Viewpoint: Advisory to Mindanao Power Consumers on the Mindanao WESM Being Proposed by the IEMOP

By David A. Tauli, President – November 16, 2019
Mindanao Coalition of Power Consumers

Note first that the Wholesale Electricity Spot Market in Mindanao is still being proposed for establishment by the Independent Electricity Market Operator of the Philippines (IEMOP). The Mindanao WESM cannot yet be established as an extension into the Mindanao grid of the Philippine WESM, which is now operating in the interconnected power grids of Luzon and the Visayas, because there is no transmission line that connects the Mindanao grid to the Visayas grid.

However, the press briefings that have been issued by the IEMOP in their ongoing information campaign throughout Mindanao make it appear that there is an existing Mindanao WESM that is now ready to become operational. If that is the case, then the IEMOP is trying to smuggle into Mindanao a WESM for which there is no legal basis and no economic justification for existence.

There is no legal basis for the establishment of an isolated WESM in Mindanao because the EPIRA does not provide for the establishment of such, and no law has been passed by the Philippine Congress for the establishment of an isolated WESM anywhere in the Philippines. Hence, the IEMOP is trying to establish a VOLUNTARY market for electric power in Mindanao. A voluntary market is one that can be established only upon agreement by the producers and consumers in such a market – the generating companies, the distribution utility companies, and large end-use customers in the case of an electricity market.. But there is no economic justification for the establishment of a voluntary WESM in Mindanao.

A voluntary WESM cannot be established in Mindanao because the production of electricity is controlled by only a few generating companies – two or three companies atmost in the case of the markets for electric power supply for intermediate loads or for peaking loads. (Note that markets for base loads, for intermediate loads, and for peak loads are three different markets. For each market or market segment there must be a sufficient number of producers to allow for free competition.) Where markets cannot exist because a truly competitive condition cannot be established among the producers, the buying and selling of the non- commodity is regulated – by the Energy Regulatory Commission in the case of electricity.

So what is this Mindanao WESM that the IEMOP is trying to establish, with the cooperation (“connivance” may be the more accurate word) of the PEMC and executive officers in the Department of Energy? Who benefits from the establishment of a Mindanao WESM? Obviously, the establishment of a “market” that is controlled by oligarchs cannot benefit power consumers. That is because there can be no free competition among the few producers that could bring down prices in any of the electricity market segments in Mindanao.

It is only the generating companies that would benefit from the establishment of a Mindanao WESM. The MWESM would allow the generating companies to sell their products at prices higher than the rates approved by the Energy Regulatory Commission. Exorbitant prices always result in an oligarchy. It is quite obvious that only the generating companies would benefit from the establishment of a Mindanao WESM. What is not so obvious is the reason why the supposedly independent IEMOP is working on the establishment of a “market” that would benefit only the generating companies, while resulting in higher prices paid by power consumers. Has the IEMOP now taken on the role of ensuring the profitability of the generating companies in Mindanao, particularly the coal companies that have been bleeding heavily since the start of their operations? Is the IEMOP also guaranteeing the profitability of generating companies in Luzon and the Visayas at the expense of power consumers?

It is also not clear why the PEMC (which governs the Philippine WESM to ensure that prices for bulk generation are fair and reasonable) and officers of the DOE (who are mandated to ensure that there is no overpricing of energy by the producers) have been  trenuously working since 2016 to establish a Mindanao WESM. Have they been paid by the generating companies to do so?

Whatever the motivations of the significant people in the electric power industry in the Philippines for carrying out massive publicity campaigns for the establishment of a WESM in Mindanao, now is the time for power consumers in Mindanao to stop the creation of an institution that would only enrich the oligarchs while impoverishing the consumers.

Viewpoint: Competitive Selection Process for Power Supply Agreements: The Supreme Court Decision and the Responses of the Energy Regulatory Commission and the Distribution Utility Companies

By David A. Tauli
President, Mindanao Coalition of Power Consumers

1. The Supreme Court issued its final decision on July 2019 which required all power supply agreements submitted to the Energy Regulatory Commission after June 30, 2015 to comply with the Competitive Selection Process as defined in the 2015 DOE Circular (DC2015-06-0008), “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).”

2. In response to the SC decision, the Energy Regulatory Commission has directed all distribution utility companies with power supply agreements that are affected by the decision to submit to the ERC by December 2019 their explanations for each PSA showing that they carried out a legitimate competitive selection process prior to entering into the PSA with the generating company that was awarded the power supply contract by the distribution utility company.

