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

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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

Wake Up Calls For All of Us On Power Yellow Alerts…Whose Job is it Anyway?

David Celestra Tan, MSK
23 April 2019

The Yellow and Red alerts of power shortages should wake up all of us towards the reality that a power crisis can be upon us and can have devastating impact our economic boom years. The blame game is going wild so let us take stack and see who should be waking up and for what reality.

1. You, I, and the Public

We the consumers have a lot of waking up to do. It is quite scary that in the face of a power crisis we the consumers would lose however it is resolved.

If the power crises happens we will be down on our knees begging for electricity at any price, by any method, and no matter how dirty. To avert these blackouts, new power plants will need to be built. And guess whose new power projects are being rammed through our throats? 4,005mw of MeralcoPowerGen’s all coal projects no less….and counting.

In case you have not heard, seven of these contracts totaling 3,551mw are stuck in legal controversy since 2016 brought about by ERC itself. The Prices and terms that will be charged to you and I were just negotiated between Meralco and its sister companies. One called Atimonan One with 1,200mw has a published rate with ERC at P3.75 per kwh but if updated to current exchange rate, inflation, and coal fuel, is actually now P5.65 per kwh. And who knows what else are hidden in the secret provisions that they asked not to be disclosed to the public? In short, if those MeralcoPowerGen contracts are approved as we, the ERC, and the DOE, and probably the Supreme Court are being manipulated to agree to, we the consumers are screwed and stuck with sweetheart prices and terms for 20 years. And those pass on charges are not small. PowerGen is cornering 80% of the energy needs of Meralco.

That happened in April 2016, three (3) years ago. Since then, no new power projects were announced, either by Meralco, Aboitiz, and their cartel partners. The power development of the country is at a standstill and it seems everything is being bet on those Meralco contracts. Meralco by the way as the largest distribution utility is exerting its market control since no major power project will happen without them agreeing to be a buyer. And they will not agree unless….you know the rest of the story.

It is depressing to wake up to the reality that we as consumers are screwed either way. If it were a game of chess, “mate natayo” even before we realize there is even a game going on. And what is worse is the feeling that no one is truly protecting us in this country of ours. Sure we hear all these government officials saying they are doing things to protect the public, to assure supply. So does Meralco using that line in vain.

MSK as your advocacy group has been trying to point out regulatory flaws but the regulators especially the last batch were evidently apathetic to public interest. We hope we have a better one in the new batch but so far it is not encouraging if we go by the guideline for power supply procurement that they are drafting. Loopholes for circumvention of true CSP are evidently being built into it. Hayy.

( See our article Who is to Blame for the Delays of the 1,200mw Atimonan One and 600mw Redondo Power Coal Projects? Meralco, Consumer Groups, or ERC? Matuwid.org June 5, 2018)

At this stage though it is no longer what Meralco and ERC did but how do we move forward with new power projects. And Meralco, the new DOE, the new ERC, and the Chairmen of the Energy Committees of Congress and the Senate, the JCPC, the Supreme Court, and even the President of the Philippines, could have taken proactive moves to break the impasse and get the country moving so a power crises is prevented…..while there is still time to prevent it.

Eerily, no one is moving. Sadly, when something happens, we the consumers are disadvantaged. And no one is protecting us. Why are we always in a lose-lose situation….and they the vested interests are always in a win-win position?

2. Your beloved Distribution Utility Meralco

The first move should have been coming from Meralco, the distribution utility itself. It is them who have the contractual mandate with the consumers by virtue of their public service franchise to assure the provision of adequate power supply in the least cost manner.

But they will not move because they are conflicted and protecting their power generation interest. Meralco clearly is putting higher priority to being the sister company of their MeralcoPowerGen instead of being the public service provider to the consumers. And they appear to be willing to push the country to the brink of power crisis so that they can get their way.

But “we are looking after the public interest”Meralco would argue. That is why they want all seven (7) of our power supply contracts approved by the ERC starting with their 1,200mw Atimonan One and the 600mw Redondo Power in Subic. Why can’t they initiate a happy compromise (front door or backdoor) where they get to implement their earlier projects for commissioning in 2020 and 2021 and subject to true CSP the balance those that are needed for 2022 to 2025? Should it really be all or nothing? Their way or no way?

Meralco should act like your distribution utility looking after the public interest.

3. The new Department of Energy

We are calling them new because the Meralco deals were done in April 2016, a month before the last Presidential elections and before President Duterte is able to appoint his own Energy Secretary. (That’s another reason those contracts became known as “midnight”)

Under the EPIRA Law of 2001, the Department of Energy has the specific tasks of assuring there is adequate supply of power through enabling policy and proactive promotion of investments in power and energy.

