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.

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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

Will the ERC and DOE Remake Themselves as a result of the Supreme Court Ruling on Meralco CSP? (Part 3)

David Celestra Tan, MSK
14 June 2019

In the ongoing saga of the MVP Group’s money making schemes to also monopolize power generation and charge Meralco customers self-negotiated sweetheart electric rates for the next 20 years,  the cause oriented group Alyansa Para Sa BagongPilipinas (ABP) had petitioned and the Supreme Court had spoken that ERC’s extension of the date for the effectivity of the CSP policy is beyond its authority and therefore illegal. Consequently all power supply contracts that were applied with the ERC after November 7, 2015 should undergo competitive selection process or bidding.The biggest lot of those is Meralco’s seven (7) PSA totaling 3,551mw with a guaranteed 28 Billion kwh a year sales for 20 years, fully 80% of the energy needs of the National Capital Region.

In its ruling GR 227670 the Supreme Court not only ruled on that issue but also reiterated enlightening provisions of the Constitution on other aspects of jurisdiction, governance, and autonomy related to ERC that the regulatory agency had been ignoring for a long time. If heeded, these constitutional reminders would have long term implications on the ERC and DOE as oversight institutions for the public interest.

Here are some excerpts of the Supreme Court Decision:

  1. On Page 2 on unfair competition and protection of public interest

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 utilities.

x-x-x

Section 6, Article XII of the 1987 Constitution provides: “The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”

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 xx to intervene when the common good so demands. “

  1. Page 16 Functions of DOE and ERC

Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that the “pass through of bulk purchase cost by distributors is transparent [and] non-discriminatory. “

  1. Page 20 Independent Power of the ERC

In the present case, where there is no exercise of the ERC’s quasi-judicial powers, the ERC is legally bound to enforce the rules and regulations of the DOE as authorized under the EPIRA. The ERC has no independence or discretion to ignore, waive, amend, postpone, or revoke the rules and regulations of the DOE pursuant to the EPIRA, as it is horn book doctrine that rules and regulations issued pursuant to law by administrative agencies, like the DOE, have the force and effect of the law.  In fact, the first duty and function of the ERC under its charter is to “enforce the implementing rules and regulations” of the EPIRA as issued by the DOE. Certainly, the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA.

  1. Page 21

In any event, even in quasi-judicial cases, the ERC is bound to apply the policies, rules, regulations, and circulars issued by the DOE as the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA. To repeat, the DOE’s rules, regulations, and circulars issued pursuant to the DOE’s rule-making power under the EPIRA have the force and effect of law which the ERC is legally bound to follow, whether the ERC is exercising executive, quasi-legislative, or quasi-judicial powers.

 

(Emphasis are ours)

ERC

Considering that the legality of the Meralco power supply contract applications have delayed the power development of the country by 3 years, the compelling question is what will the affected institutions, ERC, Meralco and its 5 partners, and DOE, do? Will they continue fighting the legal issue, protract the impasse,  and not care about the delay in the nation’s power supply? Will the consumers be held hostage again and will the government passively watch as Luzon’s power supply deteriorate?

The new ERC will be tested on what they hold important, Self-interest or public service? Will they continue fighting for their domain over the power sector and put self-empowerment first over focusing on averting a power crisis by starting in earnest to making enough of the Meralco projects comply with legitimate CSP?

 a. Jurisdiction, power, and autonomy of ERC

Is the ERC willing to temporarily loosen its grip on its empire?

Almost from the beginning, the series of trapo politicians that were made Chairmen of this supposed public interest agency from 2003 to 2018, worked hard at protecting its power and jurisdiction over the power industry domain. As politicians steeped in the culture in Congress, they evidently wanted absolute power over a sector that the private entrepreneurs and oligarchs discovered they can profit handsomely, especially if they capture the regulators. The seasoned politicians effectively kept at bay past attempts by the DOE, Congress, and the Courts to influence the regulatory agency’s power by arguing they are an independent body and stigmatized any input from other government agencies as “meddling”.

This assertion by ERC of absolute power led to the regulatory agency’s total disregard for power policies set by the Department of Energy, the mandated policy making body under the EPIRA law. ERC routinely tries to appear to be in synch with the policies set by the DOE but in the process of implementation, they exercise so much privilege that they often violate if the not the word but the spirit of the DOE policies.

