Meralco’s CSP HELE HELE with Super Critical Coal Technology

David Celestra Tan, MSK
11 October 2019

Meralco has been super publicizing its adoption of this ultra super critical coal technology with high efficiency and low emission (HELE) for the 1,200mw Atimonan One project. It is supposed to be the country’s first (after Mauban’s San Buenaventura) and implying a high bar for high efficiency and low emission. Such high standards and big project size of 1,200mw were the reasons there were no bidders other than Meralco’s own Atimonan One Energy Corp.

(Not to mention that Meralco’s “Third Party” Bid and Award Committee gave bidders only 7 days to pay P6 million to buy the bid documents and only 40 days to do technical studies, due diligence, and prepare a bid for the approximately $ 3billion project!)

One more “failed bidding” for such super critical technology would mean a legal negotiated contract for the 1,200mw project in Atimonan, Quezon.

Meralco ally San Miguel Corp. who won most of the initial CSP for the 1,200mw and 500mw  brownfield projects due for delivery in December 2019, had his two companies (Panasia and Mariveles Power) withdraw from the bidding. (Paying P12 million for bid documents is small change in this game). SMC President and COO Ramon Ang is quoted in the press saying “allowing power plants with a wide range of technology to join the bidding would allow a level playing field in Meralco’s bid. We want to make an offer, so allow us to join the CSP”. “We did not join the bidding because CFB plants do not meet the requirements” the SMC COO continued. Meralco’s President Ray Espinosa said “we want all gencos to join, but we have considerations why the terms of reference for the greenfield supply are stringent”.

So What’s Ado with Meralco’s Ultra Super critical HELE technology?

Supposedly the high efficiency part (HE) means an improvement in energy efficiency from about 34% to 44%. To you and me it means supposedly lower fuel costs that are passed on to us consumers. The “low emission” (LE) part means it will have much lower harmful emissions specially CO2 and contribute less to global warming.  The ultra super critical part I think refers to the much higher combustion temperature and other thermal processes in the system.

As you can guess, this is much more expensive technology. Meralco had been announcing a project cost of $3 billion for the 1,200mw capacity or $2,500 per kw capacity compared to less than $2,000 for circulating fluidized bed or CFB.

In other words, Meralco is nobly trying to “introduce” this advanced coal technology to be charged to the consumers, who is supposedly going to benefit from “HELE” or high efficiency and low emission.  In so doing, they are able to restrict the CSP to this particular technology and project magnitude, effectively discourage competition and hence be able to negotiate among themselves a rate and terms of PSA. In the past, Meralco evidently tried to secure an “unsolicited proposal status for Atimonan One for a “swiss challenge” type CSP where A1E will have the right to match, another way to tilt the playing field for MeralcoPowerGen.

By super publicizing this super critical HELE technology, Meralco is evidently trying to acquire entitlement to the preferred status in biddings as provided for under Sections 10.2 and 10.3 of the Revised IRR of Republic Act No. 6957 otherwise known as the Built Operate Transfer law.

Project proposals for this advanced technology can acquire original proponent status must meet more or less 1) it is a project not envisioned by current policy programs of the government; 2) it must represent advanced technology not yet used in the Philippines and 3) it must be certified so by the National Science Development Board.

Now let us grant that Meralco’s Super Critical coal HELE meets number 2 and 3, clearly the power development is an established government policy and the introduction of efficient and environment friendly technology.  And CSP is similarly a primordial government policy.

The key question and I guess the main point of this article is, to achieve “high efficiency and low emission” (HELE), does the bidding really have to be restricted to super critical coal or even advanced ultra super critical coal technology that effectively they will scare away competitors, cause a failed bidding, and be allowed to negotiate PSA and prices that will be passed on to the consumers?

At the time Meralco and MeralcoPowerGen negotiated the Atimonan One project in April 2016, it was publicized with a rate of P3.75 per kwh. A few months ago this year 2019 we updated the rate using the escalation rates and fuel adjustments and it became P5.60 per kwh, higher than the then rates of other coal at P5.10 per kwh. Given that all competitors and pretenders have been shooed away from the CSP by the “super critical” requirement, and the 1,200mw greenfield project could eventually be negotiated due to failed biddings, what makes us think it will be lower than the current coal rates of P5.10 per kwh? 

