections 10.2 and 10.3 of the Revised IRR of Republic Act No. 6957 otherwise known as the Built Operate Transfer law.

Project proposals for this advanced technology can acquire original proponent status must meet more or less 1) it is a project not envisioned by current policy programs of the government; 2) it must represent advanced technology not yet used in the Philippines and 3) it must be certified so by the National Science Development Board.

Now let us grant that Meralco’s Super Critical coal HELE meets number 2 and 3, clearly the power development is an established government policy and the introduction of efficient and environment friendly technology.  And CSP is similarly a primordial government policy.

The key question and I guess the main point of this article is, to achieve “high efficiency and low emission” (HELE), does the bidding really have to be restricted to super critical coal or even advanced ultra super critical coal technology that effectively they will scare away competitors, cause a failed bidding, and be allowed to negotiate PSA and prices that will be passed on to the consumers?

At the time Meralco and MeralcoPowerGen negotiated the Atimonan One project in April 2016, it was publicized with a rate of P3.75 per kwh. A few months ago this year 2019 we updated the rate using the escalation rates and fuel adjustments and it became P5.60 per kwh, higher than the then rates of other coal at P5.10 per kwh. Given that all competitors and pretenders have been shooed away from the CSP by the “super critical” requirement, and the 1,200mw greenfield project could eventually be negotiated due to failed biddings, what makes us think it will be lower than the current coal rates of P5.10 per kwh? 

The economic and environmental benefits of “HELE” can be achieved by other proven technologies most notably natural gas, a known cleaner and cheaper fossil fuel than coal and their old combined cycle technologies already beats the HELE of advanced coal technologies.

So if the government (and Meralco) really wants to be faithful to the true competition spirit of the CSP policy and now mandated by the Supreme Court in the Alyansa para saBagongPilipinas case, Meralco should not be allowed to restrict the bid specifications to this ultra super critical coal HELE but instead open the CSP to all technologies that achieve a certain level of low emissions.  The “high efficiency” can be specified but its advantages would already be reflected in the bid price of fuel consumption and costs. Hence it should not be a restrictively “super critical coal HELE”.

Why is Meralco trying to force upon the Filipino consumers this advanced and expensive “BMW that can run 150 kilometers an hour in luxury”when all they want is “fair and reasonable” rates from an electric vehicle that go 80 kms per hour to get from point A to point B? 

With the Meralco CSP being really opened and not restrictive, there will be more honest to goodness competitors, especially if they are really given sufficient time to prepare for a bid and, more importantly, signal to them that the CSP will truly be fair. Why are the established Japanese, Korean, and Chinese generators and local players Ayala, Lopez, and Alsons Group not really active in possibly bidding? And maybe we will see if San Miguel Power will truly compete for Atimonan One, knowing that he had two prior agreements for greenfield projects with MeralcoPowerGen for a 628mw Mariveles Power and a 628mw Central Luzon Power. Will San Miguel et all really compete with its customer Meralco?

Is Meralco’s CSP HELE HELE for ultra super critical coal technology not really about the noble intention of introducing advanced technology, not about high efficiency and low emissions, not about global warming but more about controlling the CSP process and negotiating the price that will be passed on to the consumers?As DOE Secretary Alfonso Cusi rightly asked, why does it have to be 1,200mw? Why not allow 600mw?

When will things ever change for the Meralco consumers?

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Viewpoint: The 52-Billion Pesos Mindanao-Visayas Interconnection Project

Demonstrating how the NGCP makes money for its owners and for the banks at
the expense of electric power consumers
By David A. Tauli, President, Mindanao Coalition of Power Consumers

Last month, the National Grid Corporation of the Philippines scheduled a public forum in Cagayan de Oro where they said they will discuss ongoing projects of the NGCP in Mindanao, particularly the Mindanao-Visayas Interconnection Project (MVIP). I told Mike Baños who received the invitation that we now have an
opportunity to the NGCP about the economic feasibility study that they presumably carried out for the project, which they estimate to cost 52 billion pesos upon its completion in 2020. However, the NGCP cancelled the public forum, so we could not ask them about their financial expectations for the MVIP.

Since 2011 the NGCP has filed a number of petitions to the ERC seeking approval for various components of the MVIP, and in July 2017, they got provisional approval from the ERC to implement the project. But in all those petitions and hearings, the NGCP never showed what will be the increase in the rates that consumers will paying for electricity when the MVIP becomes operational. There also was no quantification of the expected benefits to consumers from the implementation of the interconnection project.