In fact, on the ruling by the Supreme Court years ago that Meralco as a public utility should be entitled to only a 12% annual return on their investment, the ERC evidently felt they were above the Supreme Court when they adopted the rate setting methodology PBR that effectively deregulated the profits of Meralco who is now making officially 25% return on equity.  Asked in a hearing on PBR, two senior commissioners declared in open court that they did not have to follow because the Supreme Court ruling was “no longer applicable when ERC changed the methodology to PBR and that the 12% return is no longer valid because “economic conditions had changed”. (Who brainwashed them?)

It is under this kind of hubris that the ERC evidently felt they can get away with fooling around with the implementation of the CSP policy from November 7, 2015 to April 30, 2016, despite them turning down Meralco’s request as late as January 2016 to be allowed to do swiss challenge type CSP.

What happened in February 2016 that made ERC change its mind and incongruously “clarified the implementation date of the CSP to April 30, 2016, a full 176 days after the original date? Most Filipinos can guess correctly on this one.

b. ERC’s mandate under the Epira Law

RA 9136 or the EPIRA Law of June 2001 indeed gave ERC a lot of power, many of them even motuproprio and all for the purpose of protecting the public interest. The most important of which is insuring the fair and reasonableness of the rates. It is true that previous ERC’s invoked those other non-rate setting powers like Section 43 sub-sections f,o,r,  whenever convenient but rarely in the genuine intent to serve the public interest.

Now the Supreme Court is saying they must implement only the policies laid down by the Department of Energy which had the effect of law. And we interpret that to mean not to exceed or contradict one whenever a policy had been established by the DOE.

A current case in point, the DOE had issued in February 2018 a Guideline for the procurement of power supply for the Distribution Utilities. And the ERC has been working on coming up with its own implementing guidelines of such policy. It is now in its 3rd draft and interestingly, while the DOE circular and expressed clarifications did not provide for unsolicited proposals or swiss challenge type biddings, ERC’s guidelines is devoting fully 1/3 of its pages to rules on unsolicited proposals and swiss challenge.

So the question is will the new ERC now respect the authority of the DOE to set policies and rules and not freelance and exercise privileges with their own implementation rules?

c. Will there an advent of a New DOE?

DOE is the reverse of ERC. They were given a clear mandate by the law to insure that there would be sufficient supply and least cost power with broad policy powers.  For many years they seem to have accepted that their job is to formulate and issue policy. And be contented that the implementation is left up to the discretion of the ERC, NEA, NPC, PSALM, come hell or high water.  One recent Secretary of Energy lamented that they don’t have enforcement capability, a sad perspective.

For the last 15 years one reality has been hitting DOE and that is when things are going wrong in the power sector, regardless of privatization and deregulation, it is the DOE that the people and the legislators are holding responsible.

Yellow and Red Alerts

In the recent case, yellow and red alerts started lighting up in the Luzon grid, and the JCPC called the power players to hearings. It was admirable that the DOE officials were trying to explain except they really could not provide the answers and solutions to the mysterious coincident downtimes of the power generators in Luzon.  The reason is it is really Meralco, to whom those power plants are contracted to, who is capable of ensuring the performance of these power plants and shepherding their downtime schedules.

It is evident they themselves feel it is DOE’s responsibility to make sure there is enough power supply and reserves and that the prices do not skyrocket. But they must stop thinking that their job is passive and only persuasive in making things happen.

Now the Supreme Court had clearly spoken.  It is the job of the DOE to establish policies and guidelines and those will have the effect of law.  ERC’s job is to implement the policies set by the DOE.

It is true that in the past the ERC was forced to write more implementing guidelines to executive the vague and motherhood guidelines set by the DOE or where the later had not written one.  For example, the implementation of Section 45 of the Epira law on limiting the market share of the owners of Meralco to only 50% of the power utility’s demand and energy needs. Some people managed to dilute the Epira law by writing a different way of implementation under Rule 11 of the Epira IRR in 2004. This has been paving the way for the MVP Group that controls Meralco to covet 100% of the contracts of Meralco’s power supply….. because they could.