They could have been excused from proactively getting involved in resolving the effective freeze in power generation projects in 2017 as they try to learn the ropes but by 2018 alarm bells should be ringing. The country is on its way to a power crisis and the DOE needs to do something and make things happen.

Why not be the catalyst for a national consensusfor a solution? The Alyansa Para saBagongPilipinas and the Bayan Muna,the cause oriented groups that filed the cases in the Office of the Ombudsman and the Supreme Court against ERC and the seven (7) Meralco contracts, should not be above participating in a national resolution if it is to the public interest.

Then if not resolving the legally questionable Meralco contracts, why not the DOE push for new tenders for power supply under true CSP rules. Why not hold tenders for LNG power plants? If the Meralco cartel members are not willing to participate there are many highly qualified and proven power generators who can participate. Such truly competitive biddings will have the added benefit of answering for the country the question of which is better for the consumers, negotiated or openly tendered power supply?

Are there factions within the DOE that are participating in allowing the country to slide to the brink and helping create an environment where the public will be so scared of a blackouts that they will not care if the power supplies were anomalous and overpriced and violative of its own CSP policy?

4. The Supreme Court

The ERC, DOE, and Meralco are all pointing at the Supreme Court for their collective inability to resolve Meralco’s seven power supply projects. And the longer the highest court of the land takes to make a ruling on whether ERC has the legal right to extend the deadline for the CSP, the closer the country is pushed to the brink of the power crisis.

Our Honorable Justices will need to wake up to this reality. The ruling of the Supreme Court is now part of the problem instead of a solution.People believe that there is really no major constitutional divide on the issue. Most people predict anyway that the Supreme Court will rule that the ERC had the legal authority to extend the implementation of the CSP but will leave it up to the office of the Ombudsman on whether the previous batch of ERC Commissioners abused that authority.

5. The Country’s Conglomerates and Economic Powerhouses

Let us wake up to the reality that Meralco’s cartel oligopoly are also the major business conglomerates that are having a field day in the current consumer driven economic boom. They are in real estate, construction, retailing, telecommunications, banking, tourism, water, roads, and media. Their market caps are soaring.

Count on them to exploit opportunity and profit from the people’s adversity. Meralco is happily negotiating emergency power supply contracts “to protect the consumers” with the same people whose power plants are conveniently shutting down.

Predictably, media is exploiting the hysteria over the yellow alerts and putting pressure is on for ERC and DOE to approve the Meralco contracts. They are blaming the ERC for being “indecisive”. Two illustrious columnists in the major daily controlled by the Meralco group, called out DOE Usec Fuentebella for inaccurately assuring the public of no power shortage. Then she went for it.

“What we need are new power plants.Some of the country’s power plants are so old, some as old as dirty old men. It’s not surprising that, perhaps, just like these men, these plants conk out too every now and then. Clearly, there’s an urgent need for new power plants, but the private sector’s investments have been hampered by regulatory challenges.”

Another one asked “who is minding the store” and taking to task the Department of Energy for the impending power crisis.

It could also be a wake up call to these diversified conglomerates that the customers they abuse in power, water, toll roads, telephones and internet, are the same people who provide the market for their shopping malls, condominiums, and travel.And it is the same economy that if thrown into a power crisis will sabotage the whole economy and the market for the rest of their empires.

6. President Rodrigo R. Duterte

Many of these conglomerates are having a heyday because they have the blessings of the President for their projects and many are enjoying the profits from the economic boom that the Presidents leadership is bringing about.

But maybe the President can also wake up to the reality that this same people that he is helping are also willing to push the country to the brink of a power crisis to serve their selfish interest and in the process sabotage a good legacy of progress for the people that his Presidency has been working so hard to create. So much for gratitude and true friendships. Or are those relationships co-terminus with the President’s term?

7. “Whose Job Is It, Anyway?”

Our impending power situation reminds us of a story about four people named Everybody, Somebody, Anybody and Nobody. There was an important job to be done and Everybody was sure that Somebody would do it. Anybody could have done it, but Nobody did it. Somebody got angry about that, because it was Everybody’s job. Everybody thought Anybody could do it, but Nobody realized that Everybody wouldn’t do it. It ended up that Everybody blamed Somebody when Nobody did what Anybody could have.

And how was your holy week!

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

For private comments send to email david.mskorg@yahoo.com.ph
For public comments please send below.

Yellow and Red Power Alert, Things to Ponder, The Outdated and Onerous Genco Contracts, and Permanent Solutions (Part 2)

Part 2 of 2

 

4. The Onerous Guaranteed Payments for Downtimes in the PSA in Main Grid

These power plants will predictably blame technical reasons for the outages. These are however the “effects” and not the “root causes”.

