Meralco’s Proposal for Voluntary CSP is a Ruse To Buy Time

Meralco’s President Oscar S. Reyes had reportedly proposed that the Department of Energy’s circular that requires Competitive Selection Process (CSP) in power supply deals be implemented voluntarily for at least 2 to 3 years.

This is clearly a ruse to buy time for Meralco to finalize the various bilateral contracts totaling 3,000 megawatts that its sister company Meralco PowerGen had been announcing is their target. So far they have announced 1060mw, 460mw for Mauban expansion and 600mw for Redondo Power in Subic.

A voluntary implementation for 3 years would give Meralco sufficient time to find minority partners and finalize its bilateral contracts for its project companies that are majority owned by Meralco PowerGen. Within that time frame Meralco would have gotten ERC approval or have at least filed its application with the ERC as required to be exempted by the DOE Circular 2015-06-0008. This would render useless the DOE’s mandate for open competitive bidding of bilateral power supply contracts for captive consumers.

Meralco had announced that they target 3,000mw of 25-year power supply contracts with its sister company Meralco PowerGen, a contract quantity that we estimate will supply about 60% of the energy needs of Meralco for the next 10 years. If we consider that Meralco still has more than 10 years left on the sweetheart deals it signed with the former owners that currently supply at least 40% of the needs of Meralco, in 3 years Meralco would be already cornered 100% of its energy needs by current and former sister companies with their sweetheart contracts. The utility giant will once again outmaneuver reforms that are intended to promote the interest of the consumers and reduce power costs as its former owners had done with the Epira Law in 2001.

The professionally glib Meralco said in the press release that the DOE must allow competitive bidding “to be done side by side with bilateral negotiations if only to set leverage on which ones could really yield a better deal for electricity consumers. It should co-exist with bilaterally-negotiated contracts so that you can have the best of all worlds. If you do that you will see who gets the best contract. Industry will tend to migrate to the best terms and conditions – whether it is bilaterally-negotiated or CSP”. Somehow these supposed soothing words ring hollow to Meralco’s electricity consumers.

We agree however with Meralco CEO Reyes that mandatory bidding “has not been tried before and that it would not be an easy process”. It has never been tried by Meralco since the passing of the Epira Law of 2001 but many electric cooperatives and some private distribution utilities have tried open competitive bidding and the results have been positively advantageous to the consumers.

Surely, Meralco will find it an easier process to just negotiate with a sister company across the breakfast table but it is its duty as a public service utility to supply power in the least cost manner and if that takes the inconvenience of going through a transparent competitive bidding and doing business with unrelated companies, so be it. Meralco should not deny its captive consumers the right to competitive power just because it would not be an easy process.

Mandatory open bidding will take away the control of the generation market by the DU, a market power that intimidates legitimate and truly independent local and foreign power generation investors from competing with the sister company generators of Meralco. While there are gaping loopholes in the Epira Law of 2001 and its Implementing Rules that allowed Meralco and the Aboitiz group( who together must be controlling 70% of the countrys energy needs), to effectively expropriate the power market, there are also sufficient openings in the law that will allow for rectification for the protection and benefit of the electric consumers.

Electric Consumers should thank former Energy Secretary Carlos Jericho Petilla for being bold, prescient, and caring enough to lead the Department of Energy in this historic first step that can set the country on the road to making amends to the long abused and neglected electric consumers.

Mandating the open bidding is NOT prohibited by the Epira law under Section 45(b) and certainly it is in the public interest and the only way Meralco can truly say it will be supplying in the least cost manner. Obviously there are bidding and contracting safeguards that need to be put in place to protect the public but those are mechanics that can be worked out.

Allowing Meralco to voluntarily bid in parallel with its continued right to negotiate with a sister company as they propose will give them a 3-year window to corner its generation market with untold billions excessively charged to the consumers. There is nothing to prevent them from holding token and gesture biddings just to show they are doing a CSP and negotiate its juicy power supply contracts behind the smokescreen.

We estimate the difference in the current generation price of Meralco’s sister company generators and the non-affiliated generators is approximately P13.68 billion a year.

We call on the Energy Regulatory Commission to hold true to its own mandate to protect the public interest and to immediately put in place the regulatory rule requiring mandating open bidding or competitive selection process. It has put in place elaborate competitive mechanisms for the contestable customers. The process of CSP would comparatively be a lot simplier and will benefit 50% of the Meralco consumers that pay 60% of Meralco revenues.

Let us not fall for the Meralco Ruse to buy time to corner its generation market.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
24 July 2015

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Petilla’s Quiet Big Bang Farewell Gift for Electric Consumers

04 July 2015
David Celestra Tan, MSK

On the day Department of Energy Secretary Carlos Jericho Petilla physically left his post as Secretary of Energy on June 30, 2015, he also quietly detonated a hell of a gift to the electric consumers by formally announcing Circular No. DC2015-06-0008 which mandated all distribution utilities to undergo competitive selection process in securing power supply agreements.

It came in the form of a public notice advertisement in local newspapers in the usual fine print. But there were not much fanfare or media releases that normally accompany such major policy shift and something that would be of great interest to the consumers.