But since the DOE had evidently not even recognized the illegality of Rule 11 through the years, the ERC had been implementing it in their own way and in their own time.

Now the DOE needs to step up and provide clear guidelines, monitor their implementation, and take proactive action if say power supply is not materializing on time.

This will require DOE to remake itself from a passive issuer of policies and rules and gatherer of statistics on evolving power development, to a proactive enforcer and pursuer of power development objectives if the private sector is not getting it done on time or the right way. The people is expecting that from the government and DOE.

The Supreme Court message is clear…..but will the ERC and DOE heed the call?

 

We will see soon enough in the rest of the year.

 

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

The Supreme Court Decision was supposed to be a Consumer’s Checkmate on Meralco’s 7 Midnight PSAs….It Turned Out to be a Stalemate! (Part 2)

Aya Jallorina, ABP
30 May 2019

In Part 1 MSK had written about the long needed constitutional clarifications that were provided by the Supreme Court in its decision on the questionable ERC extension of the CSP policy. It  can illuminate our energy policy makers specially the regulators who after almost 20 years could not liberate themselves from its capture by the vested interests. The more things changed in the first five (5) Chairmen, the more things stayed the same at the regulatory agency.  The first part of GR No. 227670 was just a wonderful work of wisdom, statesmanship, and patriotism. We in Alyansa para saBagongPilipinas are grateful to the Supreme Court for upholding the rights of electric consumers.

However, there are somethings in the decision that watered down an otherwise really wonderful consumer vindication.

A. Omission.

We are wondering why the Supreme Court is recognizing June 30, 2015 as the effectivity of the CSP policy and not November 7, 2015?

1. The Supreme Court decision took the position that the effectivity date of the DOE Circular 2015-06-0008 of June 30, 2015 is also the effectivity of the CSP deadline. It seems to have overlooked the fact that this circular provided that “within 120 days from the effectivity of this circular, the DOE and ERC will jointly issue the guidelines and procedures for the aggregation of un-contracted demand of the DU’s….”

2. This means The DOE Circular 2015-06-0008 actually allowed ERC 120 days to issue the implementing guidelines, which it in fact did by issuing Resolution 13 Series of 2015 on 20 October 2015 that became effective November 7, 2015 after the two weeks required publication. This was done jointly with the DOE as the Supreme Court ruling recognized.

3. It is for this reason that as petitioner ABP’s prayer was to seek that the“Court direct the ERC to disapprove the Power Supply Agreements (PSAs) of the Distribution Utilities (DUs) submitted after 7 November 2015 for failure to conduct Competitive Selection Process (CSP). The petition further asks the Court to order ERC to implement CSP in accordance with the Department of Energy (DOE) Circular No. DC2015-06-0008 (2015 DOE Circular) and ERC Resolution No. 13, Series of 2015 (CSP Guidelines).”

4. Why did the Supreme Court decide then that the effectivity date of the CSP policy should be June 30, 2015 instead of November 7, 2015? We wonder if this is in line with the “hide in the crowd” strategy of Meralco and the old ERC when they claimed there were 90 projects that took advantage of the controversial extended April 30, 2016 deadline although 80% of it is the 3,551mw of Meralco. Was the Supreme Court somehow persuadedto use June 30, 2015 to similarly create a crowd of applicants and avoid too much focus on Meralco’s seven midnight PSA’s.?

5. One of ERC’s main excuses for extending the CSP deadline was that there were “many” DU’s and IPP’s who requested for reconsideration? In fact in reaction to the Supreme Court decision, one point the ERC raised was that there are many projects affected including plants that have been finished and operating. There is a distinct effort to avoid making the issue mainly about Meralco 7 PSA’s.

6. The unfortunate collateral damage is on the small projects that were signed and filed after June 30, 2015 but made it to the real CSP effectivity of November 7, 2015.