In the absence of information coming from the NGCP or the ERC, I carried out a
basic financial analysis of the MVIP, and here are the numbers I arrived at:

1. Average rate to be paid by consumers who use the MVIP to convey the power
supply delivered to consumers from generating plants in Luzon or the Visayas (in
the case of consumers in Mindanao) or from generating plants in Mindanao (in the
case of consumers in Luz-Vi): 1.90 pesos per kWh
2 Annual profits of NGCP over a period of 30 years for constructing the MVIP: 2.0
billion pesos
3. Annual interests paid to banks (for 30 years) who provide the loans (70% of
project cost) for the project: 2.6 billion pesos

These are based on the standard return to equity and interest on debt that are allowed by the Energy Regulatory Commission for transmission line projects or distribution line projects, so there would be nothing irregular about the profits of the owners of NGCP (the majority shareholders being Henry Sy, Jr. and Robert Coyiuto, Jr.), and the interest earnings of the banks (probably those owned by Sy and Coyiuto or their relatives). However the electric power consumers who pay for these profits and these bank charges will not get any monetary benefit from the project in the form of reductions in the costs of purchased power or improvements in the reliability of electric service.

When the Leyte-Mindanao Interconnection Project (as the MVIP was then called) was first proposed in the 1990s by the National Power Corporation, the economic justification for the project was for power consumers in Mindanao to be supplied with electric power from the geothermal power plants in Leyte. It was then estimated that power supply from the Leyte geothermal plants conveyed through the LMIP would cost a total of 3.00 pesos per kWh, whereas building a coal power plant in Mindanao would cost at least 4.00 pesos per kWh. So consumers would be saving at least 1.00 per kWh with the construction of the LMIP. And the NPC could legitimately earn profits, while the banks could legitimately earn interests with the construction of the interconnection between Visayas and Mindanao.

Comparison of the Mindanao-Visayas Interconnection Project of today with the Leyte-Mindanao Interconnection Project of the 1990s:

Item MVIP LMIP
Annual profit of NGCP or NPC 2.0 billion Pesos Adequate Adequate
Annual interest earnings of banks 2.6 billion Pesos Adequate Adequate
Impact on rates paid by consumers Increase of 1.90 P/kWh Reduction of 1.00 P/kWh

A conclusion that could be drawn about the ongoing construction of the Mindanao-
Visayas Interconnection Project is that it will earn money for NGCP and for the banks, but will give no significant monetary benefit to power consumers that would compensate for the increase in the cost of power supply imported through the interconnection.

The ERC Erred in Approving the Implementation of the MVIP

Another conclusion that can be drawn from doing an economic evaluation of the interconnection project is that the ERC erred in granting provisional approval in July 2017 for the implementation of the MVIP in ERC Case No. 2017-034 RC.

The application submitted by the NGCP states that implementation of the MVIP will: (1) allow excess generation in one grid to be exported to another; (2) promote competition in the electricity market nationwide through the electricity market; and (3) aid the Visayas Grid during peak intervals when the solar plants are not delivering power. However, nothing has been published by the ERC or the NGCP
about the monetary benefits to consumers of attaining these objectives of the MVIP. Thus, it can be concluded that the ERC did not require the NGCP to quantify the benefits to consumers from a project worth 52 billion pesos, all of which will be paid for by the consumers. In addition, of course, the consumers will pay the profits of the owners of NGCP and pay also the interest charges of banks that finance the project.

The ERC decision in the case of the MVIP can be compared with the decision of U.S. regulators in approving the implementation of the New England Clean Power Link (NECPL), which is a 1,000 MW, HVDC transmission project that will extend 154 miles from Canada to Vermont and New England in the U.S., and is estimated to cost $1.2 billion upon completion in 2020. Benefits to consumers from the implementation of the NECPL include the following: (1) Total energy savings for Vermont ratepayers: $245 Million (first ten years of operations); (2) Total energy savings for New England ratepayers: $1.9 Billion (first ten years of operations); and (3) Vermont electric ratepayers will receive an additional $136 million reduction in transmission costs.

The point in making this comparison of the process of approval of regulatory agencies in different countries is that it is necessary for private-sector proponents of infrastructure projects to quantify the costs and benefits of the projects in order to show to the regulators that the monetary benefits to the users of the projects will be greater than what the users will be paying for the project. In the case of the MVIP, the power consumers will be made to pay 52 million pesos and also pay the profits of the owners of NGCP and the interest charges of the banks without any assurance that they will receive monetary benefits commensurate to the payments they will be making to NGCP.

Stop the MVIP

Power consumers should work on stopping the ongoing construction of the MVIP,
unless the NGCP can prove that the benefits to consumers from the interconnection
project will exceed the costs that they will be paying for the MVIP. How to stop
the MVIP will have to be discussed elsewhere.

October 9, 2019

Meralco Style CSP Only Complying with the Ritual of CSP but Betraying the Spirit of the Supreme Court Decision

David Celestra Tan, MSK
22 September 2019

Everyday since last week we, the Meralco consumers, are being bombarded with Meralco’s mind-conditioning proclamations that its CSP have been successful. That the public will save P13 billion in the next 10 years. And that their “Third Party Bid and Award Committee” did a great job.

After the first avalanche of news reports on Meralco’s “successful CSP” came the Second wave of columnists articles singing the same tune of successful CSPs and P14 billion in savings, complete with accolades to DOE for its CSP guideline DC2018-02-0003. (wink, wink!)

