An Uncontrollable 800-Lb Gorilla in Distribution like Meralco is Disruptive of Social Order.

And What They are Trying to be is Even More Menacing.

 

David Celestra Tan, MSK
23 December 2019

An American riddle goes:  “Where does an 800-Lb Gorilla Sit?  Answer:  Anywhere it wants to!”

“800-pound gorilla” is an American English expression for a person or organization so powerful that it can act without regard to the rights of others or the law. It is so powerful (either by size or by influence) that it does not need to heed the rules or Threats of others.

In American economy a dominant organization that can overpower competition and government is called an 800-Lb Gorilla. It dictates on the market and stumps on competition and many times even captures government regulation. American free enterprise on which the Philippine economy is patterned is founded on a truly functioning market competition to protect the consumers. And it frowns upon 800-lb gorillas.  It is vigilant on anti-competitive behavior and has a strong anti-trust legislation. When AT&T became so big as to dominate 70% of the telecom sector, they broke it up into baby-bells. In recent years they investigated Microsoft, Apple, Amazon, and Facebook for anti-competitive behavior.

In our country, Meralco as a distribution utility is no less dominating as the proverbial 800-Lb Gorilla. They serve 74% of the energy needs of Luzon and about 65% of the whole country. Its mega-franchise covers Metro-Manila and the National Capital Region, 36 Cities, 75 municipalities, the nerve center of the country’s economic, industrial government, and education activity.

To feel the imposing dominance of Meralco as a distribution utility, all of the country’s 138 electric distributors combined is not even half the size of Meralco’s 7,399mw, fully 68% of the 10,876mw demand of the main island of Luzon. And it is also the fastest growing at an average of 6.8% in the last 9 years. This is probably faster in 2019 when the POGO’s and business process sectors boomed in Metro-Manila.

Meralco’s mega-franchise area is bigger than the service areas of Manila Water and Maynilad Water combined!  And it is not just the  imposing size but the demonstrated voraciousness in the pursuit of self-dealing opportunities that makes it menacing.

Meralco’s financial might is just as overpowering. Its market cap is P428.3 billion, Annual revenues of P304.5 Billion, EBITDA of P37.2 billion, net income of P23.0 Billion, and cash resources of P36.42 billion. One call from Meralco and the banks shiver if its deposits are pulled out. One complaint from Meralco threatening to pull out their groups multi-million advertising can turn newspapers into pussycats. And don’t forget that we have elections every three (3) years.

Their annual advertising budget and regulatory compliance resources exceeds P500 million a year, ironically approved by the Energy Regulatory Commission and charged to the consumers as part of the PBR rate.

So, “How much does Meralco charge its customers?…. Whatever it wants to!

The Performance Based Rate making method allowed by ERC enables it to make  25% return on investment a year. It makes money on projected investments that it did not have to make.  Most of its power supply are negotiated. It tried to get away with 3,551mw of self-negotiated power supply with its own Meralco PowerGen with the gratuitous facilitation of the regulators who are supposed to protect the consumers. They almost got their way.

How much money can it make? ….. How much ever it wants to! 

As said so far they are making 25% per year. Their systems loss charges are essentially non-transparent charging Metro-Manila residents almost 10% above their 7.5% average and same as the outlying towns.  Their distribution charge is supposed to be P1.38 per kwh. But look at your bill if you consume 400kwh and more just like half of the consumers, and it is P2.98 per kwh. Meralco and ERC claims it is due to reallocation of the rate among different consumer classes. But it defies mathematical logic how an average of P1.38 per kwh will result from a high of P2.98 charged to a big portion of the residents and business establishments in Metro-Manila and the lowest is P1.01 per kwh.

What competitive rules does Meralco want to follow?…. Whichever it wants to!

Now rebuffed by the Supreme Court, it wants to do the CSP in its own way anyway. It managed to get a friendly version of the CSP guidelines passed in February 2018. Now it is resisting any form of safeguards that the DOE Secretary Cusi wanted on the CSP for the 1,200mw Atimonan coal project. The ERC for its part tried to get the DOE to adopt another Meralco friendly version of the CSP guideline. (Curious). 