B. The Supreme Courts perplexing reference to DOE’s CSP Guideline DC2018-02-0003 instead of DC2015-06-0008.

1. ABP’s issue and petition was about violating some rules that were in place in 2015 and actions made in 2016. As the Supreme Court Decision pointed out the “ABP’s petition thus presents a purely legal issue: Does ERC have the statutory authority to postpone the date of effectivity of CSP, thereby amending the 2015 DOE Circular which required CSP to take effect on 30 June 2015”

2. We wonder then why the Supreme Court Decision surprisingly included DOE policy changes issued two (2) years later in 2018? The petition should be decided based on the laws obtaining at the time of the violation of the rules in 2015.

3. On page 36 of the Decision, it narrated that “On 1 February 2018, the DOE issued Circular No. DC2018-02-0003 entitled “Adopting and Prescribing the Policy for the Competitive Selection Process in the Procurement by the Distribution Utilities of Power Supply Agreements for the Captive Market” (2018 DOE Circular).

The DOE prescribed, in Annex “A” of this 2018 DOE Circular, the DOE’s own CSP Policy in the procurement of power supply by DUs for their captive market (2018 DOE CSP Policy). Section 16.1 of the 2018 DOE CSP Policy expressly repealed Section 4 of the 2015 DOE Circular authorizing ERC to issue supplemental guidelines to implement CSP. In short, the DOE revoked the authority it delegated to the ERC to issue supplemental guidelines to implement CSP, and the DOE itself issued its own guidelines, the 2018 DOE CSP Policy, to implement CSP under the 2015 DOE Circular.

“This means that the CSP Guidelines issued by the ERC have become functus officio and have been superseded by the 2018 DOE CSP Policy. Under its Section 15, the 2018 DOE CSP Policy is expressly made to apply to “all prospective PSAs.” (emphasis ours).

4. The question in our mind is why the Supreme Court is going out of its way to also rule that the questionable PSA’s must comply with the CSP rules according to specifically DC2018-02-0003 and not just generally to CSP guidelines as mandated by the DOE? Why even invoke the functus officio doctrine on the DOE guidelines? DC2018 is not germane to the petition and the SC decision.

5. The petition of Alyansa Para SaBagongPilipinas is to seek the Supreme Court “to declare as void ERC Resolution No. 1, Series of 2016 (ERC Clarificatory Resolution). The petition also seeks that this Court direct the ERC to disapprove the Power Supply Agreements (PSAs) of the Distribution Utilities (DUs) submitted after 7 November 2015 for failure to conduct Competitive Selection Process (CSP). The petition further asks the Court to order ERC to implement CSP in accordance with the Department of Energy (DOE) Circular No. DC2015-06-0008 (2015 DOE Circular) and ERC Resolution No. 13, Series of 2015 (CSP Guidelines).

6. Why should the Supreme Court specifically imply that the legitimate compliance to CSP can only be met by complying with DC2018-02-0003?Alyansa Para saBagongPilipinas filed its petition in December 2016 and did not include even subsequently DC2018 as relevant to the case.

7. The Supreme Court’s dispositive judgement says “In short, the DOE revoked the authority it delegated to the ERC to issue supplemental guidelines to implement CSP, and the DOE itself issued its own guidelines, the 2018 DOE CSP Policy, to implement CSP under the 2015 DOE Circular. This means that the CSP Guidelines issued by the ERC have become functus officio and have been superseded by the 2018 DOE CSP Policy. Under its Section 15, the 2018 DOE CSP Policy is expressly made to apply to “all prospective PSAs.” The 2018 DOE Circular, including its Annex “A,” took effect upon its publication on 9 February 2018. Thus, the 90 PSAs mentioned in this present case must undergo CSP in accordance with the 2018 DOE Circular, in particular the 2018 DOE CSP Policy prescribed in Annex “A” of the 2018 DOE Circular. (emphasis ours). 

8. WHEREFORE, the petition for certiorari and prohibition is GRANTED. The first paragraph of Section 4 of Energy Regulatory Commission Resolution No. 13, Series of2015 (CSP Guidelines), and Energy Regulatory Commission Resolution No. 1, Series of 2016 (ERC Clarificatory Resolution), are hereby declared VOID ab initio. Consequently, all Power Supply Agreement applications submitted by Distribution Utilities to the Energy Regulatory Commission on or after 30 June 2015 shall comply with the Competitive Selection Process in accordance with Department of Energy Circular No. DC2018-02-0003 (2018 DOE Circular) and its Annex “A.”Upon compliance with the Competitive Selection Process, the power purchase cost resulting from such compliance shall retroact to the date of effectivity of the complying Power Supply Agreement, but in no case earlier than 30 June 2015, for purposes of passing on the power purchase cost to consumers.”