Meralco and their drumbeaters claim in the 1,700 total contracts to start in December 2019, a P14 billion savings over the 10 year term at 0.41 per kwh based on its average generation rate as of September of P5.88 per kwh VAT inclusive. This is quite impressive if true since Meralco had already been claiming that in the last 5 months its rate had been reduced a total of P1.52 per kwh.

In a press release titled “Partnership for power consumers gain” new Meralco President Ray Espinosa boasted “the resulting prices from the CSP (500mw) are significantly lower than the average generation cost today and are expected to save consumers Php 4.4 billion a year for the next 5 years. (that’s P22 billion according to my P400 Casio calculator!) In the article, they quoted DOE EPIMB Director Mario Marasigan saying “indeed the winners for the activity are actually the Meralco consumers”. Marasigan also expressed optimism that the success of the Meralco CSPs will be replicated to subsequent biddings”.

Should we pray that they both turn prophetic?

Badges of Rigged Biddings 

We would like to believe you sirs! But there are badges of rigged biddings all over these CSP exercises.  And no amount of high decibel positive noise can truly drown out the truth.

Let us look at what are evident.

Meralco’s supposedly successful CSP’s were undertaken by a TPBAC composed of Meralco employees and a couple of handpicked outsiders. (How can that be impartial?).  It is no wonder they allowed only one week for bidders to buy documents and 40 days to do due diligence and prepare a bid. Yes even for the 1,200mw greenfield project that will not be due for delivery until 2024. Potential bidders composed of companies owned by the same groups were publicized to be interested only to back out eventually.

Meralco appear to be exploiting the exigency of immediate power supplies (aggregates of 1,200mw baseload for 10 years and 500mw mid-merit)  that can come only from existing (or brownfield) power plants to evidently camouflage the jewel of the charade which is a negotiated bid for their 1,200mw Atimonan One project.  By conditioning the mind of the consumers that the Meralco style CSP were successful, we would subliminally accept the eventual negotiation of the Atimonan One contract under the same DC2018-02-0003 rules that provided for failed biddings. Strategically let us not be surprised if Atimonan would also set the precedent or guide their game plan for the six remaining midnight PSA’s.

Revisiting the Spirit of the Supreme Court decision G.R. No. 227670 Promulgated May 3, 2019.

The Supreme Court said “Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities. Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution “(page 2)

“Going through competitive public bidding as prescribed in the 2015 DOE Circular is the only way to ensure a transparent and reasonable cost of electricity to consumers”

“Obviously, the rationale behind CSP -to ensure transparency in the purchase by DUs of bulk power supply so as to provide the consuming public affordable electricity rates –acquires greater force and urgency when the DU or its parent company holds a significant equity interest in the bulk power supplierSuch a parent-subsidiary relationship, or even a significant equity interest in the bulk power supplier, does not lend itself to fair and arms length transactions between the DU and the bulk power supplier. “(page 29)

The 2015 DOE Circular mandated that DUs, including electric cooperatives, obtain their PSAs through CSP. Section 1 of the 2015 DOE Circular states the principles behind CSP:

Section 1. General Principles. Consistent with its mandate, the DOE recognizes that Competitive Selection Process (CSP) in the procurement of PSAs by the DUs ensures security and certainty of electricity prices of electric power to end-users in the long-term. Towards this end, all CSPs undertaken by the DUs shall be guided by the following principles:

(a) Increase the transparency needed in the procurement process to reduce risks;

(b) Promote and instill competition in the procurement and supply of electric power to all end-users;

(c) Ascertain least-cost outcomes that are unlikely to be challenged in the future as the political and institutional scenarios should change; and

( d) Protect the interest of the general public. (Boldfacing added)

In sum, the raison d’etre of CSP is to ensure transparency and competition in the procurement of power supply by DUs so as to provide the least-cost

Section 19, Article XII of the 1987 Constitution provides: “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

The State grants electricity distribution utilities, through legislative franchises, a regulated monopoly within their respective franchise areas. Competitors are legally barred within the franchise areas of distribution utilities. Facing no competition, distribution utilities can easily dictate the price of electricity that they charge consumers. To protect the consuming public from exorbitant or unconscionable charges by distribution utilities, the State regulates the acquisition cost of electricity that distribution utilities can pass on to consumers.

As part of its regulation of this monopoly, the State requires distribution utilities to subject to competitive public bidding their purchases of electricity from power generating companies. Competitive public bidding is essential since the power cost purchased by distribution utilities is entirely passed on to consumers, along with other operating expenses of distribution utilities. Competitive public bidding is the most efficient, transparent, and effective guarantee that there will be no price gouging by distribution (page 2)

Indisputably, the use of electricity bears a vital social function. The State, in requiring competitive public bidding in the purchase of power by distribution utilities, has exercised its constitutional “duty x x x to intervene when the common good so demands. ” (Page 3)

Meralco Style CSP

As a ritual Meralco’s CSP show is a success complete with the competitive pageantry. There were 23 “interested” bidders. And claims of consumers savings of anywhere from P9.64 billion to P14 billion for the two packages totaling 1,700mw and now P22 billion only for the 500mw mid-merit contracts over 5 years. Meralco could not make up their mind in how much they would claim to be the consumer savings.