This is a major reform that electric consumers, including our organization MSK, had been clamoring for – the opening of the generation market of private distribution utilities like Meralco. Visayan Electric, and Davao Light, to the competitive bidding of their power supply contracts instead of allowing them to just negotiate with their sister generators. This current practice invariably resulted to higher generation rates, disadvantageous terms to consumers, and closed the private distribution utilities market that comprise about 75% of the countries power demand, to truly independent generation suppliers.

Secretary Petilla was a respected former Governor of Leyte for nine (9) years from 2004 until he was tapped by President PNoy in 2012. Many people expected more from Secretary Petilla’s 2-1/2 years of tenure at the Department of Energy that is the policy making authority for the dysfunctional power sector that is fraught with consumer abuse and overpricing, market manipulation, and worsening monopolization.

Barely a year in the Department and learning the intricacies and terminologies of the power sector, he was pitched into the unenviable job of sorting out the electric rate conflagration of 2013 when the power establishment betrayed the Meralco consumers big time and allowed generation rate increases of 80% and 100% in December 2013 and January 2014. Meralco, the ERC, the PEMC and WESM, PSALM, and the conflicted players of the power market all failed to look after the consumers and all seemed foisted to paunch upon the consumers with a P4.15 per kwh one month jump in electric rates.

Only the opportune and timely action of the party-list Bayan Muna stopped this national tragedy and Secretary Petilla spent the better part of his tenure fighting the consequent fires and valiantly trying to keep the whole sector from falling apart and restoring the public’s faith in the power supply establishment. It would have been time that the clearly intelligent, dynamic, and forward looking secretary could have spent working for deep reforms to cure the ills of the sector.

Secretary Petilla also drew flak when he stubbornly lobbied for a P10 billion deal to lease temporary generators for two years to address what the DOE under him said was a 1,000mw power shortage a few hours in some days in the summer months of April and May last. He was rejected and the summer came to pass without significant power shortage incident.

Through all these controversies though, Secretary Petilla displayed intellectual depth, astute political and leadership skill, the ability to breakdown complex problems into their parts, and the willingness to think outside the box for solutions, way more than his predecessors.

MSK wrote in October 2014 about Petillas “DASAP” initiative (Demand Aggregation and Supply Auctioning Policy) that will mandate competitive selection process for power supply contracts by distribution utilities. We had our doubts and asked many questions.

When Secretary Petilla abruptly resigned from the Department of Energy last April, we expressed regret in our April 30, 2015 article that Energy Secretaries no matter how smart they are do not stay on job long enough to make deep reforms into the power sector. Because of his resignation, we no longer expected that anything will come out of the good secretary’s DASAP initiative, something that would be a major leap for the consumer mankind in terms of creating true competition and lower generation rates.

It turned out Secretary Carlos Jerico Petilla would remain true to his word and delivered this major milestone for the electric consumers. Thank you Secretary Petilla for stepping up for the consumers.

DC2015-06-008 is only the first step though. It’s supplemental guidelines still needs to be passed by the DOE. The Energy Regulatory Commission for its part has drafts of similar rules. Perhaps they can drop the other shoe, and pass a regulatory rule for open bidding of power supply requirements as part of the approval of power generation rates.

So far the Meralco and Aboitiz groups have not reacted to the new circular that in theory affects their pursuit of negotiated power supply contracts with the Distribution utilities that they own and control. Or do they already know the loopholes?

As in the Epira Law, the devil is in the implementation starting with the guidelines.

Let us hope this “CSP” for the on-grid distribution utilities will be implemented better than the “CSP” rules of the DOE for the missionary areas in which the DOE itself marginalized its CSP certification by attesting only that a CSP activity was undertaken and not that a proper, bonafide, and truly competitive bidding process was undertaken.

For DC2015-06-008, just exactly what does “un-contracted energy requirements” mean? The circular defined it as referring to “the energy and demand not yet procured individually or collectively by the DU’s excluding those energy and capacity covered by PSA’s that have been filed for approval before the ERC”.

Section 8 is so vague it is a major concern. It said “Nothing in this Circular shall be construed as to amend, supersede, or repeal any of the mechanism or institutions already existing or responsibilities already allocated and provide for under any existing law, rule, or contract”. Huh? What does “existing mechanism” refer to?

The real test for the consumers would be whether Meralco and Aboitiz would subject to open bidding the power supply contracts of the distribution utilities they own and control.

The consumers should thank Secretary Petilla for this visionary first step. We wish he were around to see it through to meaningful implementation. Most wonderful things start with a first step and we hope Secretary Petilla’s gift of a Circular for the electricity consumers will truly usher in an era of open competition in the generation market and reduce generation charges by about 30%.

Will Petilla’s farewell big bang eventually be a dud? Now it is your move ERC!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Posted on: Jul 8, 2015
04 July 2015
David Celestra Tan, MSK

On the day Department of Energy Secretary Carlos Jericho Petilla physically left his post as Secretary of Energy on June 30, 2015, he also quietly detonated a hell of a gift to the electric consumers by formally announcing Circular No. DC2015-06-0008 which mandated all distribution utilities to undergo competitive selection process in securing power supply agreements.