Why is the Supreme Court even ruling on a retroactiveness of power purchase cost? This seems now a double over reach. While consumers are happy about the recognition by the Supreme Court of the illegality of the Meralco contracts, why is it going out of its way to what amounts to softening the impact on Meralcos contract and its ability to comply with the CSP?

C. What is the big deal about DC2018-02-0003 and its Annex A and why would it be in effect a concession to Meralco?

1.Under this DC2018 approved by the DOE in February 2018, the CSP will be undertaken by the Distribution Utilities and done by Third parties that it itself will form. This is a major change from DC2015 when the CSP can be undertaken by the DOE if needed with the use of a Third Party Bid Administrator it will choose. That means whatever happens, the DOE who has the task of insuring that additions to power supply actually materialize to meet the country’s demand, could not really do anything. It is only the DU that can do the CSP.

2. DC2018 did away with the CSP that can be undertaken by the DOE if needed and with the use of a Third Party bid administrators.

3. Why is this a big issue?

DC2018 gives the DU’s the main say on how the CSP will be undertaken, omitted any option for DOE to step in and undertake the CSP,  exactly what Meralco had been fighting to have.

Since June 30, 2015 when the DOE issued the Policy on CSP by Third Party Administrators, the Meralco group had been campaigning against it. First they wanted it voluntary. Then they want to be allowed to do swiss challenge type CSP. Then they don’t want Third Party Administrators and for them to do their own CSP. Then they want the policy implementation delayed.  As late as January 2016 Meralco still officially asked ERC that they be allowed to do swiss challenge type CSP. The point of all these is they want to have control over the bidding rules and process evidently so they can insure the desired winners win. Which not surprisingly will be a sister company.

The ERC magically and incongruously extended the CSP implementation to April 30, 2016 enabling Meralco to fast track 7 PSA with 5 partners for 3,551mw in cookie cutter terms and pricing formula just 10 days before the April 30 opening and filed the applications just the day before. There is something anomalous in the whole picture and that’s why we all ended up in the Supreme Court.

4. Meralco’s determination to control power supply and its market.

It has been 3 years since its seven PSA’s with sister company MeralcoPowerGen have not progressed while legal cases are pending. Yet Meralco had not moved to do a CSP to pursue back up major power supplies to assure it meets its franchise obligation to its customers.  It is evident they want their CSP way or no way.

5. It is for this reason that the seeming gratuitous reaching of the Supreme Court decision to specifically identify DC2018-02-0003 and its Annex A as the way to comply with its order for CSP is very disconcerting. It means the eventual compliance to the CSP will still be under the control of Meralco.

6. Is it possible that this concession is the reason the Supreme Court vote reached 10-2?

Is it possible that some justices were convinced to argue for the inclusion of DC2018-02-0003 without really realizing the power sector implications to the consumers and the unfortunate opportunity it will offer to Meralco that will sabotage the precise constitutional aspirations they so eloquently upheld in the early parts of the decision?

 7. While it is true that the DOE has the power to further amend its CSP Guidelines in view of the long delay in the Meralco projectssome quarters sympathetic to Meralco, and those within DOE itself, can argue that the Supreme Court had ruled that the PSA’s must comply specifically with DC2018-02-0003 and its Annex A. Otherwise “the DOE would be inviolation of the Supreme Court order”.

DOE is preempted by reason of a Supreme Court order from making any updating of its own CSP guideline even if the country is now pushed to the brink of power crisis due to Meralco’s dogged desire to get their way on juicy negotiated power supplies. Never mind that their service obligations to their consumers under their franchise are in jeopardy.