It is hard to grant them the benefit of the doubt that Meralco’s CSP’s are truly complying with the spirit and actual exhortations of the Supreme Court.

1. The CSP must be transparent and truly competitive “to effectively guarantee that there will be no price gouging of consumers”.

How can it be when the bidding is being administered by a misnomered Third Party Bid and Award Committee (TPBAC) that is composed of majority Meralco officials and handpicked outsiders. The TPBAC Technical Working groups who presumably wrote the specifications and TOR are all Meralco people. You need to pay P6 million just to see the complete bid documents.

2. Promote and Instill Competition

a. How can true competition be promoted when the TPBAC allowed bidders only 7 days to decide whether to take a look at the bid documents and spend a non-refundable P6 million? How will it encourage other bidders if you are allowed only 40 days to prepare a bid? I mean even if you have an existing power plant, it will take you more than 7 days to spend millions in corporate funds just to see the details? And it will take you more than 40 days to prepare an honest to goodness competitive bid.

b. Even if such short days can be justified for the 1,700mw that is for delivery in December 2019, how can such short 47 days be justified for a 1,200mw greenfield project that is not due for delivery until 2024 be justified? I mean it takes only 2.5 to 3 years to build a 1,200mw coal power plant. They easily could have allowed 120 to 150 days to prepare a bid if they really meant to comply with the Supreme Court’s order for a truly transparent and competitive bidding.

c. As we can expect, in the 3rd package for 1,200mw of greenfield base-load contract that specified “super critical high efficiency, low emission” coal plant technology, out of the four (4) potential bidders, 2 were San Miguel companies, 1 is Meralco PowerGen’s Atimonan One, and 1 is First Gen. The two San Miguel companies withdrew from the bidding and First Gen did not show up. And is it a surprise that only Atimonan One submitted the lone bid and the bidding is declared a failure.  As provided for in DOE CSP Guideline DC2018-02-0003, one more such failure and the contract will automatically be negotiated (legally this time!) with the lone bidder.  Exactly what the Supreme Court admonish against.

3. No Combinations in restraint of trade or unfair competition shall be allowed “Obviously, the rationale behind CSP -to ensure transparency in the purchase by DUs of bulk power supply so as to provide the consuming public affordable electricity rates –acquires greater force and urgency when the DU or its parent company holds a significant equity interest in the bulk power supplierSuch a parent-subsidiary relationship, or even a significant equity interest in the bulk power supplier, does not lend itself to fair and arms length transactions between the DU and the bulk power supplier. “(page 29)

Have the ERC and DOE allowed the evident combination in restraint of trade and unfair competition? Could they have done anything to protect the public interest given that DC2018-02-0003 under Section 7 relegated them to be “Observers” who cannot participate in deliberations. (In kanto chess community, they are called “miron”)

4. Are the Meralco Consumers really saving? Let us look at the numbers.

a. For the 1,200mw power supplies to start in December 2019, (Why could not have been March 2020 to give time for more bidders?) the winning bids were Phinma of Ayala for 200mw at P4.8849 per kwh, San Miguel Energy for 330mw at P4.9299 per kwh, and South Premiere (Ilijan) of San Miguel for 670mw at P4.93 per kwh (p0.0001 higher than sister company SMEC). It is reported that the reserve price set by Meralco’s TPBAC was P5.3694 per kwh.

b. For the 500mw mid-merit supply for 5 years, First Gen won with 5.3989 per kwh for 100mw, Phinma of Ayala with P5.5858 per kwh for 110mw, and South Premiere of San Miguel with P5.7527 per kwh for 290mw.

(Pwede pong magtanong, bakit po kaya alam ni San Miguel na 290mw ang balansya at si First Gen at Phinma together will be only 210mw? At the 1,200mw bid, na 670mw na lang a balansya?)

c. Meralco, in their publicity, has been claiming a total of P35 billion (P22 billion from the 500mw and P13 billion from the 1,200mw). These they said are based on its average generation rate of P5.88 per kwh.

a. This we believe is misleading. Meralco’s average of P5.88 per kwh apparently includes the high WESM rates for the period of May to July.

b. Meralco’s true average from bilateral contracts, as they should be comparing on apples to apples, are only P4.75 in July, P4.82 in June, and P4.94 in May.

d. It appears from these numbers on record that the winning bid prices in the highly heralded successful CSP of Meralco were about the same or even higher than the current prices of the same suppliers. Let us remember that the current prices were a result of negotiated prices and not CSP. Now in a supposed CSP, the prices were the same or higher?

e. South Premiere’s prices were 4.7842 in May, 4.8682 in June, and 4.8489 in July and 5.3256 in August. Those were significantly lower than its winning bid of P5.7527. SMEC Sual had been 5.1555 in May, 5.0718 in June, and 5.0377 in July. It curiously jumped to P5.8245 per kwh in August. Their winning bid was P4.9299 per kwh.

f. How much are the consumers really saving?