Who does Meralco need to capture to assure he gets his way?… Whoever he needs to!

After being turned down in January 2016 by the then new ERC Chair Salazar to allow them to do CSP on swiss challenge basis, the ERC Commission apparently eventually gave in to Meralco in March 2016 for a friendly CSP and extended the CSP implementation to April 30, 2016. The consumer group Alyansa Para sa Bagong Pilipinas cried foul and complained to the Supreme Court, who found ERC guilty of extending the CSP without authority and ordered Meralco to undertake a CSP under a DOE CSP rules DC2018-02-0003. It appeared Meralco was ahead of the game. The DOE DC2018-02-0003 it turned out was very friendly to it with Meralco having full control of the CSP process.  And the DOE? It was relegated to being an “Observer”under Section 7 who cannot participate in the deliberations and needed to be invited by the DU to even become an observer. Do you think the DOE Guideline DC2018-02-0003 just happened to be everything Meralco wanted if it has to do a CSP as subsequently ruled by the SC? 

What does Meralco need to do to capture the regulators?… Whatever it needs to?

I guess there is no need to discuss the obvious. With so much multi billions a year at stake, resources, overpowering organization, culture, tenacity, and public information control, it can do whatever it needs to do maintain its firm grip on the evident regulatory capture, administration by administration.

How much of its 7,399mw power supply does it need to buy from itself? However much it wants to!

That’s what they are trying to do.

An 800lb gorilla would disrupt the country’s social, political, governance, moral, and economic order.

It is however not totally the evil deeds of Meralco. As a profit oriented private company, it is in its DNA to try to exploit opportunities to make money…as much as the rules (or implementors) are allowing. It is even possible that all these profit exploitations they are doing were presented to them to be legitimate earning practices by the people who sold the DU to them as part of the “sales pitch”.

It is really up to the regulators and policy makers to keep things under control and protect the consumers from being abused. Since 2001 when the Epira Law was passed however we have had eight (8) Energy Secretaries and six (6) ERC Chairmen, with no sign that this regulatory agency is starting to extricate itself from the firm clutches of regulatory bondage by Meralco. There is no argument that so far these government agencies have failed the public. That said, even when the opportunities are there, it doesn’t mean a franchised public service provider should exploit and abuse the vulnerable public if the policemen are not there to protect them. You don’t exploit the opportunity just because it is there. But then we cannot rely on the moral compass of the people running it.

We should really be able to rely on our regulators and policy makers. After all the Epira Law of 2001 that created them was very clear on their motu proprio responsibility to protect the public. We are just not implementing them with public interest in mind.

This is where the socio-economic disruption of an 800-lb Gorilla becomes menacing to consumers and governance. It is too uncontrollable…and irresistible.

What is even worse than having an 800-Lb Gorilla in Distribution?  Allowing another 800-lb Gorilla in power generation as is the evident corporate aim of Meralco PowerGen.

Ever wonder why industrial giants and fierce competitors like Ramon Ang of San Miguel, Aboitiz Family, Metro-Bank, DM Consunji, Ayala Group, Lopez Group, EGAT of Thailand, knelt down and commiserated to MV Pangilinan of Meralco to become his minority partners in the infamous 4,005mw midnight power supply contracts?

Because Meralco controls the market for power, the 800-lb gorilla of power distribution, they are essentially the gate-keeper to the power generation industry.  They are not only the 800-Lb Gorilla, there is no one even close to being a 150-Lb Gorilla. The two 2nd and 3rd biggest are The Aboitiz group’s Visayan Electric in Cebu only has 500mw and Davao Light has only 400mw.

Anyone who wants to build a power plant in the 300mw and above range will need to

Gain access to the huge Meralco market.  San Miguel saw it, Aboitiz knew it. Metrobank did too and sold its Global Business Power 1,000mw portfolio to the MVP group.

You cannot blame EGAT because they enjoy the most expensive coal power price that are passed on to the Filipino consumers. And their 460mw expansion that became San Buenaventura was reportedly originally offered at P4.80 per kwh and became P5.30 per kwh (10% higher) and became owned 50% by Meralco PowerGen.