3. The majority of the current set of commissioners the Energy Regulatory Commission are untainted by the apparent corruption in the previous ERC regimes prior to the chairmanship of Agnes Vicenta S. Torres Devanadera. Only one commissioner still remains from the corrupt regimes of the ERC. So consumers can expect the current ERC to be fair in their determination of the power supply agreements that complied with the Competitive Selection Process as defined in the 2015 DOE Circular.

4. The result of the evaluations of power supply agreements by competent and honest ERC commissioners should be that the ERC will require all PSAs for which legitimate competitive selection processes were not done to be subjected to the least-cost supply provision of the EPIRA, of which the DOE-mandated CSPs are forms of compliance. (The LCS provision of the Electric Power Industry Reform Act of 2001, EPIRA, states in Rule 7, Section 4h, of the Implementing Rules and Regulations: “A Distribution Utility shall supply electricity in the least cost manner to the Captive Market within its Franchise Area, subject to the collection of Retail Rates duly approved by ERC.”)

5. But even if we assume competent and honest ERC commissioners, the consumer groups should prepare to study all the decisions that the Energy Regulatory Commission will be making in their review of the PSAs in order to ensure that all the PSAs that were not subjected to legitimate competitive selection processes will be required by the ERC to undergo honest-to-goodness CSPs. The ERC under CEO Devanadera has been making decisions that result in fair and reasonable rates, but most of the generating companies will likely try to suborn the ERC into approving PSAs that were not subjected to proper CSPs. If generating companies with illegitimate PSAs are required to go through CSPs, the result will be a great reduction in the prices of the power supplies from these generating companies. It is even possible that the contracted generating companies will not win in the CSPs carried out by the distribution utility companies. Corporate disaster, which could be avoided by bribing the ERC commissioners. The vigilance of consumer groups will discourage the ERC from yielding to the temptations of the generating companies.

6. EXAMPLES

Following below are statements from sample applications for approval of PSAs by the ERC that were submitted by distribution utility companies. It requires only an evaluation of such statements in the PSAs to determine whether a legitimate CSP or LCS was conducted by the distribution utility company that submitted the PSA application. In Example A, the DU obviously carried out an appropriate competitive selection process, and thereby complied with the least-cost supply requirement of the EPIRA. In Example B, the DU clearly did not carry out a generally-acceptable competitive selection process. Example C is a PSA application from a DU that purports to have conducted CSP, but probably carried out a moro-moro that the DU and their accomplice generating company used to fool or suborn the ERC into approving the PSA.

6.1 EXAMPLE A: Verbatim statements in the PSA application of CEPALCO concerning the CSP or LCS process that the DU supposedly carried out:
“CEPALCO solicited offers from potential power suppliers, including its affiliate MINERGY COAL. Evaluations conducted by CEPALCO on the offers received disclosed the following results (excluding Fuel Cost):

Offers Supplier A Supplier B Minergy Coal
PhP/kWh 3.63 3.77 3.56

Comments:

6.1.1 Specific offers are mentioned by CEPALCO, along with the respective prices, the truth of which can be verified from other documents submitted to the ERC by CEPALCO, or by asking CEPALCO to submit confirmatory documents if these were not attached to the PSA application.

6.2 EXAMPLE B: Verbatim statements in the PSA application of MORESCO II concerning the CSP or LCS process that the EC supposedly carried out. “Given its demand growth and in order to obtain a secure and adequate supply of electricity for its member-consumers during this time, MORESCO II sought out other generation companies and sources of electricity in the Mindanao Grid and solicited offers and/or expressions of interest from these power suppliers to supply its growing power requirements;
“Among the offers that MORESCO II considered was one from FDC MISAMIS which made an offer to MORESCO II to supply its power requirements….”

Comments:

6.2.1 No mention is made of other generating companies that submitted proposals to MORESCO II, so it is certain (unless the lawyer was lazy in writing the PSA application) that MORESCO II did not send solicitations to other generating companies, nor did it post any public advertisement for its power supply requirement, thereby violating a basic requirement for acceptable CSPs and LCS processes. It can be verified, by examining the documents that were attached to the application submitted to the ERC by MORESCO II, that MORESCO II did not send solicitations to other coal generating companies (such as GNPower and the San Miguel power corporation that were marketing power supply at that time), and did not make any public advertisements. And upon such verification this PSA would be declared “null and void ab initio” for having violated the EPIRA.