The economic and environmental benefits of “HELE” can be achieved by other proven technologies most notably natural gas, a known cleaner and cheaper fossil fuel than coal and their old combined cycle technologies already beats the HELE of advanced coal technologies.

So if the government (and Meralco) really wants to be faithful to the true competition spirit of the CSP policy and now mandated by the Supreme Court in the Alyansa para saBagongPilipinas case, Meralco should not be allowed to restrict the bid specifications to this ultra super critical coal HELE but instead open the CSP to all technologies that achieve a certain level of low emissions.  The “high efficiency” can be specified but its advantages would already be reflected in the bid price of fuel consumption and costs. Hence it should not be a restrictively “super critical coal HELE”.

Why is Meralco trying to force upon the Filipino consumers this advanced and expensive “BMW that can run 150 kilometers an hour in luxury”when all they want is “fair and reasonable” rates from an electric vehicle that go 80 kms per hour to get from point A to point B? 

With the Meralco CSP being really opened and not restrictive, there will be more honest to goodness competitors, especially if they are really given sufficient time to prepare for a bid and, more importantly, signal to them that the CSP will truly be fair. Why are the established Japanese, Korean, and Chinese generators and local players Ayala, Lopez, and Alsons Group not really active in possibly bidding? And maybe we will see if San Miguel Power will truly compete for Atimonan One, knowing that he had two prior agreements for greenfield projects with MeralcoPowerGen for a 628mw Mariveles Power and a 628mw Central Luzon Power. Will San Miguel et all really compete with its customer Meralco?

Is Meralco’s CSP HELE HELE for ultra super critical coal technology not really about the noble intention of introducing advanced technology, not about high efficiency and low emissions, not about global warming but more about controlling the CSP process and negotiating the price that will be passed on to the consumers?As DOE Secretary Alfonso Cusi rightly asked, why does it have to be 1,200mw? Why not allow 600mw?

When will things ever change for the Meralco consumers?

 

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

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Viewpoint: The 52-Billion Pesos Mindanao-Visayas Interconnection Project

Demonstrating how the NGCP makes money for its owners and for the banks at
the expense of electric power consumers
By David A. Tauli, President, Mindanao Coalition of Power Consumers

Last month, the National Grid Corporation of the Philippines scheduled a public forum in Cagayan de Oro where they said they will discuss ongoing projects of the NGCP in Mindanao, particularly the Mindanao-Visayas Interconnection Project (MVIP). I told Mike Baños who received the invitation that we now have an
opportunity to the NGCP about the economic feasibility study that they presumably carried out for the project, which they estimate to cost 52 billion pesos upon its completion in 2020. However, the NGCP cancelled the public forum, so we could not ask them about their financial expectations for the MVIP.

Since 2011 the NGCP has filed a number of petitions to the ERC seeking approval for various components of the MVIP, and in July 2017, they got provisional approval from the ERC to implement the project. But in all those petitions and hearings, the NGCP never showed what will be the increase in the rates that consumers will paying for electricity when the MVIP becomes operational. There also was no quantification of the expected benefits to consumers from the implementation of the interconnection project.

In the absence of information coming from the NGCP or the ERC, I carried out a
basic financial analysis of the MVIP, and here are the numbers I arrived at:

1. Average rate to be paid by consumers who use the MVIP to convey the power
supply delivered to consumers from generating plants in Luzon or the Visayas (in
the case of consumers in Mindanao) or from generating plants in Mindanao (in the
case of consumers in Luz-Vi): 1.90 pesos per kWh
2 Annual profits of NGCP over a period of 30 years for constructing the MVIP: 2.0
billion pesos
3. Annual interests paid to banks (for 30 years) who provide the loans (70% of
project cost) for the project: 2.6 billion pesos

These are based on the standard return to equity and interest on debt that are allowed by the Energy Regulatory Commission for transmission line projects or distribution line projects, so there would be nothing irregular about the profits of the owners of NGCP (the majority shareholders being Henry Sy, Jr. and Robert Coyiuto, Jr.), and the interest earnings of the banks (probably those owned by Sy and Coyiuto or their relatives). However the electric power consumers who pay for these profits and these bank charges will not get any monetary benefit from the project in the form of reductions in the costs of purchased power or improvements in the reliability of electric service.

