Lantau Group sees lower electricity rates with nonapproval of Meralco PSAs

By Lenie Lectura – August 1, 2017

from Business Mirror

HONG Kong-based think tank, Lantau Group, said the nonapproval of the power-supply agreements (PSAs) between the Manila Electric Co. (Meralco) and power producers will create instead what it called a “contracting gap” that will allow “cheaper options to creep into those gaps”.

Lantau, through Sarah Fairhurst, one of the think tank’s founding partners, said lower power rates are still achievable if controversial PSAs between Meralco and generation companies are stopped.

“[The] nonapproval of Meralco PSA’s reopens the competition,” Fairhurst said in her presentation. Lantau is a consultancy firm with expertise in the energy business in Asia.

Fairhurst made her group’s presentation during the second Philippine Annual Renewable Energy Conference held recently in Manila.

A number of civil-society groups have branded the Meralco PSAs “sweetheart deals”, because most of the Meralco deals were awarded by Meralco without bidding to Meralco-controlled or –affiliated generation companies (gencos). The seven Meralco PSAs call for 3,551 megawatts of electricity supply.

The civil-society groups also consider the supply agreements “midnight deals”, because Meralco and the gencos filed their PSA applications with the Energy Regulatory Commission (ERC) on the last day before the ERC would have required Meralco to bid out the contracts under a competitive selection process (CSP).

Allegations debunked

MERALCO earlier debunked allegations of certain interest groups which questioned the seven PSAs.

“Meralco categorically denies that these PSAs were ‘midnight contracts’ and will result in ‘costlier and dirtier energy from coal’. Such allegations are baseless and totally unsubstantiated,” the utility firm said in a statement. “These PSAs were legally filed in accordance with the rules and regulations of the ERC with the objective of ensuring adequate and reliable power supply at least cost to Meralco’s more than 6 million customers.”

The Center for Energy, Ecology and Development, along with Sanlakas, Philippine Movement for Climate Justice, Freedom from Debt Coalition, Koalisyong Pabahay ng Pilipinas and other member-organizations of the “Power for People” organization filed their respective petitions before the ERC, questioning various irregularities concerning the process of applications, as well as negative consequences, which would arise if Meralco’s applications are granted.

According to lawyer William S. Pamintuan, Meralco First vice president and head of Legal and Corporate Governance, each of these PSAs had undergone a very rigorous, lengthy and, at times, contentious negotiation process with the power-generation companies.

Pamintuan also stated there were actually more than 90 PSAs filed by different distribution utilities and electric cooperatives, following the ERC Resolution restating the effectivity of the CSP.

“But out of these 90 PSAs, it is only the seven Meralco PSAs that curiously had been specifically singled out and questioned by certain interest groups,” the utility firm’s lawyer said. “It is on record that Meralco was not among those that asked the ERC to restate the effectivity of the CSP mandate.”

Under fire

The ERC itself is under fire from the civil society groups for its equally controversial decision to delay the implementation of the CSP–a move that gave Meralco time to award the contracts without bidding.

Due to delays in implementing the CSP, Lantau doubts the effectivity of the ERC program in drawing the least cost of electricity for consumers.

“A real CSP process allows the cheapest option to win and thus enhances economic options,” Lantau said. “The current PSA approval process …does not result in the least cost procurement.”

In the same presentation, Lantau said that “the current CSP is utterly ineffective”, adding that “the delay in [CSP’s] implementation has allowed thousands of MW [megawatts] of contracts to bypass any need for competition”.

The CSP aims to derive the least cost of electricity for consumers by requiring a distribution utility to receive at least two qualified offers for its supply of electricity.

The bids must come from gencos with which the DU is not prohibited from entering into a power supply contract. Under the Electric Power Industry Reform Act, a DU like Meralco is prohibited from buying electricity from a subsidiary, sister company or affiliate, if such supply exceeds 50 percent of the Du’s electricity demand.

Starting CSP

THE ERC originally announced CSP’s implementation would start on November 7, 2015. But in March last year—or months after the ERC started implementing CSP—the ERC decided to “restate” the program’s start to the last working day of April 2016.

With the restated start of CSP, applications for PSAs that were awarded without bidding swamped the ERC between March and April 2016. Meralco’s PSAs with the seven gencos accounted for the bulk of capacities.

Meralco finalized all seven contracts during the last week of April 2016 (from April 20 to 27, 2016) and filed with the ERC on April 29– the last working day before the start of the CSP.