 8. Overwhelming forces against the consumers

In the battle to protect the consumers from exploitive negotiated power supply rates, the forces and resources lined up against the consumers are just overwhelming.  Imagine the combined financial and political resources of the MVP Group, Aboitiz, San Miguel, DMConsunji, Metro Bank, and EGAT of Thailand fighting for 3,551mw of power projects valued at approximately p400 Billion and revenues for 20 years of about P3 Trillion. We believe the overprice would be at least P15 billion a year for 20 years! With that kind of numbers at stake, it is no wonder that even a Supreme Court decision can be made tomagically align with their desires. Isn’t it scary?

9. In summary, as petitioner Alyansa para saBagongPilipinas asked the Supreme Court to rule on whether the ERC had the legal power or jurisdiction to postpone or extend the effectivity of the CSP policy from November 7, 2015 to April 30, 2016. It would have been sufficient for the Supreme Court to rule that based on the rules at that time in 2015 and 2016 specifically the applicable DOE policy Circular 2015-06-0008 and ERC Resolution 3 Series of 2015, that the ERC exceeded its authority and jurisdiction by extending the CSP implementation without DOE coordination or approval.

Instead the Supreme Court went as far as making aruling, that to us is regretfully overreaching, that to comply with the CSP policy, the distribution utilities must undertake CSP biddings restrictively in accordance with DC2018-02-0003.

 Unfortunately, given Meralco’s history, this DC2018 may need to be updated to enable the DOE to have the flexibility to insure that the CSP is no longer further delayed and is truly open and competitive to protect the public interest. We have seen what happens if power development and CSP is left totally in the hands of Meralco.  But the Supreme Court decision effectively straight jacketed the DOE from making the needed updating in the rules.

And in double over reach, the Supreme Court went even further and provided that “upon compliance the power cost shall retroact to the effectivity of the complying PSA” which this time encroaches on the rate setting methodologies of the ERC. 

As it stands the CSP compliance is not only under the control of Meralco but can also be complied with under restrictive requirements of the Supreme Court.  An untenable position for consumers.

Let’s hope maybe the Supreme Court can make a clarification?For now, Stalemate DOE, Checkmate Meralco consumers!

Can our lawyer readers help us understand more what is going on?

Next: the long range impact of the Supreme Court’s decision on DOE and ERC. 

Evelyn Jallorina, Secretary General
Alyansa Para Sa BagongPiliinas Inc.

The Supreme Court Decision was supposed to be a Consumer’s Checkmate on Meralco’s 7 Midnight PSAs….It Turned Out to be a Stalemate! Bummer! (Part 1)

David Celestra Tan, MSK
26 May 2019

Consumers and Cause Oriented Groups were overjoyed when the Supreme Court issued a decision last 17 May 2019 granting the petition of Alyansa Para saBagongPilipinas (ABP)to declare the extension of the CSP policy by ERC from November 7, 2015 to April 30, 2016 to be beyond its authority and therefore illegal and null and void. We all felt it is a major consumer victory and checkmate of the monopolizing Meralco.  Alas, Meralco power supply contracts will be subjected to true competitive selection process or bidding.No more negotiated contracts between sister companies! It is going to be a wonderful world for consumers! So we thought!

Sorry Aya, Sorry Noel, Sorry Neri, Sorry Meralco consumers.  I think we are wrong! When we read the full SC decision in GR No. 227670, there were odd things about it. Parts of it are out of tune. It is like listening to the victory song in Les Miserables and hearing the enemy marching in the background. Did the Supreme Court make a mistake?  We asked a retired Justice.  He said we may disagree with the decision, but the SC rarely makes a mistake in writing its decisions. It means whatever they wrote and the words they used are intended to be there. Just to repeat, the SC doesn’t make a mistake in writing decisions. Whatever is there is intended to be there.

Having said that, Lets talk first about the Great Things about the Supreme Court Decision.

1. It reiterated the constitutional obligation of the government agencies, particularly the DOE and ERC in protecting the consumers and promoting true competition.

“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 utilities”.

 It is a breath of fresh air!