6.2.2 This PSA application was submitted to the ERC before July 30, 2015, so it is not among those that will be reviewed by the ERC as a consequence of the Supreme Court decision. But it is expected that petitions will be submitted by consumers to the ERC to also review PSAs submitted before July 30, 2015 in order to verify compliance with the LCS requirement of the EPIRA.

6.3 EXAMPLE C: Verbatim statement in the PSA application of BUSECO concerning the CSP or LCS process that BUSECO supposedly carried out.

“Competitive Selection Process. BUSECO invited interested bidders to supply its 5 MW peaking power requirements for the 2nd quarter of the year 2018 pursuant to Energy Regulatory Commission Resolution No. 13, Series of 2015 directing all Distribution Utilities (DUs) to conduct a Competitive Selection Process (CSP) in the procurement of their supply to the captive market and in accordance to BUSECO’s duly approved Competitive Selection Process Guidelines through Board Resolution No. 2016-013. The public bidding was participated by two (2) interested bidders, namely, Bukidnon Power Corporation (BPC) (now assigned to NBPC with consent of BUSECO) and Solar Eagle Renewable Energy Corporation.”

Comments:

6.3.1 Based on the statement, it appears that BUSECO conducted a CSP in accordance with the ERC resolution. But, from an examination of the documents submitted to the ERC in the PSA application, it could be found that BUSECO conducted a fraudulent CSP, as evidenced by the following facts:

6.3.1.1 Other generating companies, generally known to electric cooperatives in Mindanao that could supply the particular power supply required by BUSECO, were not invited to submit proposals.

6.3.1.2 The only other generating company that submitted a proposal was a solar renewable company, which could not possibly supply the PEAKING power requirements being solicited by BUSECO. Of course, BUSECO ruled out the proposal of Solar Eagle, leaving it with the generating company that it pre-selected prior to initiating its moro-moro of a competitive selection process. (Truth be told, bidder no. 2, the solar energy company, also was pre-selected by BUSECO so that two proposals could be submitted, thereby complying with the CSP requirement for at least two bidders, without jeopardizing the proposal of the favored generating company.)

6.3.2 Verification by the ERC of either of the foregoing two facts through an examation of the documents submitted by BUSECO should result in the ERC deciding that this particular PSA did not carry out an acceptable CSP. Of course, this assumes (which is reasonable to do so at this point) that there is at least one
honest and competent commissioner in the ERC who participates in the evaluation of the PSAs. Here, I reiterate this requirement for competent and honest commissioners who will carry out evaluation because the fraudulent PSA submitted by BUSECO was approved by the ERC.

6.3.3 The main intention of the Supreme Court decision, which is also the main intention of the EPIRA in requiring “least cost supply”, and also the main intention of the ERC and DOE directives on “competitive selective process”, is that competition among suppliers should prevail in the acquisition of power supply by the distribution utility companies.

6.3.4 If a distribution utility company enters into a power supply agreement but acts in an anti-competitive manner in the process (e.g., not sending requests for proposals to known power suppliers, specifications in the terms of reference that restrict competition, advertisement in newspapers with limited circulation – all of which were committed by BUSECO in this case), the ERC should not approve the PSA. If the ERC approves such PSAs, which happened in this case, the ERC commissioners are culpable and could be sued for corruption.

7. CONCLUSIONS

7.1 By objectively evaluating the power supply agreements, the Energy Regulatory Commission should be able to determine which of the PSAs did not carry out a generally-acceptable competitive selection process or least-cost supply process.

The distribution utility companies that entered into PSAs without legitimate CSPs should be required to carry out CSPs or LCS processes for the power supplies that were already contracted.

7.2 If a competitive selection process or least-cost supply process is carried out for an illegitimate power supply contract and the same generating company wins, then the price offered by the generating company, which probably will be much lower than the price in the original power supply agreement, will be made effective from the date when consumers started paying for the power supply from the generating company. Power consumers win.

7.3 In order to ensure that the commissioners of the Energy Regulatory Commission are not suborned into approving power supply agreements that have not gone through a legitimate competitive selection process (it can be shown that such anomalous approvals have been done many times in the last two ERC regimes), consumer groups should participate in the evaluation process if this is made public by the ERC, or study the decisions of the commissioners on the PSAs if the ERC carries out the evaluations behind closed doors. As the foregoing examples show, straightforward evaluation of the documents submitted by the distribution utility companies and simple verification of the facts need to be done in order to recognize when generally-acceptable CSP or least-cost supply process has been carried out by distribution utility companies. Legal expertise is not required to determine illegitimate power supply agreements; only due diligence.