It might surprise many people but the solution to these Power Plant shutdowns are not technical but contractual and financial.To explain, the PSA’s in place now and new ones being signed are still the old 1990’s era, BOT type contracts where the IPP is guaranteed his full capacity fees and fixed costs even if his power plant is down for maintenance and not available to deliver power.

These are in the form of maintenance downtime provisions in the PSA where the IPP is excused from delivering power.  Typically 45 to 60 days per year for coal plants. There is nothing wrong with legally excusing them from delivering power when their power plant have technical problems or need to be shutdown for preventive maintenance.

What is wrong is continuing to pay them full capacity fees and fixed costs during the shutdown period. And these payments are passed on to the consumers as part of AGRA, the new name of the old reviled Purchased Power Adjustment (PPA). 

These give financial incentives to IPP’s for being down or expressed another way, there is no financial benefit to them to AVOIDing and minimizing downtimes. If these IPP’s are not paid during their downtimes and only paid when they are actually providing a service to the consumers,  their financial dynamics will change, giving them the incentive to make investments in making their power plants reliable.

 Still another way of expressing this guaranteed payments whether down or not, is that electric consumers are being charged for 12 months of service but only getting power from the IPP for 10 months, especially for base-load plants. This is so onerous to the Filipino consumers.

Even for those power plants with “Reserve power contracts” and providing “ancillary services”, they should be paid capacity fees and fixed costs only when they are validated to be on line and available to provide the power if called. Not when they are down.

Downtime allowances in PSA’s should only be an excuse from delivering the service but not for guarantee of continuing capacity payments even if they are not performing a service. We are now in the Build Operate and OWN era, no longer BOT, where at the end of the contract, the power plant is Transferred to the distribution utility.

Ironically these onerous guaranteed payments for downtime allowances are still in the seven (7) midnight Meralco PSA’s signed with subsidiary MeralcoPowerGen. And even in the 460mw expansion of Mauban coal plant with partner EGAT. We suspect that this contract provision is among those trade secrets that Meralco had petition to keep confidential from the public and ERC is agreeing to be hidden from public scrutiny.

These onerous provisions must be prohibited in the Guidelines for procurement being drafted by the DOE, ERC, and NEA for being patently anti-consumer.

Until this is cured, there will always be downtime anomalies because there are financial incentives to being down or no financial benefit to avoiding downtimes.

 (see our Article on Outdated PSA Provisions Need to be Updated, matuwid.org December 6, 2018)

5. The Onerous Guaranteed Payments for Downtimes in the PSA in the Off-Grid

In the Off-Grid areas these guaranteed payments during downtimes similarly cause brownoutsand also the bloating of the missionary subsidies in hundreds of millions. In the Island of Palawan, President Duterte no less complained about the brownouts and the Electric Coop was blamed. It turned out 35% of the brownouts resulted from a power supply contractor whose temporary generators have been unreliable and another 35% resulting from outdated and incompleted transmission lines service of Napocor that have failed to keep up with the demand of the fast growing tourist island.

What is aggravating the brownouts are also contractual in nature. The Electric Coop agreed to pay a power provider for 6mw reserve capacity but it can only be used by the power provider when his regular engines are down for maintenance. The Coop is paying P5 million a month extra or P60 million a year but if the Palawan grid is short of power it cannot call this unit into service because it is only to back-up the contractors own units. So why is the Coop and why is missionary subsidy being paid for 6mw that can only be used by the contractor to meet his 20mw contractual guarantee and cannot be called by the Coop for his own use? And ERC had approved this contract provision.

 On the subject of off-grid areas, the Philippine Grid Code and the Small Grid Code issued by the DMC of ERC, do not provide for maximum size of units to be installed in the island as a % percent of total demand. The maximum size of each generator determines the amount of reserve capacity that the island needs to have. Ideally technical studies and small grid experience show that this should be limited to about 10% of system demand. In a 50mw island, the maximum generator size should be about 5mw. For reserve capacity known as N-1 and N-2 is based on the extra units equivalent to the size of the largest unit.  Hence the larger the disproportionate sized generator, the larger the reserve units that the consumers will pay for.

 In a 50mw island N-1 reserve will be 5mw and n-2 would be only 10mw.

If the largest unit is undefined and allowed to be say 8mw or 15mw coal boiler, the reserve unit will be equivalent to 15mw and not 5mw at higher costs to the consumers.

 6. Long Term Solutions

a. Obviously, guaranteed payments during downtimes must be prohibited from PSA’s. In fairness to consumers,payments must be provided only for delivered service. There must be a disincentive to being down and a financial incentive to make their power plants reliable with minimum downtime.