When the Leyte-Mindanao Interconnection Project (as the MVIP was then called) was first proposed in the 1990s by the National Power Corporation, the economic justification for the project was for power consumers in Mindanao to be supplied with electric power from the geothermal power plants in Leyte. It was then estimated that power supply from the Leyte geothermal plants conveyed through the LMIP would cost a total of 3.00 pesos per kWh, whereas building a coal power plant in Mindanao would cost at least 4.00 pesos per kWh. So consumers would be saving at least 1.00 per kWh with the construction of the LMIP. And the NPC could legitimately earn profits, while the banks could legitimately earn interests with the construction of the interconnection between Visayas and Mindanao.

Comparison of the Mindanao-Visayas Interconnection Project of today with the Leyte-Mindanao Interconnection Project of the 1990s:

Item MVIP LMIP
Annual profit of NGCP or NPC 2.0 billion Pesos Adequate Adequate
Annual interest earnings of banks 2.6 billion Pesos Adequate Adequate
Impact on rates paid by consumers Increase of 1.90 P/kWh Reduction of 1.00 P/kWh

A conclusion that could be drawn about the ongoing construction of the Mindanao-
Visayas Interconnection Project is that it will earn money for NGCP and for the banks, but will give no significant monetary benefit to power consumers that would compensate for the increase in the cost of power supply imported through the interconnection.

The ERC Erred in Approving the Implementation of the MVIP

Another conclusion that can be drawn from doing an economic evaluation of the interconnection project is that the ERC erred in granting provisional approval in July 2017 for the implementation of the MVIP in ERC Case No. 2017-034 RC.

The application submitted by the NGCP states that implementation of the MVIP will: (1) allow excess generation in one grid to be exported to another; (2) promote competition in the electricity market nationwide through the electricity market; and (3) aid the Visayas Grid during peak intervals when the solar plants are not delivering power. However, nothing has been published by the ERC or the NGCP
about the monetary benefits to consumers of attaining these objectives of the MVIP. Thus, it can be concluded that the ERC did not require the NGCP to quantify the benefits to consumers from a project worth 52 billion pesos, all of which will be paid for by the consumers. In addition, of course, the consumers will pay the profits of the owners of NGCP and pay also the interest charges of banks that finance the project.

The ERC decision in the case of the MVIP can be compared with the decision of U.S. regulators in approving the implementation of the New England Clean Power Link (NECPL), which is a 1,000 MW, HVDC transmission project that will extend 154 miles from Canada to Vermont and New England in the U.S., and is estimated to cost $1.2 billion upon completion in 2020. Benefits to consumers from the implementation of the NECPL include the following: (1) Total energy savings for Vermont ratepayers: $245 Million (first ten years of operations); (2) Total energy savings for New England ratepayers: $1.9 Billion (first ten years of operations); and (3) Vermont electric ratepayers will receive an additional $136 million reduction in transmission costs.

The point in making this comparison of the process of approval of regulatory agencies in different countries is that it is necessary for private-sector proponents of infrastructure projects to quantify the costs and benefits of the projects in order to show to the regulators that the monetary benefits to the users of the projects will be greater than what the users will be paying for the project. In the case of the MVIP, the power consumers will be made to pay 52 million pesos and also pay the profits of the owners of NGCP and the interest charges of the banks without any assurance that they will receive monetary benefits commensurate to the payments they will be making to NGCP.

Stop the MVIP

Power consumers should work on stopping the ongoing construction of the MVIP,
unless the NGCP can prove that the benefits to consumers from the interconnection
project will exceed the costs that they will be paying for the MVIP. How to stop
the MVIP will have to be discussed elsewhere.