8. IMPLICATIONS of the SC Decision for Power Supply Contracting in the Electric Cooperatives (which, with MERALCO, have been blatantly anticompetitive in their purchase of power supplies for consumers)

8.1 The SC decision on competitive supply procurement will be the start towards ensuring affordable rates for power supply for consumers of electric cooperatives, not only in Mindanao but throughout the Philippines. It means that the electric cooperatives will have to conduct honest-to-goodness competitive selection processes or least-cost supply processes for all their purchases of power supplies. And the electric cooperatives will no longer be able to pre-select the “winning” bidder for their power supply contracts.

8.2 The pre-selection of generating companies for PSAs by the electric cooperatives has been the main driver for the corruption of the officers of the electric cooperatives (the general managers and the members of the Boards of Directors, but these officers have also corrupted their upper level management employees). From the year 2012, the officers of most of the electric cooperatives in Mindanao established an S.O.P. in their power supply contracting in which the preselected generating company pays to the EC officers a minimum of one million pesos per megawatt of power supply contracted by the EC. This money goes to the officers of the electric cooperative; it has never been reflected in the books of accounts of the electric cooperatives. The SC decision has effectively eliminated this source of funds for EC officers, so there is now little inducement to spend money in order to be elected as a member of the board of directors. There is still money to be stolen from purchases of materials and equipment by the EC’s, but the amount from this is small in comparison to what was made available by the dirty generating companies. Power consumers win.

8.3 Even so, the current officers of the electric cooperatives, most (maybe 99%) of whom spent a lot of money to be elected to their positions, should be expected to continue to look for other ways of cheating their consumers in order to enrich themselves. The only way to stop corruption in the electric cooperatives is to organize and educate consumer groups in the franchise areas of the electric cooperatives to work as watchdogs over their ECs.

8.4 All power consumers should give thanks to God for the work that was done by the Alyansa Para Sa Bagong Pilipinas, Inc. (ABP), which moved the Supreme Court, against the objections of the ERC, to bring about a regime of justice in the determination of the rates that should be paid by consumers for their power supplies. In December 2016, the ABP filed the petition at the SC versus the ERC, DOE, MERALCO and a number of generating companies that were contracted by MERALCO. The petition asked that the SC should order the Energy Regulatory Commission to require the distribution utility companies to carry out competitive selection process in entering into power supply contracts with generating companies. (Why the ERC has to be ordered by the SC to do something which the EPIRA mandates as the prime responsibility of the ERC is another, long and sordid, story.) It is a result of this petition filed by the ABP that all power supply agreements submitted to the ERC after July 30, 2015 will be required to undergo CSP if the ERC determines that legitimate CSP was not done by the distribution utility companies in contracting for their power supplies.

8.5 As mention by the recently-retired Associate Justice Antonio T. Carpio, the Supreme Court is upholding the Philippine Constitution in the decision that resulted from the petition filed by the Alyansa Para Sa Bagong Pilipinas. Section 19, Article XII, The Philippine Constitution of 1987: “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.”

David A. Tauli
November 2, 2019

Headline: Duterte orders strict compliance by power plants.

What President Duterte Said and Did not Say about Meralco’s More Advanced Technologies.

Meralco’s 2nd CSP Round

 

David Celestra Tan, MSK
30 October 2019

President Rodrigo Duterte was invited to the recent inauguration of Meralco PowerGen’s 500mw San Buenaventura Power Corp.,the country’s first “super critical coal technology” with high efficiency and low emissions or HELE. It was held at the Grand Hyatt Hotel in Fort Bonifacio last October 16, 2019.

The President was quoted to have ordered the Department of Energy “to ensure that the power plants operating in the country are strictly complying with operational efficiency standards as well as environmental laws and regulations.” The President is also calling on investors – primarily power plant project sponsors and developers – to take steps on deploying more advanced technologies even in coal-fired power ventures, chiefly those that shall be spewing lower emissions”, the news report further quoted.

“I ask you to follow the lead of San Buenaventura Power by investing in the generation of clean energy. I can assure you that you’ll be able to pursue more effective and efficient business strategies, as long as you give utmost importance for the protection of our environment and the welfare of your host communities” Duterte reportedly stressed.