This is the root cause of the downtimes and Alerts especially those occurring during inopportune times like summer. This can be incorporated in the government guidelines for procurement and made part of the CSP template.

b. Distribution Utilities like Meralco who are the contracting parties to the Power Supply Agreements, must be required to have continuing Generating Capacity Management Coordination and Monitoring. It is their duty to their consumers.

c. The DOE can have a permanent monitoring and coordinating function for the synchronization of maintenance downtime schedules specially avoiding the critical months of summer and Christmas season.

d. The technical terms of the bidding for future supply under CSP must include a prescription on the maximum sizes of the generating units that can be offered. This must be in the Small Grid Code, in the NEA Guidelines, and in the DOE and ERC Guidelines. This is Not only for reasonable size and cost of reserve capacity but also for better systems adjustments for load variations in these off-grid islands.

In many islands, the load variation is only 5% of peak demand. In a 50mw island, the load variation is 2 to 2.5mw.  It is hard and uneconomical for an 8mw reserve engine to fill this in without disrupting the other smaller engines synchronized to the island grid.

Yellow and Red alerts will recur in the country unless we take steps to address their real causes.  Of course Meralco and their cartel members would like us all to believe that the solution is more supply. And that to address our fears of brownouts we must forget about the anomalous terms of their seven (7) midnight contracts and have it approved.

There needs to be a compromise in the national interest. The matter has been allowed to drag on for so long and we are playing into the hands of the involved proponents.

We agree that some resolution are now urgently needed but Meralco needs to also compromise. Their negotiated rates need to be made reasonable and the terms of the PSA cannot be onerous. The ERC needs to see that. Better half of it is converted to LNG. Given the urgency of the power supply, we wonder why the Supreme Court does not see that it is to the national interest to decide on the legality of the ERC extension of the CSP implementation, one way or the other.

Why should the electric consumers be always on the losing end?  We pay when they are down, we suffer when there is a power shortage, and we still pay for the consequent spikes in the WESM prices. When will we have a savior?

 

A Blessed Holy Week and Happy Easter to Everyone!

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

For private Comments send to david.mskorg@yahoo.com.ph
Public comments submit below.

Yellow and Red Power Alert, Things to Ponder, The Outdated and Onerous Genco Contracts, and Permanent Solutions (Part 1)

part 1 of 2

David Celestra Tan, MSK
11 April 2019

Everyone is again scrambling on what to do in the face of the power shortage alerts. It is yellow, it is red, WESM prices spike, and the always inevitable fears of collusion. Of course there is the predictable, which is “we told you so, we need our new power projects”despite the legal and negotiated rate and terms issues. A supposed “group of consumer welfare advocates” are even incongruously chiming in by blaming ERC for its “indecisiveness” evidently on approval of Meralco’s 7 midnight contracts.

Anyway, let us ponder some aspects of this yellow and red alerts.

1. Whose Power Plants are down now?

According to newspaper reports, the following power plants have been mentioned. Sual Unit 1, SW Luzon Masinloc Unit 2 344mw, Pagbilao Unit 3 382mw, SLTEC Unit 1 150mw, Calaca 2 of DMCI 100mw, Malaya 2 350mw. A total of approximately 1,500mw.

a. Things to Ponder No. 1
The power plants in question (except Malaya) are owned by Aboitiz Group, San Miguel, EGAT of Thailand, DMCI, all members of the Meralco chosen 5 and partners of MeralcoPowerGen that controlled all the project companies in the seven (7) midnight contracts that the Meralco power oligopoly is trying to ram through the system.

b. Things to Ponder No. 2
Meralco’s power suppliers using coal have mind boggling rates from September to December 2018. AES in Masinloc charged P16.4591 per kwh in September, P13.7889 in October, P10.3589 in November, P8.7697 in December, and 6.9598 in January. It is now partly owned by Meralco Mauban partner EGAT of Thailand.

The Aboitiz owned Pagbilao charged P7.0179 per kwh in September, P7.04 in October, P6.7847 in November, and P7.5231 in December.

San Miguel Sual charged P7.8325 per kwh in September, P9.7960 in October, P8.0332 in December, and 7.4205 in January.

For February 2019, Masinloc rate was 11.51, Quezon Mauban of EGAT 7.76, SMEC Sual 6.91, and Aboitiz Pagbilao 6.33.

Comparatively, other coal generator rates were only P5.50 per kwh and natural gas plants approximately P5.28 per kwh during these periods.

(see matuwid.org website)

The reasons for these high coal generators rates were not because of high coal rates but evidently due to the guaranteed capacity payments to these power generators even if they were not generating full power. That means they have been down for maintenance for those months of September to December 2018 and some in January and February. So why are they still down for maintenance now that consumers needed their power during these summer months of March to May 2019?