October 9, 2019

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

Meralco’s Terms of Bidding for 2,900mw CSP – You’ve Got to be Kidding! (updated verision)

David Celestra Tan, MSK
24 July 2019

(updated)

Meralco’s previously negotiated seven (7) PSA’s have been declared illegal by the Supreme Court. They were ordered to conduct Competitive Selection Process, which the Supreme Court said is necessary to protect the public from being abused.

At the prodding of the Department of Energy, Meralco was asked to conduct the CSP’s as soon as possible to avoid power shortages. After allMeralco had not signed major power supply agreements since April 2016 evidently wanting that most of its power supply for the next 20 years go to its power generation subsidiary MeralcoPowerGen and its partners, Aboitiz, San Miguel, Global Business, DMCI, and EGAT of Thailand, their minority partner in Mauban.

Meralco recently posted the initial Terms of Reference (TOR) or terms of the bidding for a total of 2,900mw of power supply in three packages. And is fully projecting the impression that they are dutifully heeding the call of the Supreme Court for a CSP (assumed to mean truly competitive bidding that will give the public a fair deal) and the call of DOE Secretary Alfonso G. Cusifor urgent biddings because the country has not had new major power plants since 2015.

Apparently to complete an atmosphere of true competition, Meralco’s midnight partners, San Miguel, MeralcoPowerGen, and DMCI even issued press statements saying they are interested to participate. One of them was right though in saying “the published requirements carry very difficult conditions”.

But is Meralco really doing an honest to goodness bidding of its power supply contracts? And are their partners really going to compete?

Let us look at the terms of the bidding that Meralco had announced. 

A. 1,200mw (net) COD 2024. (Yes that appears to be the reference number of this bid package)

We are starting with this because this is the one that appears to have a realistic and feasible bid scope.

a. It has a realistic “Commercial Operations Date” or COD of March and September 2024 or 5 years from now. A reasonable construction period for a greenfield power plant of this 1,200mw net size.

b. The service that needs to be provided is base-load.

c. The technology will be “HELE” or high efficiency low emission (although this appears to be describing the super-criticalAtimonan One technology as previously advertised and they are referring to coal)

d. Contract Period is 20 years, the viability length for this size project

e. The tariff structure, outage allowance, and other provisions that can be handled by most prospective bidders.

These terms of the bidding seems straight forward. So where is the rub?

It is in the timetable for the bidding:

1. Cost and time to register as an “interested bidder”.

a. Meralco is giving possible bidders only one week to 29 July 2019 to register and submit their Expression of Interest and Confidentiality undertaking, and pay a non-refundable “participation fee” of P6 million in managers check. For this you get to be called an “interested bidder” and can secure a copy of the bid documents.

b. If Meralco does not get at least 2 interested bidders, the bidding will be declared a “failure”.
c. “interested bidders” also get to attend the August 9, 2019 pre-bid conference.

2. Bidding Day

All bidders are to submit their bids a month later on 10 September 2019 at 9am with their proposals in 3 envelops. 1) Qualification documents 2) Technical proposal and 3) and the Bid together with a P3.65 Billion bid security.

3. The Squeeze Bunt

This is a classic squeeze bunt strategy to limit bidders and one of the oldest tricks in the bid manipulation playbook.
It is only 41 days from the time a bidder receives his bid documents and specifications on 29 July 2019 to the bidding date of 10 September 2019. Assuming you are crazy enough to spend P6 million just to take a peek at the detailed terms of the bidding, how can you ever prepare a serious bid within 6 weeks for a 1,200mw power plant? Much less prepare the bid documentation within the same period?

This supposed CSP bidding is designed to fail at each stage. After two failures of bidding, negotiation will be allowed under the CSP rules. (we assume). And guess who it will be negotiated with? Atimonan of course. This appears to be Plan A.

Plan B is for the intended partners, again most likely Atimonan One, to register and become the lone bidder. And again leading to a negotiated contract. And prices maybe even worse for the consumers.

4. Clearly this bid package is a play for Atimonan One. Pwedepo bang magtanong, Meralco? Hindi pobasabininyo more than a year ago naAtimonan One is “shovel ready”? Now why will it take 5 years to construct and commission? Should it not be now 3 years or 2022?
5. Isa pa pong tanong. If you are allowing the completion to be until 2024, which is at least 1 year longer than the feasible construction time, why can you not allow enough time for bidders to truly prepare a bid and honestly encourage maximum competition for the benefit of the consumers?