The Ayala Group? They also saw it but was left out of the Meralco cartel. They sold their stake in GN Power to Aboitiz and decided to go “clean” energy. So does the Lopez Group which is now concentrating on natural gas.

Even the supposed solar energy initiative of Meralco in Bulacan turned out to be controlled by the MVP Group.   How much of the Solar Philippines agreement with Meralco will end up being owned by the MVP Group? Only time will tell.

Not many people realize that had the 3,551mw midnight 7 PSA’s gone through, it would have created a 14,000mw coal power cartel because the five (5) Meralco Powergen partners already owned more than 10,000mw of coal power plants in the country. This is Meralco imposing its will on the DOE and the President on the country’s energy mix and climate change goals.

We are sure at some point, Meralco media operators will claim that Meralco’s 4,005mw (including San Buenaventura) would be less than 50% of Meralco’s demand by the time they come on line in 2025. Unbeknownst to most people is that the 4,005mw actually represent 65% of the energy (kwh) needs of Meralco, way over the 50% allowed by Section 45 of the Epira Law.

How can it get away with it? Of course you can if you have been allowed to be the 800-Lb Gorilla in distribution and if also allowed to become the 800-lb gorilla in generation.

How will the electric consumers be treated by an 800-lb Gorilla? Anyway it wants to!

What’s unfortunate is the Epira Law for all its imperfections has enough provisions that can protect the public if used by an enlightened government. Yes, even by ERC. In fact it can easily shrink that 800-Lb gorilla to 600-Lb and be not as menacing. And the cards are there to further shrink it to a healthier 400-Lb Gorilla that will be more respectful of us the consumers.  

It will be sad if it is not done under the current government. We hope that at some point we realize that electric power service is about public service.

As we say in MSK, if not now when? If not you, who? 

Happy New Year!

 

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

HEROES OF OUR TIMES – IN THE POWER SECTOR (Part 1)

David Celestra Tan, MSK
29 November 2019

Part 1

The way we the electric consumers are being treated and overcharged, the way our distribution utilities and sister generators and partners try all sorts of schemes  to outsmart government attempts to create true competition and get away with them, the way our own government officials always succumb to the enticing power of the vested interests and fail to step up for the public interest, the way our approving agencies somehow funnel lucrative RE and ME government subsidies to evidently favored applicants, the way all these end up overcharging us the poor consumers, and the way the prospects for reforms in this country of ours seem bleaker by the day, it is easy to give up and think that our government officials are hopelessly apathetic to really looking after our interest, and that they are all part of this national conspiracy against us the people as electric consumers. Are they soul less or just clueless?

The more things and people change in the government agencies that oversee the power sector, the more things seem to remain the same or worse for the people.

Before we all give up on our race and country,  letus recognize a few knights in shining armors who over the years have done somethings to right the course for the electric consumers. Let us give them due credit and be inspired by their refreshing and hopeful statesmanship.

  1. First on our List is former Energy Secretary Carlos Jericho Ikot Petilla.

If CSP or competitive selection process have been in the news, a cornerstone of our power procurement policy,  and a raging battleground between Meralco and the rest of us, it is because Ikot Petilla saw the abuse of the consumers from negotiated power supply contracts and took the bold move to do something about it ….despite risking the ire of the major conglomerates. He passed a government policy to require competitive bidding for power supply contracts that will be passed on to the consumers and thus ushered in the CSP era in the main gridon June 2015 just before he resigned to run for the Senate, leaving us a lasting legacy. (CSP had been required in the missionary areas since 2004)

Up to that point, distribution utilities in the main grid like Meralco have been happily negotiating the power supply contracts that are all passed on to the consumers with whoever they choose and at whatever price and terms they can get away with.

Unfortunately IkotPetilla did not make it to the Senate in the 2016 election, denying us of one of the best Senators for energy that we never had.  Petilla ironically had the dubious distinction of putting in the CSP rules and at the same time had the bad luck of choosing an ERC Chairman who will not exactly be faithful to Petilla’s vision of a truly competitive generation market.  CSP may not still be perfect but at least it is a work in progress.  Without Petillas landmark move we still would not have a chance.  Thank you Sir, we are forever grateful. Hopefully at some point in the future, we will get the CSP done right.