(By the way, your organization MSK had filed a petition with ERC asking that these high rates from September to December 2018 be investigated. We have yet to hear from them).

2. Collusion

There could be collusion but it is unlikely that the government can pin anyone down. Power plant operators know what they are doing…and they are sisters with one of the supposed victims, Meralco. (Other one is the consumers)

Even when there are market evidence, our regulatory and justice system will be such that anyone found guilty will not even pay the penalty. Remember the market failure of 2013 when WESM went up to P62 per kwh and resulted to a P4.15 per kwh jump of 80% in generation costs? And even if they pay, it is only a total of P500 million compared to the damage to the consumers of P9 billion.

It is the motuproprio job of the ERC to investigate and penalize but so far they have been quiet.

We cannot expect too much from the Philippine Competition Commission who by their young lawyers’ mindsets will not call harmful “cartel” or “oligopoly” and “collusion” even if they are staring them in the eyes, unless they get the perpetrators to sign a document of admission. (good luck with that!) The young PCC seems have yet to find itself as a watchdog for the consumers and an institution to install preventive and preemptive rules against collusion, market monopoly, and etc. Too early to expect much consumer protection from them.

3. DOE’s Decisive Action

A shining armor in this dark times is the decisive action of the Department of Energy in containing further damage to the community and consumers. Beyond the predictable call for extensive investigation, per media reports they have been actively meeting with electric power industry participants for a concerted remedial solutions. They activated the “interruptible load program” that mobilizes the self-generators. It may only be 200mw but it helps in rotating brownouts.

The terms and conditions of the power supply agreements between these Genco’s and Meralco are being looked into specially their outage allowances, replacement power. Secretary Alfonso G. Cusi is quoted to say “the DOE recognizes that short-term answers are not enough. We are taking a holistic approach that focuses on the establishment of institutional solutions that would benefit consumers in the long term. The DOE fully intends to pursue policy directions to create permanent solutions to the otherwise temporary yet recurring challenge of red alerts.”

These are good take charge responses to avert a possibly disastrous power situation. However, the country needs a permanent monitoring of the plant availability performance of these IPP’s and a proactive management and coordination of power plant maintenance schedules specially during critical seasons like summer and Christmas holidays. The Department of Energy can make this maintenance scheduling part of the tasks of its Electric Power Industry Monitoring Board, instead of just passively tallying the power generation projects being pursued by the private sector.

The Senate Energy Committee under Sen Sherwin Gatchalian is expected to similarly try to conduct an investigation and let us hope they do and get to the bottom of these power shortages. More importantly, let us hope those investigations will result to change in rules for permanent solutions.

Actually it should be the job of Meralco if they are truly looking after the interest of their customers to manage and synchronize the scheduling of the downtimes of their contracted power suppliers. We don’t hear them doing this proactive scheduling that not only can avoid surprise brownouts but also to protect their customers from the price spikes that are consequences of power shortages.

Next: The Onerous Power Supply Contract Provisions and Permanent Solutions

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org

For private Comments send to david.mskorg@yahoo.com.ph

Rethinking the ERC plan to shift to “fixed price”generation rates…And the “30% of Project Cost” Exemption from CSP!!

David Celestra Tan, MSK
2 April 2019

The new ERC has been hard at work on a new guideline or template for the contracting of power generation supply agreements. Without exaggeration this guideline would be one of the big signals to consumers on the regulatory soul of the new ERC Commissioners as a group.

In the 3rd version, one of the new rules under Section 13.2(e) is the shifting to fixed price generation rates including fuel as opposed to the current regime of variable costs and pass on charges.

Just like other utility economists, i am shocked to my core. Whhatt! This may be well intended but we hope the ERC will rethink this.

It is true that the current pricing formula of pass on charges for changes on fuel price and forex rate variations had been resulting to a yoyo effect on generate rates and gives electric consumers reason to complain every time it happens.

And every time it goes up Meralco, ERC, and DOE have the inconvenience of explaining to the public what’s going on.

Addressing this regular complaining seems to be the only reason the new ERC is considering this fixed price regime. And if consumers no longer complain then the ERC has come up with a good solution?

But Fixed Rate pricing is not necessarily good for nor protective of the consumers. Pacifying the consumers this way is a lot like addressing the crying of a child but not really the cause of his crying. Yes poor baby, let’s give him cough syrup to induce him to sleep, pain killers for his pain, or downers!

