Meralco eyes court relief vs CSP

by Lenie Lectura – November 15, 2015

from Business Mirror

MANILA Electric Co. (Meralco) is likely to bring the Department of Energy (DOE) and the Energy Regulatory Commission (ERC) to court to question their authority for issuing resolutions that direct distribution utilities (DUs) to conduct Competitive Selection Process (CSP) in the procure-ment of their power requirements.

The country’s largest DU, which services over 5 million customers in its  franchise areas, has met with lawyers to determine the steps it would take.

“We are just waiting for [Meralco President Oscar Reyes] to come back to decide which of the options to pursue,” Meralco First Vice President William Pamintuan said in a telephone interview.

Seeking legal relief before the Regional Trial Court is one of the options Pamintuan was referring to. Another option, he added, is to appeal the case before the ERC.

Pamintuan, who is also the head of Meralco’s legal and corporate governance office, said it is up to Reyes to decide on Meralco’s next move. Reyes is expected to return to office this week.

In particular, Meralco would want the court to determine if the ERC and the DOE are authorized to issue such resolutions under the Energy Power Industry Reform Act, which is on its 14th year of implementation.

“The right way to question if they have the authority or not is through this,” said Pamintuan, who was referring to a court filing.

The utility company is opposed to the mandatory implementation of the CSP, a policy crafted by the DOE in June of this year.

The CSP, through a joint resolution issued by the DOE and the ERC on October 20, took effect on November 6.

When sought for comment, ERC Chairman Jose Vicente B. Salazar said the commission would exercise its legal authority to defend the issuance of ERC Resolution 13 if challenged in court.

Apart from the joint resolution, the ERC also issued a separate resolution on CSP albeit with the same objective.

“While we respect anyone’s right to take legal action, we lament the failure to see the public’s clear benefit from the CSP. We will respect the legal process even as we seriously consider our own legal options to make sure we defend the public interest, as well,” Salazar said in a text message.

Meralco Chairman Manuel Pangilinan said earlier that seeking a court order to stop the implementation of a policy that mandates all DUs and electric cooperatives (ECs) to bid out their power requirements instead of entering into bilateral contracts is an option which the utility company may consider when the proper time comes.

“Well it’s something we don’t like to use but I hope people will see through it the whether the CSP makes sense. We don’t think its promoting of consumer welfare,” Pangilinan said in a recent interview when asked if the utility company would consider to take legal action. Salazar said the commission is “baffled that a stakeholder should pose stumbling blocks to a process that clearly promotes transparency and competition in the industry which benefits consumers.”

He admitted that in the past few weeks “there had been a lot of entities that are following up on this issue. But the ERC came up with a unanimous decision which is to implement a mandatory CSP.”

For the DOE’s part, Zenaida Monsada said the CSP fosters transparency, enhances security of supply, and ensures stability of electricity prices to captive electricity end-users in the long term.

“The DOE and the ERC are working closely together to create a proactive and dynamic environment for a sustainable electric power industry which balances the interests of the consumers and the industry participants,” Monsada said.

Monsada replaced former Energy Secretary Carlos Jericho L.  Petilla, who signed the DOE circular on June 30, his last day in office.

DOE Circular 2015-06-008 also states that a third party would conduct the bidding. In an earlier issued draft rules, the ERC said the third party shall compose a team of foreign or national experts or both. The members of the team must have vast experience in open and competitive bidding as lead auction design advisor and auction manager in at least five separate successful auctions for power-supply contracts of electric utilities preferably in other countries that have implemented auctions, such as Chile and Brazil.

Its tasks are to develop the CSP design for the power-supply agreements (PSAs), develop bidders’ qualification criteria, draft and propose the CSP rules, develop and propose the PSA template, and manage the conduct of the CSP up to the award and execution of the PSAs.

But when the ERC issued the resolution, the commission removed the third-party aspect of the CSP. Instead, the DUs themselves would conduct the bidding.

When sought for comment, Petilla, in a text message, said the role of the third party is essential. “Third party is like an extension of ERC arm to ensure that CSP is fair and that real competition took place. This will now ensure ERC that PSAs are optimally priced,” he pointed out.

When asked if he was disappointed, Petilla said, “It’s their call. After all, ERC is responsible for reviewing the prices.”

Under the ERC resolution, a DU may execute a PSA with a power generation company (genco) only after successfully complying with the requirements of the process.

The requirement is for a DU to openly call for and receive at least two qualified bids from gencos with which the DU is not barred from entering into a contract for power supply.