  1. Current Energy Secretary Alfonso G. Cusi (and President Duterte)

a). One person who is fighting hard to insure that the CSP practice is adopted and done right is current DOE Secretary Alfonso G. Cusi. Before President Duterte got elected in 2016 and before Secretary Cusi got appointed, Meralco’s and ERC’s maneuverings to circumvent the CSP policy have already been in motion in April 2016.

After the Supreme Court declared ERC’s postponement of the CSP policy to be illegal and hence the resulting power supply contracts that exploited the extended time need to go back to the drawing board and undertake CSP’s, the challenge of insuring, under immense lobby pressure from friends and politicians, that the CSP process is done right and not manipulated fell on the shoulders of Secretary Cusi. And he has a tough job since he is also battling the CSP maneuverings of his own bureaucracy.

We understand he is working on new CSP guidelines to tighten the rules.

b.) He had done more though. One thing Secretary Cusi saw early in his tenure as Energy Secretary is the need to accelerate power supply capacity building. Key to that is reducing the red tape of permits needed by power plant developers. With his sponsorship, President Duterte signed into law Executive Order 30 that mandated that government agencies must act on applications of approvals of projects of national significance within 30 days. Even the controversial 1,200mw Atimonan One project got a certification. EO30 and the CEPNS mechanisms would help mitigate the biggest stumbling blocks in getting critical power projects finished which are local and government approvals and endorsements.

Already many critical power projects all over the country are moving forward faster to alleviate power supply in their areas. Unless they have problems with complying with the CSP rules.

Secretary Cusi’s EO30 and EPNS vision will benefit power projects in the future as we try to catch up in our capacity building.  Thank you Sir. And thank you President Duterte.

c.) Curbing abuse in missionary subsidies

Another thing that Secretary Al Cusi had noticed that past Secretary’s did not pay attention to is the multi-billion rise in missionary subsidies in the off-grid areas.  These are passed on to the consumers.  When the government owned Napocor applied to increase the generation charge to the poor islands in the off-grid islands by P3 per kwh (Can you imagine socking missionary areas with a P8.50 per kwh generation charge compared to P5.50 in Manila?) Secretary Cusi ordered NPC to stop it and instead to look for ways to save the P1 billion by improving efficiency and eliminating waste in generation costs where NPC’s cost had risen by P3.5 billion only in two years from 2016 to 2018.

On behalf of the electric consumers in the off-grid areas, we thank you sir.

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

Viewpoint: Competitive Selection Process for Power Supply Agreements: The Supreme Court Decision and the Responses of the Energy Regulatory Commission and the Distribution Utility Companies

By David A. Tauli
President, Mindanao Coalition of Power Consumers

1. The Supreme Court issued its final decision on July 2019 which required all power supply agreements submitted to the Energy Regulatory Commission after June 30, 2015 to comply with the Competitive Selection Process as defined in the 2015 DOE Circular (DC2015-06-0008), “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).”

2. In response to the SC decision, the Energy Regulatory Commission has directed all distribution utility companies with power supply agreements that are affected by the decision to submit to the ERC by December 2019 their explanations for each PSA showing that they carried out a legitimate competitive selection process prior to entering into the PSA with the generating company that was awarded the power supply contract by the distribution utility company.

3. The majority of the current set of commissioners the Energy Regulatory Commission are untainted by the apparent corruption in the previous ERC regimes prior to the chairmanship of Agnes Vicenta S. Torres Devanadera. Only one commissioner still remains from the corrupt regimes of the ERC. So consumers can expect the current ERC to be fair in their determination of the power supply agreements that complied with the Competitive Selection Process as defined in the 2015 DOE Circular.