This is eerie dejavu! During the finalization of the EPIRA Law in 2001, there were clear efforts to change Meralco’s rate setting from RORB or return on rate base on which consumer advocates became very adept and had been raising a lot of questions and inconveniences for both ERC and Meralco.  That opened the door for a change to a new rate setting methodology called PBR or performance base rate setting.  People are so confused by this PBR and no one is able to question them a lot.  Na set-up ang consumers and worse, the fruit of the pudding is Meralco started making 25% per year return on investment, double the 12% determined by the Supreme Court for the distribution monopoly. And in your organizations petition to change or modify the PBR, the previous set of commissioners were apathetic to correcting the injustice.

The current variable costing vs fixed pricing

Under our current generation rate formula, inflation indices, currency variations, and fuel price changes are factored in every month and it is resulting to the rising and falling of the generation rate. Thus the yoyo effect.

In regulatory economics this is also called “sharing of risks between generators and consumers”. And the principle has merits.

1. Generators do not need to increase their rates to cover forex and fuel fluctuation risks. And those are big financial risks. We estimate a “risk factor” can add 10 to 20% to a fixed rate. Ironically, the generators would be happily keeping the profits when fuel is down but when they have to lose a lot of money when fuel goes excessively high, they will shut down their plants for some alibi.  Consumers lose.

2. The adjustment factors of inflation, forex, fuel price are at least transparent and use independent reference prices not influenced by either party. Changes in Forex by the Central Bank published rates and fuel by MOPS of Singapore.

3. While it penalizes consumers when fuel prices go up, lower prices are also passed on when it comes down.

The bigger yoyo problems that need to be addressed by ERC are the nontransparent price adjustments that really hurt the consumers. These are the ones that warrant regulatory safeguards that can be part of ERCs new guidelines on PSAs

1. Non transparent fuel procurement.
Since the cost of fuel is a pass on charge to consumers, consumers need some safeguard. However, neither the ERC nor Meralco have Safeguards to insure that fuel prices that are passed on to consumers are truly competitive and not overpriced.

When MSK intervened in the application of Meralco for p0.90 per kwh increase due to Malampaya shutdown, it became clear that neither Meralco nor ERC bother to check if there is no manipulation. Meralco rate computation managers were taking whatever price the generators declared and pass them on.  And we were talking about p9 billion worth of distillate fuel. Similarly, the buying of coal is not truly competitive with no safeguards!

2. Equally big is the exploitive and non transparent adjustments to the generation rate or AGRA as approved by the ERC itself. (Yes it’s a reincarnation of the reviled PPA or purchased power adjustments that wrecked havoc on consumers in the 2000’s.)

Built into those adjustments were the sweetheart downtime allowances where generators are paid regardless of whether they are down or not.This range from 45 to 60 days per year.  This in effect encourages shutdowns and are the reasons Meralcos coal suppliers charge p10 to p18 per kwh on many months. Not because of coal prices but by guaranteed capacity payments during downtimes.

This “downtime allowances with guaranteed capacity payments” is a BOT era contract provision that needs to be updated…by the ERC or DOE because DUs will not do it on their own. We are now in the BOO era where the power plant will never be transferred to the DU and hence there is no reason to support the financing of the plant with guaranteed monthly revenues regardless of whether it is running or not. And when the PSA is between two sister companies, who is to check whether the plant downtime had actually exceeded the contracted limit.

Expressed another way, with generous and non-transparent downtime allowances, the consumers are actually paying 12 months of capacity payments for 10 months actual generation service. Depending on the size of the plant that means hundreds of millions and even billions a month. Anak talaga sila ng Dios!

“Downtime allowances” must only be provided to allow the generator time to do preventive or corrective maintenance during which he is excused from delivering the contracted capacity and energy. But not to guarantee him continuing capacity payments while his plant is down, or in power industry parlance “not available”.

A scary thought for consumers

What is scary in the new ERC draft is it is evident that the subtle insertions that are being made are so esoteric to the power industry to exploit the fact that newbie lawyer Commissioners will not really know the deeper implications of what is being proposed. Are foreign consultants involved in this? Or the hand of the vested interests are playing big again behind the scenes?  Pinapalusutan ba ang mga bagong commissioners.

Efforts to Trick Consumers and evade again the True CSP

The ERC’s 3rd draft provides under Article XII a section called “CIRCUMSTANCES EXEMPT OF CONDUCT OF CSP”. Under Section 42 “Exemptions” is “a” ‘The DU may be allowed to infuse internally generated funds provided that the amount shared by the DU shall not exceed 30% of the project cost” !!!!!

Pare, “30% of the project cost” is actually the full equity investment of an owner in a power project.   The 70% of the project cost is the portion financed by the banks. So kung makalusot ito, it means power projects that are wholly owned by Meralco and to a minor extent by Aboitiz by putting “30% of project cost”, WOULD BE EXEMPTED FROM UNDERGOING A CSP! Pwede na uli negotiated!

