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 majo