The CSP further requires that direct negotiations with other power suppliers be entered into only after at least two failed CSPs.

Once the implementation of the CSP begins, the ERC will no longer allow the filing by DUs of applications for PSA approval without compliance with the CSP requirements.

Salazar said the resolution removes all uncertainties on how the CSP will be implemented by the ERC and paves the way for a regime of greater transparency and competition in the power-supply procurement processes in the industry.

The CSP aims to make transparent the manner in which DUs buy electricity from power generators. It also assures that such supply is bought and passed on to consumers at the least possible cost, he stressed.

Salazar, in an interview last week, said the resolution is still subject to the issuance of additional rules. “There will be a fine-tuning of the process as we aim to adopt stringent rules anchored on the government’s procurement law.”

‘Illogical’

RECENTLY, Pangilinan said the CSP is “illogical” as gencos have the upper hand since they can opt or not to participate in the auction, leaving only a few qualified to serve the power requirements of the DUs and Ecs.

“It’s seductively simple when they portray it as they promote lower price. We think it will create precisely the opposite. But it is illogical if you think about it because you shifted the power to price over to the gencos and we’ve seen what happened in December 2013 when power spiked,” Pangilinan said.

The Meralco official was referring to the 2013 incident when Meralco’s rates shoot up by P4.15 per kilowatt-hour (kWh) for December 2013 and P5.30 per kWh increase for January 2014 because it had to source power from the Wholesale Electricity Spot Market (WESM), the country’s electricity spot market where distributors, such as Meralco, buy their power supply from gencos.

At that time, gencos were accused of collusion when they did not fully offer their output in the WESM. Eleven companies that operate 12 power plants allegedly breached the must-offer rule during the October 25 to December 25, 2013, supply month when power prices shoot up.

Meralco, however, was unable to pass on to consumers the P4.15 per kWh increase in power rates in December, owing to the Supreme Court issuance of a temporary restraining order which remains in effect until today.

The P5.30 per kWh rate increase for January, however, was recalculated as a result of the decision of the ERC to void the WESM charges for the November and December billing months.

Commenting on this incident, Pangilinan said, “The ability to price should be with the DUs because they are the last mile to the customers.”

He explained that that DUs are already under obligation to obtain the least power cost for their customers.

“We are under obligation to serve electricity to our customers and we don’t make money out of it. The market power should decide with the DUs, which are obligated by law to find the least cost. But if you are a power-generation firm then you are not under that obligation,” Pangilinan said.

Reacting to this, the Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK) accused Meralco of entering into “sweetheart deals” with its power- generation company.

“What has been illogical is allowing the power to price to Meralco and its sister generators who are both owned and controlled by Meralco. Distribution of electricity is a regulated monopoly. It is wrong and anticonsumer to allow that monopoly to extend to generation,” David Tan said of MSK.

“It cannot be ignored that sweetheart deals of the past continue to overcharge consumers to the tune of P6.1 billion in 2013, P10.3 billion in 2014, and so far P5.5 billion in 2015. Our generation cannot consign our children to similar burden for the next 25 years.

So far Meralco had signed with sister company Meralco PowerGen 460 megawatts (mW) for Mauban and 600 mW for Redondo Power in Subic. Meralco wants to get it to 3,000 mW which is a clear monopolization of the generation sector,”  Tan added.

Aboitiz Power Corp. (AboitizPower), another DU, said earlier that it is in favor of voluntary implementation of the CSP.

Antonio Moraza, AboitizPower president, said in September that imposing “a one size fits all” policy is not the solution.

“Each DU has its own issues,”  he said, adding that government should instead “make sure the process happens and give DUs the freedom to make their own decision. After all, the are answerable to their consuming pubic and to the ERC.”

Gencos, on the other hand, are in favor of the CSP.

SMC Global Power Chairman Ramon Ang, in a separate interview, supports the CSP. “We will bid and supply power to everybody. That will be good for the consumers.”

AC Energy Holdings Inc. of the Ayala group, on the other hand, said the CSP is no different from the Public-Private Partnership Program of the government.

“We are obviously in favor,” AC Energy Holdings Inc. President John Eric Francia said. “The devil is in the details. A lot of details and variables need to be thoroughly studied so the intent and the spirit of the circular is addressed properly.”

The Philippine Electric Plant Owners Association, for its part, said it has yet to issue a comment on the CSP policy. “Probably, we would have a position on this in the next two weeks,” the group President Ranulfo Ocampo said when sought for comment.

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