We will not know for sure until we see the full details in the pricing indices and fuel base rates used and other terms like minimum off-take, guaranteed capacity payments, and downtime with pay allowances.For now we are not convinced about Meralco’s grandiose claim of a P35 billion savings for the consumers. We cannot see it in the numbers.

5. Betrayal of the Supreme Court Lessons

So far while Meralco seems to be only complying with the ritual of CSP as prescribed by the Supreme Court, they appear to be betraying the spirit of the Supreme Court’s exhortation for true and transparent CSP to prevent consumers from being gouged.

Tayo talagang mga Pinoy. Ito talagang Meralco.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Meralco’s Successful 1,200mw CSP…a Prelude to A Negotiated 1,200mw Atimonan One

David Celestra Tan, MSK
13 September 2019

Meralco’s media machinery is on overdrive hyping the successful holding of their CSP for 1,200mw of power supply. It appears successful for Meralco and its generation partners, particularly San Miguel. Whether or not it is successful for the consumers who will pay for those power supply remains to be seen. The devil is in the details. More specifically the pricing indices and the downtime allowances and guaranteed capacity payments.

Meralcos media onslaught trumpets that the Competitive Selection Process (CSP) bidding was undertaken by a third party bid and award committee although it is dominated by Meralco people and handpicked outsiders. To add credibility to this pseudo “third party” committee they had a DOE undersecretary defend the propriety of the TPBAC in a Manila Bulletin story. And yes the concept of calling a Meralco dominated bid committee as TPBAC is in the DOE’s own dc2018-02-0003. They also make it a point to mention that the DOE observed the bidding process, never mind that they were passive observers in accordance with Section 7 of the circular.

We are not assailing the integrity of the anointed chairman of the TPBAC but the fact that the bid committee and the technical working groups are Meralco people smacks of a hometown decision.  It is like putting the top boxing referee Kenny Bayless in the ring with a Club fighter and an opponent who was given only 4 hours to prepare? All the virtues of the chosen referee doesn’t matter. All he has to do is know how to count 1 to 10!

This is clearly contrary to the Supreme Courts decision exhorting the need for a truly competitive CSP to protect the public from exploitation.

Smokes and Mirrors

We are afraid that Meralco is actually playing a smokes and mirrors game on the DOE, ERC, JCPC, and its consumers. This bidding for 1,200mw in my opinion is a misdirection “believe what you see” prelude to the real trick of Meralco’s CSP magic.

Let us look closer

1.The 1,200mw is for delivery by December 2019 and clearly only for those with existing capacities.

a. This is not even among the controversial seven (7) midnight power supply contracts it signed with several chosen partners a few days before the ERC’s gratuitous “restating” of the CSP implementation date to April 30, 2016.

b. This 1,200mw is actually a replacement of the expiring power supply contracts that were signed seven (7) years ago with San Miguel for Sual (San Miguel Energy Corp.) and Ilijan (South Premiere Power Corp.) who are also the winning bidder for this “successful CSP” in addition to a 200mw of now Ayala owned Phinma Energy.

c. On August 19, 2019 Meralco announced that there were eleven (11) bidders interested in participating in an evident effort to project robust competitive bidding for this package. Of the 11, Four (4) are San Miguel affiliates – San Miguel Energy, South Premiere, San Miguel, and Masinloc Partners that it bought from AES and EGAT, Two (2) are Aboitiz companies – AP Renewables and Therma Luzon. The others were Quezon Power of EGAT and Meralco PowerGen, Southwest Power of DMCI, EDC of the Lopez Group, Phinma of Ayala, and Solar Philippines. We wonder how many of these supposed interested bidders owned existing power plants to meet the December 2019 delivery and  actually shelled out P6 million to buy the bid documents?

d. Of the eleven (11), five (5) bids were submitted, Four (4) were from San Miguel companies including Masinloc and 1 from Ayala, a non member of the Meralco Six.

e. Meralco announced the winning bids to be P4.8849 per kwh for 200mw from Phinma, P4.9299 for 330mw SMC Energy from Sual,Coal plant and P4.93 per kwh for South Premiere from Ilijan Gas. All supposed to be VAT paid.

f. Meralco announced the other bidders to be SMC Consolidated for 200mw and Masinloc Partners for 220mw, both San Miguel subsidiaries.

g. Meralco is touting a savings of P0.28 per kwh or a claimed total of P9.46 billion over ten years. I am not sure about this since we don’t really know yet the pricing indices that are in the fine print of these contracts.We can only tell you that for the Atimonan One contract, Meralco was publicizing a rate of P3.75 per kwh. When we applied the indices and updated the fuel prices it became P5.60 per kwh. Meralco cannot fault us for not taking their numbers at face value given their history of hoodwinking the public.

h. Tracking the Meralco power suppliers’ prices, the benchmark rates of SMEC Sual is P5.037 and SPPC Ilijan is P4.8489 per kwh not much different from the new bids.

i. In trying to project billion peso savings for its consumers, Meralco is using an average generation rate which is WESM price heavy and not a valid comparison.