It came in the form of a public notice advertisement in local newspapers in the usual fine print. But there were not much fanfare or media releases that normally accompany such major policy shift and something that would be of great interest to the consumers.

This is a major reform that electric consumers, including our organization MSK, had been clamoring for – the opening of the generation market of private distribution utilities like Meralco. Visayan Electric, and Davao Light, to the competitive bidding of their power supply contracts instead of allowing them to just negotiate with their sister generators. This current practice invariably resulted to higher generation rates, disadvantageous terms to consumers, and closed the private distribution utilities market that comprise about 75% of the countries power demand, to truly independent generation suppliers.

Secretary Petilla was a respected former Governor of Leyte for nine (9) years from 2004 until he was tapped by President PNoy in 2012. Many people expected more from Secretary Petilla’s 2-1/2 years of tenure at the Department of Energy that is the policy making authority for the dysfunctional power sector that is fraught with consumer abuse and overpricing, market manipulation, and worsening monopolization.

Barely a year in the Department and learning the intricacies and terminologies of the power sector, he was pitched into the unenviable job of sorting out the electric rate conflagration of 2013 when the power establishment betrayed the Meralco consumers big time and allowed generation rate increases of 80% and 100% in December 2013 and January 2014. Meralco, the ERC, the PEMC and WESM, PSALM, and the conflicted players of the power market all failed to look after the consumers and all seemed foisted to paunch upon the consumers with a P4.15 per kwh one month jump in electric rates.

Only the opportune and timely action of the party-list Bayan Muna stopped this national tragedy and Secretary Petilla spent the better part of his tenure fighting the consequent fires and valiantly trying to keep the whole sector from falling apart and restoring the public’s faith in the power supply establishment. It would have been time that the clearly intelligent, dynamic, and forward looking secretary could have spent working for deep reforms to cure the ills of the sector.

Secretary Petilla also drew flak when he stubbornly lobbied for a P10 billion deal to lease temporary generators for two years to address what the DOE under him said was a 1,000mw power shortage a few hours in some days in the summer months of April and May last. He was rejected and the summer came to pass without significant power shortage incident.

Through all these controversies though, Secretary Petilla displayed intellectual depth, astute political and leadership skill, the ability to breakdown complex problems into their parts, and the willingness to think outside the box for solutions, way more than his predecessors.

MSK wrote in October 2014 about Petillas “DASAP” initiative (Demand Aggregation and Supply Auctioning Policy) that will mandate competitive selection process for power supply contracts by distribution utilities. We had our doubts and asked many questions.

When Secretary Petilla abruptly resigned from the Department of Energy last April, we expressed regret in our April 30, 2015 article that Energy Secretaries no matter how smart they are do not stay on job long enough to make deep reforms into the power sector. Because of his resignation, we no longer expected that anything will come out of the good secretary’s DASAP initiative, something that would be a major leap for the consumer mankind in terms of creating true competition and lower generation rates.

It turned out Secretary Carlos Jerico Petilla would remain true to his word and delivered this major milestone for the electric consumers. Thank you Secretary Petilla for stepping up for the consumers.

DC2015-06-008 is only the first step though. It’s supplemental guidelines still needs to be passed by the DOE. The Energy Regulatory Commission for its part has drafts of similar rules. Perhaps they can drop the other shoe, and pass a regulatory rule for open bidding of power supply requirements as part of the approval of power generation rates.

So far the Meralco and Aboitiz groups have not reacted to the new circular that in theory affects their pursuit of negotiated power supply contracts with the Distribution utilities that they own and control. Or do they already know the loopholes?

As in the Epira Law, the devil is in the implementation starting with the guidelines.

Let us hope this “CSP” for the on-grid distribution utilities will be implemented better than the “CSP” rules of the DOE for the missionary areas in which the DOE itself marginalized its CSP certification by attesting only that a CSP activity was undertaken and not that a proper, bonafide, and truly competitive bidding process was undertaken.

For DC2015-06-008, just exactly what does “un-contracted energy requirements” mean? The circular defined it as referring to “the energy and demand not yet procured individually or collectively by the DU’s excluding those energy and capacity covered by PSA’s that have been filed for approval before the ERC”.

Section 8 is so vague it is a major concern. It said “Nothing in this Circular shall be construed as to amend, supersede, or repeal any of the mechanism or institutions already existing or responsibilities already allocated and provide for under any existing law, rule, or contract”. Huh? What does “existing mechanism” refer to?

The real test for the consumers would be whether Meralco and Aboitiz would subject to open bidding the power supply contracts of the distribution utilities they own and control.

The consumers should thank Secretary Petilla for this visionary first step. We wish he were around to see it through to meaningful implementation. Most wonderful things start with a first step and we hope Secretary Petilla’s gift of a Circular for the electricity consumers will truly usher in an era of open competition in the generation market and reduce generation charges by about 30%.

Will Petilla’s farewell big bang eventually be a dud? Now it is your move ERC!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.