2. It clarified that the function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued by the DOE.

“Thus, the very first mandate of the ERC under its charter, the EPIRA, is to “enforce the implementing rules and regulations” of the EPIRA as formulated and adopted by DOE. Clearly, under the EPIRA, it is the DOE that formulates the policies, and issues the rules and regulations, to implement the EPIRA. The function of the ERC is to enforce and implement the policies formulated, as well as the rules and regulations issued, by the DOE. The ERC has no power whatsoever to amend the implementing rules and regulations of the EPIRA as issued by the DOE. The ERC is further mandated under EPIRA to ensure that the “pass through of bulk purchase cost by distributors is transparent [and] non-discriminatory. ”

“In any event, even in quasi-judicial cases, the ERC is bound to apply the policies, rules, regulations, and circulars issued by the DOE as the ERC has no power to ignore, waive, amend, postpone, or revoke the policies, rules, regulations, and circulars issued by the DOE pursuant to the EPIRA. To repeat, the DOE’s rules, regulations, and circulars issued pursuant to the DOE’s rule-making power under the EPIRA have the force and effect of law which the ERC is legally bound to follow, whether the ERC is exercising executive, quasi-legislative, or quasi-judicial powers.”

This is an important reminder because since the tenure of the 3rd ERC Chair, the ERC has been arrogating its stature as an independent body, creating its kingdom, co-equal even to the courts, and  free to write its own guidelines based on its own interpretation of the law. Many of those are contrary to the policies handed down by the DOE. 

It is this mind-set that apparently emboldened the ERC to ignore the Supreme Court ruling in 2005 that public service utilities should only be allowed a 12% return on their investment. They still adopted the PBR rate setting methodology that essentially deregulated the profits of distribution utilities which in Meralco’s case has been reaching 25% per year, double what the Supreme Court ruled was the limit. Never mind that the Epira Law of 2001 clearly says the Distribution Sector is regulated.

We hope with this new Supreme Court ruling on the limits of its discretion, the ERC can be more sanguine and usher in an era where both the DOE and ERC are pulling in the same direction.

At the same time we hope it will serve as a reminder to the DOE that they have a big responsibility to see that their own policies are actually implemented.

There are however Curious omissions and additions in the written decision of the Supreme Court

These are the things that are odd and sticking out like sore thumbs in such a wonderful and enlightened interpretation of the law.

Next: The omission and addition to the Supreme Court decision that would stalemate the DOE and the Consumers.

 

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

The Root Cause of Power Plant Shutdowns are not Technical But Contractual and Financial

2 May 2019

POSITION PAPER ON LONG TERM SOLUTIONS FOR STABLE POWER SUPPLY

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Submitted to:

The Joint Congressional Power Committee

Hon. Senator Sherwin Gatchalian

Hon. Carlos Uybarreta, Congressman, 1Care Party-list

Public Hearing May 2, 2019

Dear Sirs:

We thank the JCPC for this opportunity to contribute to the national debate on what to do to avoid power shortages that hound our country almost always before Christmas and before the summer.

The MatuwidnaSingilsaKuryente Consumer Alliance Inc or MSK is an association of Meralco consumers since 2011 dedicated to seeking regulatory and policy reforms to protect consumers from excessive electric rates that result from exploitive charges, anti-competitive behavior, monopoly, oligopoly, and contracting manipulations, and cartelization and negotiated sister company sweetheart deals.

Once or twice a year we are confronted by power shortages due to power plants supposedly shutting down due to mechanical problems and or need for preventive maintenance.
We would like the authorities to consider the following for the long term solutions to this recurring brownouts.

1. Who is responsible? Looking at the wrong alley, barking up the wrong tree.

First of all, we would like to make the observation that in the debate on who is responsible for insuring that power plants are reliably on line and do not mysteriously shutdown due to “boiler leaks”, there seems to be inordinate focus on the Department of Energy, who although the policy and rule making body and responsible for monitoring and encouraging power supply, is not the contracting party with the power generator.

In the power plants that shutdown, Meralco is not sufficiently being asked to take responsibility to assure that their contracted supply, whose negotiated costs are being passed on to its customers, are reliably providing the generating service. Meralco is the one with contract enforcement capability and obligation to the public who is ultimately the one paying for the service.

In these public hearings, Meralco seems content on sitting back and exploiting the power crisis to justify the approval of their seven midnight power supply contracts.
We appreciate the valiant willingness of the Department of Energy officials to take the heat for any power crisis. However, we will not find the long term solutions if we keep on looking at the wrong alley, and barking up the wrong tree.