Ano ba yan, harapan! Sana naman nagkamali lang sila…o pati document encoder me agenda?

Your organization MSK actually pointed this out in our comments to the ERC on the draft and we hope the new Commissioners will look into it.

We pray for their discernment.

Matuwid na Singil sa Kuryente Consumers Alliance Inc.
matuwid.org

For private comments send to david.mskorg@yahoo.com. For public comments please post below.

Elephants in the ERC Room…And a Flying Dumbo (Part 3)

David Celestra Tan, MSK
14 March 2019

Part 3 of 3

In addition to the skeletons in the ERC closets, there are elephants in their regulatory room, including a flying dumbo.

These are the seven (7) Meralco midnight contracts totaling 3,551mw that it negotiated under the name of project companies that turned out are all controlled by its sister company Meralco PowerGen. They are all waiting for ERC approval who in turn is waiting for the Supreme Court Decision on the issue of whether ERC had the legal right to postpone the effectivity date of the Competition Selection Policy from November 6, 2015 to April 30, 2016.

While the former ERC Commissioners were claiming that the extension (that they are calling “clarification”) were only intended to respond to the numerous requests from distribution utilities and power generators for their power supply contracts that were left hanging and could not make the November 6, 2015 ERC filing deadline, and that Meralco was not a consideration, it cannot be denied that the main beneficiary of the extension was Meralco, who just happened to be able to finalize 3,551mw of power supply with 5 partners within 40 days of extension announcement on March 15, 2016 on April 26, 2016 and was able to beat the new ERC filing deadline three days later or April 29, 2016. Neither can it be denied that Meralco’s 7 midnight contracts were not signed as of November 6, 2015.

Not convinced, consumer group Alyansa Para Sa Bagong Pilipinas (ABP), a group inspired by President Duterte’s call for changes for a new Philippines specially corruption, filed a complaint with the Office of the Ombudsman against the Commissioners for abuse of discretion and with the Supreme Court challenging the legality of the extension.

The Ombudsman suspended the ERC Commissioners for 90 days on the administrative case and filed a criminal case in the Pasig Court.  The Supreme Court we understand had decided that this is a matter that will be elevated to an enbanc decision.

Meanwhile, the development of new power projects to meet future demand is at a standstill. The seven (7) midnight contracts are veritable elephants in the ERC room that will have to be decided soon.

1. The major power generators who have become part of the Meralco 6 (Meralco PowerGen, Aboitiz, EGAT of Thailand, San Miguel, Global Business, DMCI-Semirara) will not develop new projects in Luzon until these seven contracts are resolved. Who will be the off-takers anyway? And who would buy from them at the same negotiated prices without undergoing a CSP?

2. The other major power generators who have similarly established track records but did not get invited to the Meralco party, could not develop major projects because they are shut out of the Meralco market which is 70% of Luzon Grid. Now outsiders looking in are the Lopez Group, Ayala Power, KEPCO of Korea, Team of Japan, AES of USA. Seeing their lack of access to the Meralco market, AES had sold a significant share to Meralco partner EGAT of Thailand and expected to Exit from the Philippines, Ayala sold its shares in GNPower to Meralco partner Aboitiz Group, Global Business sold its majority to the MVP Group that controls Meralco. Energy World of Australia is still cooling their heels waiting for a PSA.  The Philippines is not ripe for merchant plants given that the WESM is now artificially depressed by subsidized Renewable Energy resources.

3. Let us hope the Supreme Court decides soon one way or the other and not wait until there is a power crisis and a decision unfavorable to the consumers would meet less resistance from a power starving public. We predict anyway that the highest court of the land will rule that the ERC is within its authority to extend the CSP deadline legally but will not rule on whether it abused its authority. Having the legal authority is one thing. Abusing that authority is another.

4. Nonetheless, we can expect the ERC to move ahead and approve the seven contracts under the cloak of legality that the Supreme Court will provide. Whether it abused that authority the new commissioners might recognize and mitigate or the Ombudsman might determine and continue the criminal case.

5. Several things are working against the credibility of the old ERC’s contention that the extension was not intended to Benefit Meralco but to respond to those numerous generators and distribution utilities who needed more time to file the ERC application for their signed contracts.

a) The Ombudsman found out that as late as January 2016 Meralco was still petitioning to be allowed to hold a ‘swiss challenge” type bidding as their form of CSP clearly to give them procedural room to maneuver for the intended winners. The ERC denied the request but what happened in February and early March that motivated the ERC to extend the CSP deadline?

b) While there were 90 applicants who filed before the new April 30, 2016 deadline for approximately 4,000mw of power contracts, 3,551mw were from Meralco which is 88.75% of the total. And 350mw were between unrelated DU and power generators.

c) On the same day and session on March 15, 2016 that the ERC passed the resolution “clarifying” the deadline for CSP compliance, the ERC also “held in abeyance” a new rule in determining concentration of capacity limits as required by the EPIRA law to 30% of a regional grid and 25% of the national grid.