B. Contract Capacity of 1,200mw net, Effective December 26, 2019!!

I had to do a triple take on this one. 1,200mw net by December 26, 2019 or 5 months from now? (You cannot buy a 24sq meter condo, apply for a loan and complete your documentation in 5 months!)

If package A above is a play for Atimonan One, it is a mystery who is this one for. I mean who in the Philippines has a portfolio of 1,200mw net that can be contracted and start delivering in 3 months after award?

This appears to be a “shake and bake” bidding manipulation strategy? Also called a Bug Zapper bid. (It looks inviting but when you get close you get zapped by its impossibility).

Let us look at the Terms of Reference:

1. Expression of Interest and payment of a Participation Fee of about P2.5 million by 26 July 2019

2. Prebid Conference on August 8, 2019

3. Bidding on September 9, 2019 with a Bid Bond of P3.3 Billion

4. Bidders must offer a minimum of 200mw.

5. Meralco must receive a minimum total of 1,000mw or the bidding is a failure.

6. Base-load service

7. Contract period of 10 years from December 26, 2019 to December 25, 2029.

8. Consortium bidders are allowed.

9. Here are the kickers

a. Meralco has the sole discretion to annually reduce contracted capacity up to 600mw between December 26, 2023 and December 25, 2025.

b. Contracted capacity shall not be more than 75% of the plant capacity factor. This means to offer 200mw, you need a 296mw plant. This seems in line with DOE’s policy pronouncement that generators can offer only 75% of their installed capacity to assure reserve. (more on this later)

10. The question is which group of power generators have these existing plants of 300mw or more who may be free to start on a new contract in 3 to 4 months? And which generators with a total of 600mw is willing to get cancelled between December 26, 2023 and December 25, 2025?

11. Assuming that they have these existing capacities, will you be able to prepare a bid by September 9, 2019, only 44 days after you have received the detailed bid documents? Unless, you have advance information or are part of the insider group defining the parameters of the bidding.

12. SemiraraCalaca? We are just curious that the 600mw SemCalaca had not been delivering energy to Meralco for the last 4 months. Did their Calaca power plant contract expire and is now a perfect fit for this new Meralco bidding?

13. Once again this terms of reference have been “shaken and baken” and designed to fail. Then maybe not, because the Meralco midnight group has the existing capacities to pull this off. You outsider bugs just got zapped!

14. On the DOE’s policy pronouncement that power generators will be limited to contracting only 75% of their plant capacity factor, we realize the good intention but this mechanism will probe very expensive for consumers. There are better mechanisms to achieve power reserves.

C. Contract Capacity of 500mw (net)

1. 500mw net firm

2. Contract period 5 years from December 26, 2019.

3. Mid-merit service

4. 100% guaranteed availability and no outage allowance.

5. Contracted Capacity can be reduced due to retail open access, RE law, or other laws and legal requirement.

6. Minimum offer of 100mw. Meralco must receive a minimum of 400mw offers or it will be a failed bidding.

7. Annual MEOT but bidders can offer only up to 45% of the plant capacity factor.

8. Expression of Interest and Participation Fee of P1.5 to P7.5 million to secure bidding documents by July 30, 2019. If less than two (2) interested bidders, bidding is declared a failure.

9. Pre-bid conference on August 8, 2019

10. Bidding by September 11, 2019

Once again the only people with this type of existing capacities would be members of the Meralco midnight group. The power plants include GN Power that was bought by Aboitiz from the Ayala group (who did not become part of the Meralco group), Aboitiz” Therma North Navotas facility, Millenium, And San MiguelsLimay plant. And maybe some expiring contracts of Meralco and of Aboitiz in Cebu.

Going by the stringent requirements of the service and fast delivery of December 26, 2019, we could also be talking about modular rental generators, a very expensive power supply for the consumers. That can cost P14 to P18 per kwh! 