2. Insufficient Reserve and Need for Additional power supply

We agree with the calls for additional power supply. But we disagree that it should mean the automatic approval of the seven (7) midnight contracts totaling 3,551mw that Meralco negotiated with its sister company Meralco Power Gen.

While it is not an ideal resolution, we call on all parties, JCPC, DOE, ERC, Meralco, the Supreme Court, the Alyansa Para saBagongPilipinas, the Bayan MunaMakabayan Group, to come together in the national interest and break this impasse for a reasonable and not exploitive solutions.

a) Let us allow the implementation of about half of those projects of 1,750mw to come on line in 2021 and 2022. But with moderation of the negotiated rates and any onerous terms. Atimonan One is now P5.65 per kwh not the P3.75 it was advertised, higher than the current Meralco coal suppliers. ERC needs to moderate this in a compromise resolution.

b) The others of 1,750mw can be subjected to a true CSP, some of them for LNG fueled power plants.

c) We also call on the JCPC and DOE to sponsor separately truly competitive biddings for supply for distribution utilities outside Meralco. Ideally One coal and one LNG even modest 300mw each for supply to non-Meralco distribution utilities. This will have the added benefit of establishing market tested price benchmarks as opposed to the negotiated rates that Meralco has been trying to justify.

d) We are asking the JCPC, DOE, and ERC, to recognize the reality that in bringing least cost power to consumers, “competition always beats regulation”.

3. True Root Cause of Plant Shutdowns are Not Technical but contractual and financial

The additional supply will however still not guarantee that there will be no power shortages resulting from the unfortunate confluent shutdowns of power plants. Technical shutdowns are only symptomatic of the true reasons for the problems which is contractual and financial.

a. Contractual and Financial causes of shutdowns
Current power supply agreements provide for allowable downtimes per year of a total of 45 to 60 days. During these period, the power generators continue to be paid their capacity fees consisting of capital recovery and fixed overhead. This contractual arrangement therefore offer no financial benefit for the power generator to avoid or minimize downtimes. In fact it is to his convenience and financial benefit to maximize his allowable downtimes. This is an outdated provision from the BOT era in which we no longer are. BOO napotayo. (build operate and own).

And when the buyer (DU) and the seller generator are sister companies or business partners, we can predict it will be the customers who will be sacrificed.

Under this contractual provision, there is no reason for the power generator to make the needed investments to make his plant reliable and honestly avoid downtimes.
The result is these brownouts and it will not change unless this financial incentive and convenience is taken out.

b. We propose that the rate of the generator be restated to include compensation for downtime so that he will be paid only when his plant is available on line to provide the service. Some people will say it will increase the rate since the annual capacity fees will be spread over 10 months instead of 12. The average true cost to consumers would be the same.

c. Looking at the Meralco generation rates, customers are charged P5.40 per kwh during the operating periods of the coal plants, but are charged P7.00 to more than P10 per kwh during months with maintenance shutdowns. In the period from July to December 2018, Meralco had paid these coal plants as high as P18 per kwh which indicated that they were on maintenance shutdowns. So here we are in April and those plants are still down for maintenance? (see matuwid.org and Meralco website data)

d. The added capacity payments for downtimes however should only be for half of the 60 day downtime agreement because the generator and the consumers should equally share in the risks of downtimes. Why should the consumers absorb all those costs?
It will not result to higher true cost and will have the benefit of the generator being paid only when he is providing the service. No more incentives for being down.

e. Allowable downtimes should only be a legal excuse from delivering the contracted power service. However, it should not be used for guaranteeing capacity payments to the generator whose power plant is down. This is most unfair to the consumers and encourages downtimes.

We call on the DOE and ERC to consider this “no payment during downtime policy”. This is actually not being anti-generator but more like being fair to the consumers.

Until this is corrected, mysterious and confluent shutdowns will continue to hound the country.

We wish the JCPC more power in its search for solutions. We hope the JCPC, DOE, and ERC, will look into these proposed solutions.

Sincerely yours,

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

David Celestra Tan
Co-Convenor

Evelyn Viray Jallorina
Executive Director

matuwid.org
david.mskorg@yahoo.com.ph