4. The result of the evaluations of power supply agreements by competent and honest ERC commissioners should be that the ERC will require all PSAs for which legitimate competitive selection processes were not done to be subjected to the least-cost supply provision of the EPIRA, of which the DOE-mandated CSPs are forms of compliance. (The LCS provision of the Electric Power Industry Reform Act of 2001, EPIRA, states in Rule 7, Section 4h, of the Implementing Rules and Regulations: “A Distribution Utility shall supply electricity in the least cost manner to the Captive Market within its Franchise Area, subject to the collection of Retail Rates duly approved by ERC.”)

5. But even if we assume competent and honest ERC commissioners, the consumer groups should prepare to study all the decisions that the Energy Regulatory Commission will be making in their review of the PSAs in order to ensure that all the PSAs that were not subjected to legitimate competitive selection processes will be required by the ERC to undergo honest-to-goodness CSPs. The ERC under CEO Devanadera has been making decisions that result in fair and reasonable rates, but most of the generating companies will likely try to suborn the ERC into approving PSAs that were not subjected to proper CSPs. If generating companies with illegitimate PSAs are required to go through CSPs, the result will be a great reduction in the prices of the power supplies from these generating companies. It is even possible that the contracted generating companies will not win in the CSPs carried out by the distribution utility companies. Corporate disaster, which could be avoided by bribing the ERC commissioners. The vigilance of consumer groups will discourage the ERC from yielding to the temptations of the generating companies.

6. EXAMPLES

Following below are statements from sample applications for approval of PSAs by the ERC that were submitted by distribution utility companies. It requires only an evaluation of such statements in the PSAs to determine whether a legitimate CSP or LCS was conducted by the distribution utility company that submitted the PSA application. In Example A, the DU obviously carried out an appropriate competitive selection process, and thereby complied with the least-cost supply requirement of the EPIRA. In Example B, the DU clearly did not carry out a generally-acceptable competitive selection process. Example C is a PSA application from a DU that purports to have conducted CSP, but probably carried out a moro-moro that the DU and their accomplice generating company used to fool or suborn the ERC into approving the PSA.

6.1 EXAMPLE A: Verbatim statements in the PSA application of CEPALCO concerning the CSP or LCS process that the DU supposedly carried out:
“CEPALCO solicited offers from potential power suppliers, including its affiliate MINERGY COAL. Evaluations conducted by CEPALCO on the offers received disclosed the following results (excluding Fuel Cost):

Offers Supplier A Supplier B Minergy Coal
PhP/kWh 3.63 3.77 3.56

Comments:

6.1.1 Specific offers are mentioned by CEPALCO, along with the respective prices, the truth of which can be verified from other documents submitted to the ERC by CEPALCO, or by asking CEPALCO to submit confirmatory documents if these were not attached to the PSA application.

6.2 EXAMPLE B: Verbatim statements in the PSA application of MORESCO II concerning the CSP or LCS process that the EC supposedly carried out. “Given its demand growth and in order to obtain a secure and adequate supply of electricity for its member-consumers during this time, MORESCO II sought out other generation companies and sources of electricity in the Mindanao Grid and solicited offers and/or expressions of interest from these power suppliers to supply its growing power requirements;
“Among the offers that MORESCO II considered was one from FDC MISAMIS which made an offer to MORESCO II to supply its power requirements….”

Comments:

6.2.1 No mention is made of other generating companies that submitted proposals to MORESCO II, so it is certain (unless the lawyer was lazy in writing the PSA application) that MORESCO II did not send solicitations to other generating companies, nor did it post any public advertisement for its power supply requirement, thereby violating a basic requirement for acceptable CSPs and LCS processes. It can be verified, by examining the documents that were attached to the application submitted to the ERC by MORESCO II, that MORESCO II did not send solicitations to other coal generating companies (such as GNPower and the San Miguel power corporation that were marketing power supply at that time), and did not make any public advertisements. And upon such verification this PSA would be declared “null and void ab initio” for having violated the EPIRA.

6.2.2 This PSA application was submitted to the ERC before July 30, 2015, so it is not among those that will be reviewed by the ERC as a consequence of the Supreme Court decision. But it is expected that petitions will be submitted by consumers to the ERC to also review PSAs submitted before July 30, 2015 in order to verify compliance with the LCS requirement of the EPIRA.

6.3 EXAMPLE C: Verbatim statement in the PSA application of BUSECO concerning the CSP or LCS process that BUSECO supposedly carried out.

“Competitive Selection Process. BUSECO invited interested bidders to supply its 5 MW peaking power requirements for the 2nd quarter of the year 2018 pursuant to Energy Regulatory Commission Resolution No. 13, Series of 2015 directing all Distribution Utilities (DUs) to conduct a Competitive Selection Process (CSP) in the procurement of their supply to the captive market and in accordance to BUSECO’s duly approved Competitive Selection Process Guidelines through Board Resolution No. 2016-013. The public bidding was participated by two (2) interested bidders, namely, Bukidnon Power Corporation (BPC) (now assigned to NBPC with consent of BUSECO) and Solar Eagle Renewable Energy Corporation.”

Comments:

6.3.1 Based on the statement, it appears that BUSECO conducted a CSP in accordance with the ERC resolution. But, from an examination of the documents submitted to the ERC in the PSA application, it could be found that BUSECO conducted a fraudulent CSP, as evidenced by the following facts:

6.3.1.1 Other generating companies, generally known to electric cooperatives in Mindanao that could supply the particular power supply required by BUSECO, were not invited to submit proposals.

6.3.1.2 The only other generating company that submitted a proposal was a solar renewable company, which could not possibly supply the PEAKING power requirements being solicited by BUSECO. Of course, BUSECO ruled out the proposal of Solar Eagle, leaving it with the generating company that it pre-selected prior to initiating its moro-moro of a competitive selection process. (Truth be told, bidder no. 2, the solar energy company, also was pre-selected by BUSECO so that two proposals could be submitted, thereby complying with the CSP requirement for at least two bidders, without jeopardizing the proposal of the favored generating company.)

6.3.2 Verification by the ERC of either of the foregoing two facts through an examation of the documents submitted by BUSECO should result in the ERC deciding that this particular PSA did not carry out an acceptable CSP. Of course, this assumes (which is reasonable to do so at this point) that there is at least one
honest and competent commissioner in the ERC who participates in the evaluation of the PSAs. Here, I reiterate this requirement for competent and honest commissioners who will carry out evaluation because the fraudulent PSA submitted by BUSECO was approved by the ERC.

6.3.3 The main intention of the Supreme Court decision, which is also the main intention of the EPIRA in requiring “least cost supply”, and also the main intention of the ERC and DOE directives on “competitive selective process”, is that competition among suppliers should prevail in the acquisition of power supply by the distribution utility companies.

6.3.4 If a distribution utility company enters into a power supply agreement but acts in an anti-competitive manner in the process (e.g., not sending requests for proposals to known power suppliers, specifications in the terms of reference that restrict competition, advertisement in newspapers with limited circulation – all of which were committed by BUSECO in this case), the ERC should not approve the PSA. If the ERC approves such PSAs, which happened in this case, the ERC commissioners are culpable and could be sued for corruption.

7. CONCLUSIONS

7.1 By objectively evaluating the power supply agreements, the Energy Regulatory Commission should be able to determine which of the PSAs did not carry out a generally-acceptable competitive selection process or least-cost supply process.

The distribution utility companies that entered into PSAs without legitimate CSPs should be required to carry out CSPs or LCS processes for the power supplies that were already contracted.

7.2 If a competitive selection process or least-cost supply process is carried out for an illegitimate power supply contract and the same generating company wins, then the price offered by the generating company, which probably will be much lower than the price in the original power supply agreement, will be made effective from the date when consumers started paying for the power supply from the generating company. Power consumers win.

7.3 In order to ensure that the commissioners of the Energy Regulatory Commission are not suborned into approving power supply agreements that have not gone through a legitimate competitive selection process (it can be shown that such anomalous approvals have been done many times in the last two ERC regimes), consumer groups should participate in the evaluation process if this is made public by the ERC, or study the decisions of the commissioners on the PSAs if the ERC carries out the evaluations behind closed doors. As the foregoing examples show, straightforward evaluation of the documents submitted by the distribution utility companies and simple verification of the facts need to be done in order to recognize when generally-acceptable CSP or least-cost supply process has been carried out by distribution utility companies. Legal expertise is not required to determine illegitimate power supply agreements; only due diligence.

8. IMPLICATIONS of the SC Decision for Power Supply Contracting in the Electric Cooperatives (which, with MERALCO, have been blatantly anticompetitive in their purchase of power supplies for consumers)

8.1 The SC decision on competitive supply procurement will be the start towards ensuring affordable rates for power supply for consumers of electric cooperatives, not only in Mindanao but throughout the Philippines. It means that the electric cooperatives will have to conduct honest-to-goodness competitive selection processes or least-cost supply processes for all their purchases of power supplies. And the electric cooperatives will no longer be able to pre-select the “winning” bidder for their power supply contracts.

8.2 The pre-selection of generating companies for PSAs by the electric cooperatives has been the main driver for the corruption of the officers of the electric cooperatives (the general managers and the members of the Boards of Directors, but these officers have also corrupted their upper level management employees). From the year 2012, the officers of most of the electric cooperatives in Mindanao established an S.O.P. in their power supply contracting in which the preselected generating company pays to the EC officers a minimum of one million pesos per megawatt of power supply contracted by the EC. This money goes to the officers of the electric cooperative; it has never been reflected in the books of accounts of the electric cooperatives. The SC decision has effectively eliminated this source of funds for EC officers, so there is now little inducement to spend money in order to be elected as a member of the board of directors. There is still money to be stolen from purchases of materials and equipment by the EC’s, but the amount from this is small in comparison to what was made available by the dirty generating companies. Power consumers win.

8.3 Even so, the current officers of the electric cooperatives, most (maybe 99%) of whom spent a lot of money to be elected to their positions, should be expected to continue to look for other ways of cheating their consumers in order to enrich themselves. The only way to stop corruption in the electric cooperatives is to organize and educate consumer groups in the franchise areas of the electric cooperatives to work as watchdogs over their ECs.

8.4 All power consumers should give thanks to God for the work that was done by the Alyansa Para Sa Bagong Pilipinas, Inc. (ABP), which moved the Supreme Court, against the objections of the ERC, to bring about a regime of justice in the determination of the rates that should be paid by consumers for their power supplies. In December 2016, the ABP filed the petition at the SC versus the ERC, DOE, MERALCO and a number of generating companies that were contracted by MERALCO. The petition asked that the SC should order the Energy Regulatory Commission to require the distribution utility companies to carry out competitive selection process in entering into power supply contracts with generating companies. (Why the ERC has to be ordered by the SC to do something which the EPIRA mandates as the prime responsibility of the ERC is another, long and sordid, story.) It is a result of this petition filed by the ABP that all power supply agreements submitted to the ERC after July 30, 2015 will be required to undergo CSP if the ERC determines that legitimate CSP was not done by the distribution utility companies in contracting for their power supplies.

8.5 As mention by the recently-retired Associate Justice Antonio T. Carpio, the Supreme Court is upholding the Philippine Constitution in the decision that resulted from the petition filed by the Alyansa Para Sa Bagong Pilipinas. Section 19, Article XII, The Philippine Constitution of 1987: “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.”

David A. Tauli
November 2, 2019

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

David Celestra Tan, MSK
24 July 2019

(updated)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It is in the timetable for the bidding:

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

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

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

2. Bidding Day

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

3. The Squeeze Bunt

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

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

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

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

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

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

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

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

Let us look at the Terms of Reference:

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

2. Prebid Conference on August 8, 2019

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

4. Bidders must offer a minimum of 200mw.

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

6. Base-load service

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

8. Consortium bidders are allowed.

9. Here are the kickers

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

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

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

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

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

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

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

C. Contract Capacity of 500mw (net)

1. 500mw net firm

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

3. Mid-merit service

4. 100% guaranteed availability and no outage allowance.

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

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

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

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

9. Pre-bid conference on August 8, 2019

10. Bidding by September 11, 2019

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

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

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

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

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

Other Notes:

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

 

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

 

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

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