2. The set up for the coming Meralco CSP trick under DC2018-02-0003

Let us all notice that while Meralco is heralding their 1,200mw successful CSP, they are also announcing the failure of bidding for another 1,200mw, a base load supply for delivery in 2024. This is what we believe to be the real coup de grace of this initial CSP and the test case for the rest of the seven (7) midnight contracts that clearly they are still trying to control nonetheless despite the Supreme Court rebuke.

a. This 1,200mw lot for delivery in 2024 is requiring the so called Super critical high efficiency low emissions advanced technology or HELE for coal generation.

b. This is evidently a CSP compliance exercise for the 1,200mw Atimonan One.

c. In the list of potential bidders they announced on August 19, 2019, the four interested companies were First Gen, PanAsia, Mariveles Power, and of course Atimonan One. PanAsia and Mariveles Power are San Miguel Subsidiaries.

d. Conspicuous by their absence for this greenfield project that will not be due until 2024 are Aboitiz, Ayala, DMCI.

e. Then they started dropping like flies. Panasia Energy of San Miguel wrote the Meralco TPBAC on August 28, 2019 that it is withdrawing from participation in the bidding process.

f. On the bidding date of September 10, 2019, Mariveles Power also of San Miguel also submitted at 8:45am a letter withdrawing from participation. First Gen Ecopower Solutions “failed to arrive”.

g. Atimonan One Energy of Meralco PowerGen arrived and submitted its documents at 8:27am

h. The Abstract of Bids concluded “the TPBAC has determined that there was a failure of bidding and has resolved to report back to the Distribution Utility on this matter”. The reserve price envelope was delivered back to the TPBAC by the escrow/custodian.

i. You wonder how a bidder (Atimonan One) owned by Meralco would not know the reserve price prepared by Meralco’s own employees and officers?

3. A Negotiated Contract for Atimonan One, the Coup de Grace

This bidding for 1,200mw greenfield project is careening downhill faster than a wayward bus towards a negotiated contract ending.  This would be a beautiful execution of Section 9 of the DOE DC2018-02-0003 CSP playbook that is allowing for “Direct Negotiation in Failed CSPs” after “only one Genco submitted an offer”. And you guessed right that it is Atimonan One. Under the Philippine environment, this is an easy thing to orchestrate especially when most of the players are actually partners.

Negotiated contracts are also elaborately provided for in the new ERC guidelines it proposed to the DOE for CSP.

4. “Successful CSP’s”

Today, Meralco again announced the successful CSP for the 500mw mid-merit supplies due for delivery 60 to 90 days from now or December 2019. The winners are Phinma of Ayala for 110mw at P5.5858, First Gen for 100mw at P5.3989 per kwh all in cost. South Premiere of San Miguel for 290mw at 5.7527 per kwh.

It is debatable whether these CSPs were actually truly competitive but since they are for power supply that need to be contracted for delivery by December 2019, it is limited to those generators that are existing or brownfield. And it is good for the consumers interest that at least this 1,700mw is contracted even if they don’t really represent additional capacity but extensions of mostly of old contracts.

What is important to us consumers and even to Meralco is that these two packages, the 1,200mw aggregate base-load for December 2019 and this 500mw are undertaken under CSP effort compared to straight negotiated contracts. Whether or not they are truly competitive is another matter.

We believe that even more important to Meralco is the demonstration that its own style of CSP’s are successful and will result to savings to consumers even if they are handled by their own “TPBAC” and bidders were only given 40 days to prepare a bid. This is the reason they are going to full blast media campaign to tell the whole world that their CSP is successful and will result to savings of P13 billion over 10 years or P1.3 billion a year.

We consumers however must not miss the fact that the winning rates being contracted for these 1,700mw are not major improvements from the existing contracts. No real competitive rates. We have yet to see the power cost benefit from a truly competitive bidding.

The Meralco CSP exercise is evidently to prepare the public to accept the CSP process for the 1,200mw greenfield project for Atimonan One even if it will result to a failed bidding and end up being a negotiated contract. Still it will be touted as “successful” because it would be in accordance with the CSP rules established by the DOE under DC2018-02-0003.

If you are feeling frustrated and wondering if there is someone in our country who will really change things and step up to protect the public and usher in an era of true competition and meaningful consumer respect, welcome to the club.

For now let us just take Meralco’s trumpeting of successful CSP with a grain of salt and a raised eyebrow. In the world of magic, the two CSPs totaling 1,700mw looks like misdirection plays and are set-up for a tantalizing negotiated contract for 1,200mw for Atimonan One.  Then we would be back to square one. Except it will be legitimized by the current CSP rules.

CSP is not a ritual but an objective to be truly competitive that should result to true lower cost to the consumers. By these measures, Meralco’s CSP biddings were not successful.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

Meralco’s Terms of Bidding for 2,900mw CSP – You’ve Got to be Kidding! (updated verision)

David Celestra Tan, MSK
24 July 2019

(updated)

Meralco’s previously negotiated seven (7) PSA’s have been declared illegal by the Supreme Court. They were ordered to conduct Competitive Selection Process, which the Supreme Court said is necessary to protect the public from being abused.

At the prodding of the Department of Energy, Meralco was asked to conduct the CSP’s as soon as possible to avoid power shortages. After allMeralco had not signed major power supply agreements since April 2016 evidently wanting that most of its power supply for the next 20 years go to its power generation subsidiary MeralcoPowerGen and its partners, Aboitiz, San Miguel, Global Business, DMCI, and EGAT of Thailand, their minority partner in Mauban.

Meralco recently posted the initial Terms of Reference (TOR) or terms of the bidding for a total of 2,900mw of power supply in three packages. And is fully projecting the impression that they are dutifully heeding the call of the Supreme Court for a CSP (assumed to mean truly competitive bidding that will give the public a fair deal) and the call of DOE Secretary Alfonso G. Cusifor urgent biddings because the country has not had new major power plants since 2015.

Apparently to complete an atmosphere of true competition, Meralco’s midnight partners, San Miguel, MeralcoPowerGen, and DMCI even issued press statements saying they are interested to participate. One of them was right though in saying “the published requirements carry very difficult conditions”.

But is Meralco really doing an honest to goodness bidding of its power supply contracts? And are their partners really going to compete?

Let us look at the terms of the bidding that Meralco had announced. 

A. 1,200mw (net) COD 2024. (Yes that appears to be the reference number of this bid package)

We are starting with this because this is the one that appears to have a realistic and feasible bid scope.

a. It has a realistic “Commercial Operations Date” or COD of March and September 2024 or 5 years from now. A reasonable construction period for a greenfield power plant of this 1,200mw net size.

b. The service that needs to be provided is base-load.

c. The technology will be “HELE” or high efficiency low emission (although this appears to be describing the super-criticalAtimonan One technology as previously advertised and they are referring to coal)

d. Contract Period is 20 years, the viability length for this size project

e. The tariff structure, outage allowance, and other provisions that can be handled by most prospective bidders.

These terms of the bidding seems straight forward. So where is the rub?

It is in the timetable for the bidding:

1. Cost and time to register as an “interested bidder”.

a. Meralco is giving possible bidders only one week to 29 July 2019 to register and submit their Expression of Interest and Confidentiality undertaking, and pay a non-refundable “participation fee” of P6 million in managers check. For this you get to be called an “interested bidder” and can secure a copy of the bid documents.

b. If Meralco does not get at least 2 interested bidders, the bidding will be declared a “failure”.
c. “interested bidders” also get to attend the August 9, 2019 pre-bid conference.

2. Bidding Day

All bidders are to submit their bids a month later on 10 September 2019 at 9am with their proposals in 3 envelops. 1) Qualification documents 2) Technical proposal and 3) and the Bid together with a P3.65 Billion bid security.

3. The Squeeze Bunt

This is a classic squeeze bunt strategy to limit bidders and one of the oldest tricks in the bid manipulation playbook.
It is only 41 days from the time a bidder receives his bid documents and specifications on 29 July 2019 to the bidding date of 10 September 2019. Assuming you are crazy enough to spend P6 million just to take a peek at the detailed terms of the bidding, how can you ever prepare a serious bid within 6 weeks for a 1,200mw power plant? Much less prepare the bid documentation within the same period?

This supposed CSP bidding is designed to fail at each stage. After two failures of bidding, negotiation will be allowed under the CSP rules. (we assume). And guess who it will be negotiated with? Atimonan of course. This appears to be Plan A.

Plan B is for the intended partners, again most likely Atimonan One, to register and become the lone bidder. And again leading to a negotiated contract. And prices maybe even worse for the consumers.

4. Clearly this bid package is a play for Atimonan One. Pwedepo bang magtanong, Meralco? Hindi pobasabininyo more than a year ago naAtimonan One is “shovel ready”? Now why will it take 5 years to construct and commission? Should it not be now 3 years or 2022?
5. Isa pa pong tanong. If you are allowing the completion to be until 2024, which is at least 1 year longer than the feasible construction time, why can you not allow enough time for bidders to truly prepare a bid and honestly encourage maximum competition for the benefit of the consumers?

B. Contract Capacity of 1,200mw net, Effective December 26, 2019!!

I had to do a triple take on this one. 1,200mw net by December 26, 2019 or 5 months from now? (You cannot buy a 24sq meter condo, apply for a loan and complete your documentation in 5 months!)

If package A above is a play for Atimonan One, it is a mystery who is this one for. I mean who in the Philippines has a portfolio of 1,200mw net that can be contracted and start delivering in 3 months after award?

This appears to be a “shake and bake” bidding manipulation strategy? Also called a Bug Zapper bid. (It looks inviting but when you get close you get zapped by its impossibility).

Let us look at the Terms of Reference:

1. Expression of Interest and payment of a Participation Fee of about P2.5 million by 26 July 2019

2. Prebid Conference on August 8, 2019

3. Bidding on September 9, 2019 with a Bid Bond of P3.3 Billion

4. Bidders must offer a minimum of 200mw.

5. Meralco must receive a minimum total of 1,000mw or the bidding is a failure.

6. Base-load service

7. Contract period of 10 years from December 26, 2019 to December 25, 2029.

8. Consortium bidders are allowed.

9. Here are the kickers

a. Meralco has the sole discretion to annually reduce contracted capacity up to 600mw between December 26, 2023 and December 25, 2025.

b. Contracted capacity shall not be more than 75% of the plant capacity factor. This means to offer 200mw, you need a 296mw plant. This seems in line with DOE’s policy pronouncement that generators can offer only 75% of their installed capacity to assure reserve. (more on this later)

10. The question is which group of power generators have these existing plants of 300mw or more who may be free to start on a new contract in 3 to 4 months? And which generators with a total of 600mw is willing to get cancelled between December 26, 2023 and December 25, 2025?

11. Assuming that they have these existing capacities, will you be able to prepare a bid by September 9, 2019, only 44 days after you have received the detailed bid documents? Unless, you have advance information or are part of the insider group defining the parameters of the bidding.

12. SemiraraCalaca? We are just curious that the 600mw SemCalaca had not been delivering energy to Meralco for the last 4 months. Did their Calaca power plant contract expire and is now a perfect fit for this new Meralco bidding?

13. Once again this terms of reference have been “shaken and baken” and designed to fail. Then maybe not, because the Meralco midnight group has the existing capacities to pull this off. You outsider bugs just got zapped!

14. On the DOE’s policy pronouncement that power generators will be limited to contracting only 75% of their plant capacity factor, we realize the good intention but this mechanism will probe very expensive for consumers. There are better mechanisms to achieve power reserves.

C. Contract Capacity of 500mw (net)

1. 500mw net firm

2. Contract period 5 years from December 26, 2019.

3. Mid-merit service

4. 100% guaranteed availability and no outage allowance.

5. Contracted Capacity can be reduced due to retail open access, RE law, or other laws and legal requirement.

6. Minimum offer of 100mw. Meralco must receive a minimum of 400mw offers or it will be a failed bidding.

7. Annual MEOT but bidders can offer only up to 45% of the plant capacity factor.

8. Expression of Interest and Participation Fee of P1.5 to P7.5 million to secure bidding documents by July 30, 2019. If less than two (2) interested bidders, bidding is declared a failure.

9. Pre-bid conference on August 8, 2019

10. Bidding by September 11, 2019

Once again the only people with this type of existing capacities would be members of the Meralco midnight group. The power plants include GN Power that was bought by Aboitiz from the Ayala group (who did not become part of the Meralco group), Aboitiz” Therma North Navotas facility, Millenium, And San MiguelsLimay plant. And maybe some expiring contracts of Meralco and of Aboitiz in Cebu.

Going by the stringent requirements of the service and fast delivery of December 26, 2019, we could also be talking about modular rental generators, a very expensive power supply for the consumers. That can cost P14 to P18 per kwh! 

This Meralco CSP,whether it ends up happening or failing, have the makings of being very expensive for the consumers. Guess who will most likely get blamed for it?  DOE, who ironically can get blamed even by Meralco for insisting on fast bidding and those 75% maximum contracting limit.

Ironically again for the Department of Energy, the reality is if power supply is short or power rates skyrocket, it will be the DOE who will be blamed by the people and the legislators.  They cannot wash their hands on privatization. Sadly, its’ own circular DC2018-02-0003, that was passed in February 2018 to guide the procurement of power supply,  does not provide for its right to directly supervise the CSP and hence crippled DOE itself in its options to make truly competitive CSP happen if the private sector like Meralco is recalcitrant about “shaking and baking” the biddings.

Now we the people will suffer. Both in shortage of power and high contracted rates of Meralco.  Very frustrating.

Other Notes:

  1. We are only referring to the published Terms of Reference of the bidding. I apologize to our readers, I don’t have P6 million lying around to buy the bid documents. If the officially published bids terms are giveaways of restrictive bids, you can imagine why other tricks would be in the detailed bid specifications. More scary stuff.  And you have to pay millions to see it.
  2. Of the three bid packages, only the first one is part of the seven (7) midnight contracts of 3,551mw. That means Meralco will still be doing these CSP’s for 2,351mw more for power supply for deliveries from 2024 to 2026. If they do, let us hope that they include LNG and give sufficient time for bidders.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

 

The author is a 25 year veteran of international competitive biddings under World Bank, USAID, KFW, ADB, Japan Aid and have seen all sorts of bid rigging plays, from the subtle to the blatant, in the Middle East, Asia, Latin America. He is also one of the original IPP’s in the Philippines and a founder and former President of the Philippine Independent Power Producers Assn. (PIPPA). He now devotes a fair amount of his time sharing his knowledge for consumer protection, power policy and regulatory reform advocacies.