Why is suspending that rule significant and according to consumer group ABP a clear evidence that the ERC knew that Meralco would try to meet the new deadline with significant amount of contracts? The new rule adds an “ownership test” and an “operating tests” to the “control test” effectively closing the loophole that investors in “multi-owner” plants have been exploiting to avoid the ownership concentration limits of power generating capacity. The very rule that Meralco is evidently counting on in their unmitigated foray into power generation.

Under the old ERC formula, owners and operators of power plants can avoid the concentration limits as long as they don’t “control” the capacity which means appointing someone else to market or price the output as defined by Rule 11 of the Epira IRR.

Without removing this new formula that adds ownership and operating tests to the capacity concentration limits, Meralco would not have been able to consolidate their initial 4,011mw generating business under its sister company Meralco PowerGen.  I am one of those who wanted to give the Commissioners the benefit of the doubt but the two resolutions passed on the same day and session both point to a Meralco benefit.

The MVP group as owners of Meralco is theoretically allowed under Section 45 of the EPIRA to own, operate, and control up to 50% of the demand and energy needs of Meralco. That means about 3,000mw by 2022. Clearly their ambitions are beyond that. By partnering with those who are willing to be their minority partners in exchange for access to the huge 6,000mw Meralco market, their power generating portfolio can be unlimited as long as they don’t “control” the capacity.

Notice that no one builds a major power project without either Meralco or Aboitiz as a partner?

6. Having said all these, it is one thing for the ERC to approve the Meralco seven (7) midnight contracts and another to assure that the rates are fair and reasonable. The ERC could only base their assessment on table and WACC evaluation and for political reasons can shave off a token reduction of P0.25 per kwh “to protect the public”, which can go the other way and be unfair to those with truly fair and reasonable applied for rates.

That is the problem with negotiated contracts. There is just no way to know what is fair and reasonable. Only a truly competitive bidding can determine that with benchmarking safeguards.

In the past we had compared a negotiated contract and a competitive one and the difference was anywhere from P0.50 to P1.00 per kwh. A Coop Group in the Visayas said the difference was P1.00 per kwh.

At the contracted 28 billion kwh a year, that is an overprice of anywhere from P14 billion to P28 billion a year to the Meralco consumers.

7. The new ERC Commissioners are caught between a rock and a hard place.

Lawyers we asked said that the new for Commissioners can be liable for abuse of discretion if they go ahead and approve the questionable contracts even if they were not the ones who extended the CSP deadline. There needs to be a legal mitigation, a compromise where the interest of the public is served and the violation of the law is addressed. Perhaps a curative CSP can be undertaken for 50% of the 3,551mw and the other half given up and tendered for Natural Gas plants. To be fair, each of the Meralco partners can give up half of what was allotted to them and they can still participate in a new open CSP that would be administered by a Third Party.

The ERC went out of the box by “clarifying” the date of the CSP. Meralco went out of the box for their doggoned determination to use their market power and secure negotiated contracts for Meralco PowerGen. The two had resulted to an impasse in power development that never happened before.  We need an out of the Box solution.

The Department of Energy had issued to 1,200mw Atimonan One a Certificate of project of national significance in recognition of the need for more power in the future. Those they qualified were for permitting purposes. The evaluation of the fair and reasonableness of the rate is up to the ERC.

8. Power Crisis Gambit

Are we seeing a power crisis gambit in play here? The Supreme Court, Meralco, and ERC will just stand still and wait until there is a power crisis that can come as early as 2021. Then the power- starved consumers will be on their knees begging to be saved from brownouts and will not be able to care whether the CSP law was violated and their rates are high.  Just give me power please!

These are the seven (7) elephants in the ERC’s room. Do they wait until the right power crisis time and perpetuate what Meralco wanted? Or do they proactively act now and engineer a compromise agreement that serves the public interest? How do they make sure the rates are fair and reasonable?

The Supreme Court is not doing anyone a favor by taking time on the decision. We hope they can decide one way or the other.  The waiting is now part of the problem instead of the solution.

Meanwhile, one of the seven, a little Dumbo of 70mw had already flown away and been approved for a coal power plant in far away Iloilo that turned out is owned by the MVP Group through their acquisition of the Business Power Group of the Metrobank group. Ahh the power of self-dealing.

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