This Meralco CSP,whether it ends up happening or failing, have the makings of being very expensive for the consumers. Guess who will most likely get blamed for it?  DOE, who ironically can get blamed even by Meralco for insisting on fast bidding and those 75% maximum contracting limit.

Ironically again for the Department of Energy, the reality is if power supply is short or power rates skyrocket, it will be the DOE who will be blamed by the people and the legislators.  They cannot wash their hands on privatization. Sadly, its’ own circular DC2018-02-0003, that was passed in February 2018 to guide the procurement of power supply,  does not provide for its right to directly supervise the CSP and hence crippled DOE itself in its options to make truly competitive CSP happen if the private sector like Meralco is recalcitrant about “shaking and baking” the biddings.

Now we the people will suffer. Both in shortage of power and high contracted rates of Meralco.  Very frustrating.

Other Notes:

  1. We are only referring to the published Terms of Reference of the bidding. I apologize to our readers, I don’t have P6 million lying around to buy the bid documents. If the officially published bids terms are giveaways of restrictive bids, you can imagine why other tricks would be in the detailed bid specifications. More scary stuff.  And you have to pay millions to see it.
  2. Of the three bid packages, only the first one is part of the seven (7) midnight contracts of 3,551mw. That means Meralco will still be doing these CSP’s for 2,351mw more for power supply for deliveries from 2024 to 2026. If they do, let us hope that they include LNG and give sufficient time for bidders.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

 

The author is a 25 year veteran of international competitive biddings under World Bank, USAID, KFW, ADB, Japan Aid and have seen all sorts of bid rigging plays, from the subtle to the blatant, in the Middle East, Asia, Latin America. He is also one of the original IPP’s in the Philippines and a founder and former President of the Philippine Independent Power Producers Assn. (PIPPA). He now devotes a fair amount of his time sharing his knowledge for consumer protection, power policy and regulatory reform advocacies.

TAKEOVER OF ELECTRIC COOPERATIVES – DOE NEEDS TO ESTABLISH RULES…QUICKLY. (Part 2)

David Celestra Tan, MSK
19 July 2019

Part 2

There are many unclear issues that any takeover by the private sector of an electric coop would be messy. It behooves the Department of Energy to establish clear rules soonest before target areas are thrown into chaos. Some profound aspects that need clarity are the following:

1. Due process – In taking away or not renewing franchises, there has to be due process. The legislative Franchising Committee does not appear to provide for a due process for denying renewals of incumbent franchise holders much less for cancelling an existing franchise and giving it to someone else. The acrimonious state of the PECO takeover of its assets could have been less so had there been true due process in the franchise denial.

2. Valuation and Definition of Distribution Assets
As we have seen, it is not enough to rely on the power of eminent domain to force the take over. At the same time, the right of the former public utility franchise holder to hold on and value its distribution assets may not be absolute because the consequent rates to the consumers will need to be considered especially when the government is effecting a change of franchise holder. It needs to assure the consumers that it is to their better interest and that includes the rates will be better. Only Distribution lines and substations should be part of eminent domain. Expensive real estate and buildings accumulated over the years should not be part of the rate base. Allow the new franchise holder to lease from the owner to avoid disruption of operations while he is looking and setting up his own buildings and base of operations within say five (5) years. Instead of just handing out franchises, the LFC might want to include these provisions in the franchise.

3. Standards of DU Failure – When does an incumbent franchise holder deserve not to be renewed? And when does an EC’s franchise deserve to be cancelled? The term “ailing” is not clear and if we go by the definition of RA 10531, it means an EC is bankrupt and not able to operate. It is not enough for the area Congressmen, Governor, and Mayors to declare that an EC is ailing. (we have a long running joke. Before you can privatize and rehabilitate a coop, you must destroy it first!).