The Meralco press release published last October 25, 2019 evidently tried to ride on the President’s statements and added “the P56.2 billion San Buenaventura power project is the first to be equipped with super-critical boiler technology among all coal-fired power facilities in the country. This is a technology in the high efficiency, low emissions (HELE) genre which has up to 45% efficiency compared to the more than 30% of the older technologies and also has the potential to bring down carbon dioxide emissions by up to 25% more”.

Clearly Meralco’s public information strategists are trying to spin a stinging endorsement from the President no less for its “super critical technology, HELE” which happens to be the same technology being restricted by Meralco for the 1,200mw Atimonan One competitive selection process.

Was the President actually endorsing Meralco’s “super critical HELE technology”? Let us breakdown what apparently the President said in the above press account.

1. PRRD Ordered the DOE “to ensure that the power plants operating in the country are strictly complying with operational efficiency standards as well as environmental laws and regulations.”

2. “The President is also calling on investors – primarily power plant project sponsors and developers – to take steps on deploying more advanced technologies even in coal-fired power ventures, chiefly those that shall be spewing lower emissions”

3. “I ask you to follow the lead of San Buenaventura Power by investing in the generation of clean energy”.

The Presidents statements were valid, legitimate, and entitled from the country’s chief executive. And let us grant that PRRDs words can be yarned to actually saying that advanced technologies like super critical HELE that was adopted by Meralco’s San Buenaventura is good for the country.

Those are however actually not issues.

Without trying to play Presidents mind reader, President Duterte did not say however the following in case there is an attempt to take the interpretation that far:

1. that Meralco should be allowed to restrict in the terms of the bidding of their CSP for the 1,200mw greenfield project to only super critical coal HELE.

2. That the DOE is ordered to allow Meralco to do so.

3. That Meralco should be allowed to manipulate the CSP by insisting on 1,200mw and allowing a limited time for potential bidders to prepare the bid and hence restrict competition.

It is HOW Meralco is acquiring and contracting for those technologies and the rates they are charging to the consumers that are the real issues.

MERALCO’s Second CSP Round

Meralco announced that it will proceed with the second CSP round for the 1,200mw greenfield project where in the first round only its sister company Meralco PowerGen submitted a bid under Atimonan One Energy. One more failed bidding and the 20 year contract will be allowed to be negotiated between Meralco and its sister company Meralco PowerGen.

Meralco announced

1) they will retain bidding the 1,200mw as a greenfield project, meaning brand new power plant “to boost the supply in the power grid at the least cost possible”.

2) “To accommodate more prospective bidders”, Meralco would relax the terms of the second round of CSP by lowering the power plants configuration and moving away from a single location requirement. Instead of only blocks of plant configuration of 600mw, Meralco is bringing it down to 150mw as opposed to just a block of 600mw or 1,200mw.

3) They will move away from single location requirement, basically allowing multiple requirements. Again, to make sure those who are willing to bid for a 1,200mw greenfield have the ability to put up these plants in multiple locations

Things Meralco is not changing

The misnomered Third Party bid and award Committee will remain to be glaringly Non-Third Party. Consequently there would be questions on whether the CSP will really be revised to enable serious bidders to participate:

a) Will they allow enough time for potential bidders to study their participation, buy documents, and to undertake meaningful due diligence?

b) Will they remove the restriction to super critical HELE and instead specify the low emissions that must be met.

c) Will they open the technology and fuel and not limit it to coal?

d) Will they be accepting bids for less than 1,200mw? And in case there is no one bidding a total of 1,200mw, will it be a failed bidding? Hence the PSA will be negotiated with Atimonan One?

It appears from the changes being made by Meralco, that they are doing their best to tweak the bidding rules just enough to make it look like they are opening it to more bidders but not really making the kind of changes that will make the CSP truly competitive. The kind that will really give the consumers genuine least cost power. And that can come only from a truly robust competition among unrelated parties.

We wonder what’s in the revised TOR that they have been tryng to get the DOE to approve? As they say in the power industry, the devil is in the details.

This game Meralco is playing, trying to dance around true CSP rules is fascinating to watch. Unfortunately until the CSP rules are changed there would only be one ending when the music stops, and that is the electric consumers will be charged high rates, screwed completely. What do we expect from a system where the bidding is run by an in-house bid committee of the DU and the participants are their sister companies and or business partners?

By the way, when the PSA is finally negotiated between Meralco and its sister company Meralco PowerGen, what rules are in place to give consumers a measure of protection from being abused? When will we ever believe that “competition beats regulation” in protecting the consumers from being overcharged?

A blessed All Saints Day Weekend to everybody.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph