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

David Celestra Tan, MSK
August 8, 2016
Part 1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Then something happened on the way to consumer purgatory.

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

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

Meralco’s Seven (7) Power Supply Projects

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

1. 300mw with RP Energy in Subic with Aboitiz

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

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

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

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

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

7. 600mw with Global Business Power in La Union

MSK and its member cause oriented groups were dumbfounded.

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

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

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

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

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

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

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

Next: Stealing President Rody’s Thunder

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Matuwid.org

Disclaimer

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

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2 Comments

  1. On the surface it is suspiciously malicious. Hopefully, the transactions will be reviewed and its rates be reduced to lowest possible cost. I believe they are still required to justify their rates against contemporary generators who have capability to offer power supply because ERC requires it as part of the PSA application.

    Like

    • Dear Norman:

      Regulatory review is no substitute for fair and reasonable rates through competition. In the 455mw San Buenaventura application ERC reduced the rate only 0.06 per kwh to 4.28 per kwh. This is in contrast to the 3.78 per kwh that eight electric coops in Northern Luzon who together held a bidding for 130mw of power supply. Competition beats regulation in achieving least cost power. There cannot be least cost unless the generation rate is market tested in a true and honest to goodness competitive bidding.

      Like

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