4. Other Policy issues on the takeover of an electric coop?

a) Who makes the decision on whether the coops franchise should be defended? The Coop Board or its member-owners? If you are an owner and your business franchise is being taken away which will marginalize your business value, would you not have a right to fight for it?

b) Who makes a decision on whether the coops assets should be sold? Should it not be the member-owners?

c) If your coop management has been taken over by the NEA, can the member-owners not demand that NEA rehabilitate the coop as required by law under RA 10531? What are your options if NEA is not doing enough to address the problems of the EC under its management?

d) What happens if your EC Board is not doing enough to protect the coop franchise and assets, can the member-owners call for an emergency stockholders meeting and elect a new Board? What are the rules if the EC is registered with the CDA? Would you not remove your Board if they are not protecting the interest of the stockholders?

e) Should the DOE not establish guaranteed service level improvements as a condition for the entry of the private sector? What happens if they fail? Can they also be replaced?

f) Will the consumers in these islands still be entitled to missionary subsidies? How much time is the new private franchise holder allowed to reduce his true cost of generation and the phase out of the government subsidy?

g) What will happen to the IPP’s who have long term contracts with the EC’s? Will their power supply agreements be rescinded or renegotiated by the new franchise holder?

h) Assuming the member-owners are willing to sell, Who determines what is the fair value of their shares and the distribution assets?

i) How about the employees of the EC’s? Will they get fair retirement packages?

j) Will the DU service compliance standards to their franchises obligations be the same for the off-grid and on-grid Distribution Utilities? Will our legislators hold Meralco to the same franchise compliance standards? And will they dare to even suggest a grab of Meralco’s franchise?

DOE and NEA as White Knights

Actually at this stage only the Department of Energy appear to be trying to do something to rehabilitate Paleco through a Task Force created by Secretary Alfonso G. Cusi and had recently issued orders for Paleco, NEA, and NPC to correct the problems that have been identified. Will the provincial and City officials impede the rehabilitation? (The DOE we understand had created similar task forces also for Mindoro and Masbate)

NEA under RA 10531 is mandated to step in when there are management problems of electric coops and service is deteriorating. They then are legally obligated to rehabilitate the EC like Paleco. With the DOE Task Force showing the way for Paleco problem corrections, will NEA, and NPC whose outdated transmission facilities on the 400km long island is part of the brownout problem, step up to really solve the problems on the ground? Or will they be tacit parts of the political campaign to make poor Paleco look terrible to justify its disenfranchisement?

Meanwhile, the DOE needs to see the writing on the wall that the big conglomerates, who can fund lobby campaigns to take over EC franchises of plum areas, will continue to launch hostile takeovers of EC’s and clear rules are needed quickly, and leadership provided, to assure the service to the public does not deteriorate. Maybe all it will take it to tighten and update the rules under the IMC program. (and delete that MC option for Christ’s sake!). Will it not be a wonderful EC world if we also find a solution to the unspoken “politically ailing” coops? Just kidding.

The Epira Law under Section 37 specifically mandates the DOE to supervise the restructuring of the power sector. And the takeover of the franchise areas of Electric Coops is a major tectonic power sector restructuring affecting millions of marginalized consumers.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph

TAKEOVER OF ELECTRIC COOPERATIVES – DOE NEEDS TO ESTABLISH RULES…QUICKLY. (Part 1)

David Celestra Tan, MSK
19 July 2019

Part 1

The acquisition of the electric distribution franchises seems to have become the new frontier of the big conglomerates for insane profit growth after they have all conquered power generation, water, telephone, condo building, roads and highways, and soon airports. We are sure it has not been escaping their corporate growth strategists the 25% annual return on equity of Meralco that the ERC’s PBR rules are allowing. That acquiring the franchise for the Distribution monopoly is also the ticket to the generation monopoly.

Due to the absence of clear rules of entry and engagement, it is going to be a wild wild west. Rules of takeover have actually not been necessary although there have been attempts at take overs of electric cooperatives in the past. Until recently, the takeovers by the private sector were mostly welcome and/or necessary. Like those of troubled Pelco by Meralco, Aleco by San Miguel. Others were patient and civil – years of attempts by Aboitiz on Daneco, Meralco on Batelec I and II in Batangas. Aboitiz attempts at gaining a foothold in Ceneco in Bacolod, the 2nd largest electric coop in the country.  Meralco, as if they don’t already lord over 73% of Luzon, had announced its desire to expand its franchise area to neighboring provinces of Pampanga, Tarlac, Batangas, Mindoro, and rest of Laguna.

