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