ERC Hears MSK Petition to Subject Power Supply Contracts to Open Competitive Bidding

The Energy Regulatory Commission held a public hearing last March 23 on consumer group Matuwid na Singil sa Kuryente’s petition to make it mandatory for distribution utilities like Meralco and Aboitiz to subject to open competitive bidding their power supply contracts instead of negotiating with their own sister companies.

MSK presented generation cost data from Meralco’s own website showing that Meralco consumers are paying an extra P13.68 billion per year for the higher rate of negotiated sister company generators compared with those negotiated with non-affiliated generators. This showed the evils of self-negotiated power supply contracts that we hope to correct by subjecting those power supply contracts to open competitive bidding, said the MSK spokesmen in the hearing.

MSK lawyer Attorney Ernesto P. Tabao asked the ERC to pass a resolution mandating that distribution utilities hold open competitive bidding for power supply that will serve the captive consumers of Meralco which comprise 60% of the energy market of the exclusive distribution utility for the National Capital Region and most of the Calabarzon areas.

Utility Economist David Celestra Tan, a co-convenor of the consumer group, presented an analyses showing Non-affiliated suppliers of coal power to Meralco averaged in price at only P3.49 per kwh for the four months from October 2014 to January 2015. Quezon Power price however averaged 4.65 per kwh for the same period or a higher rate by 33%.

For Natural Gas power using Malampaya gas, Meralco’s two affiliated suppliers, First Gas Sta. Rita and San Lorenzo averaged in price at P5.47 per kwh. In contrast, the non-affiliated South Premiere owned by San Miguel averaged in price at only P4.45 per kwh or P1.02 per kwh or 23% lower.

A representative of Meralco raised questions on the claims of MSK by saying First Gas and Quezon Power are no longer affiliates of Meralco. He claimed also that Meralco does not understand the source of this information.

Asked for comment, MSK technical analyst said the figures came from Meralco’s own website and that common consumers can plainly see the disparity in prices. David Tan stated that it is clear from Meralco own generation cost data that negotiated power supply contracts and prices from sister companies hurt the consumers. He claimed that Meralco PowerGen’s new 460mw coal project in Mauban in partnership with minority owner EGAT of Thailand is priced at about P4.35 per kwh, much higher than the average of non-affiliated companies at P3.49 per kwh.

MSK representatives acknowledged that Quezon Power and First Gas Power are technically no longer sister companies of Meralco since the Lopez group sold its majority ownership of Meralco to the Metro Pacific group in 2010. However, when the 20 and 25 year bilateral power supply contracts were self-negotiated and signed, Meralco was fully controlled by the Lopez that owns First Gas Power. Now, MSK continued, Meralco’s power generation affiliate, Meralco PowerGen has boldly announced 5 or 6 projects totalling 3,000 mw of generation capacity all with negotiated contracts for 20 years. Conversely, non-affiliated power generators only get 4 or 5 year power supply contracts. Additionally, the Summit Group which owns significant shareholdings in Meralco also announced a 600mw power project, evidently also with a negotiated long term power supply contract.

The MSK petition is part of a Php3 Movement of consumer groups that is seeking to reduce Meralco residential and commercial rate by P3 per kwh by eliminating anti-competitive behavior and regulatory loopholes in the various charges that are passed on to the consumers like transmission, systems loss, performance based rate making, VAT taxes, and universal charges.

MSK expressed fears that by the year 2020 Meralco’s energy supply will be monopolized at least 80% by these sister company generators all with negotiated sweetheart rates with the Meralco consumers, specially the captive consumers, having no benefit of competition and transparency.

For its part, the Energy Regulatory Commission hearing officer Attorney Roviel V. Macigan informed the MSK consumer group that the ERC actually had held public hearings on a draft resolution establishing rules for a competitive selection process for bilateral power supply contracts. The hearing officer gave a copy of the draft resolution to MSK who was asked to submit their comment within 10 days.

A representative of the Aboitiz affiliate SNAP hydro generators pointed out that the law does not prohibit distribution utilities from holding a competitive bidding for bilateral contracts. MSK responded by saying that while that is true, DU’s like Meralco and Aboitiz have not really called for open bidding for their power supply contracts in at least 15 years. They are all negotiated with sister companies. Hence, there is a need to make it mandatory to subject all these power supply contracts to open competitive bidding to protect the electric consumers.