There has been no shortage of Governors and Congressmen willing to sell their electric coops to those willing to make a deal. Still the overtures remained subtle and civil….until recently.

Wake Up Call

The wake up call that maybe clear rules are necessary is the recent bold and succeeding attempt of MORE of the Razon Group to takeover private DU Panay Electric Company (PECO) that serves metro Iloilo. And after having whet their appetite, MORE is now going after the franchise for the main island of Palawan, one of the world’s most beautiful islands and hence a prestigious service area. Things however can get ugly unless rules of entry and engagement are established quickly by the government.

The Paleco electric cooperative in Puerto Princesa is under siege. Brownouts had reportedly gotten worse despite the NEA takeover. Government officials seem bent on making the coop look “ailing”. The City Government, a known ally of the Governor who is an open supporter of the disenfranchisement of Paleco,  had sued it and seeking the resignation of all the board of directors. Service will deteriorate and soon the world’s most beautiful island would also be one of its darkest….and hottest in the daytime without aircon!

The Epira Law of 2001 had tasked the Department of Energy to supervise the restructuring of the power sector. It is incumbent upon the DOE that ground rules for the entry of the private sector into the electric coops and/or the takeover of their franchises can be made in an orderly manner or in a way that serves the public interest.  After all, electric service is an essential public utility and every care should be taken by the government that they don’t fall into chaos…all in the name of a franchise takeover.

Existing Rules for Entry of the Private Sector into Troubled EC’s

Actually there are already rules for the entry of the private sector into really troubled electric coops that need private investment – This has been the Investment Management Contracts or IMC that was promulgated by the DOE with funding from the World Bank way back in 2004 a couple of years after the EPIRA law was passed in 2001.

This wonderful IMC program for an organized entry of the private investment and management sector to rehabilitate financially ailing electric coops however did not prove appealing to even troubled coops after they saw an “MC” agreement that took over Zambales Electric without an investment and collected fat fees for “management”. That deal stigmatized the IMC program. (We understand the Management Contract or MC option in the rules where there could be a management takeover without making an investment was surreptitiously inserted by a consultant and the DOE did not catch it)

One recent successful entry of a private investor under the IMC rules was the takeover of Zamboanga Electric Coop by Crown Investment Holdings and Desco in 2018. Zamcelco had been suffering from 22% systems losses and was P1.2 billion in debt. Crown-Desco pumped in P2.5 billion with P1.2 billion paying for debts and the balance of 1.3 billion for rehab and working capital. The new managers are working on reducing the systems loss down to the regulatory limit of 13% and have reportedly discovered that its power supplier WMPC has been charging it 50mw of capacity fees when its peak demand had been only half or 25mw. Now Zamcelco is seeking a P441 million refund.  Aboitiz apparently lost out in the bidding for the IMC and the Meralco group backed out early.

The Dangerous Trend Towards the Franchise Grab

It appears the IMC route is too inconvenient, too slow, or too unsure to some players. They have elected to go the “franchise grab” scheme through friendly members of the Legislative Franchising Committee.  Except they are trying to grab DU franchises that are not yet up for grabs.  One such case is More Reedbank application for the franchise for Palawan service area when the incumbent PALECO’s franchise is still valid for nine (9) more years.  And Paleco, while having solvable problems, is far from being ailing or bankrupt as defined in the applicable law which is RA 10531. The franchise application of More Reedbank is sponsored by two congressmen of Palawan.

Another case is the franchise application by a supposed farmworkers cooperative “GamboaHermanos” to provide electric service for the whole island of Negros. (Can you believe it!) Amazingly, the franchise application was approved in one reading according to the papers by the Legislative Franchising Committee.

People point at MOREs apparent success in taking over the franchise of PECO in Iloilo City by lobbying in the Legislative Franchising Committee and winning a Franchise from Congress. PECO’s case is different. First its Franchise was actually expiring, and the LFC can argue that it was just exercising its right to grant a franchise. Second difference is PECO is a private distribution utility and the rules for required rehabilitation under NEA Law 10531 do not apply.

 

Happy SONA!

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph