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

TAKEOVER OF ELECTRIC COOPERATIVES – DOE NEEDS TO ESTABLISH RULES…QUICKLY. (Part 2)

David Celestra Tan, MSK
19 July 2019

Part 2

There are many unclear issues that any takeover by the private sector of an electric coop would be messy. It behooves the Department of Energy to establish clear rules soonest before target areas are thrown into chaos. Some profound aspects that need clarity are the following:

1. Due process – In taking away or not renewing franchises, there has to be due process. The legislative Franchising Committee does not appear to provide for a due process for denying renewals of incumbent franchise holders much less for cancelling an existing franchise and giving it to someone else. The acrimonious state of the PECO takeover of its assets could have been less so had there been true due process in the franchise denial.

2. Valuation and Definition of Distribution Assets
As we have seen, it is not enough to rely on the power of eminent domain to force the take over. At the same time, the right of the former public utility franchise holder to hold on and value its distribution assets may not be absolute because the consequent rates to the consumers will need to be considered especially when the government is effecting a change of franchise holder. It needs to assure the consumers that it is to their better interest and that includes the rates will be better. Only Distribution lines and substations should be part of eminent domain. Expensive real estate and buildings accumulated over the years should not be part of the rate base. Allow the new franchise holder to lease from the owner to avoid disruption of operations while he is looking and setting up his own buildings and base of operations within say five (5) years. Instead of just handing out franchises, the LFC might want to include these provisions in the franchise.

3. Standards of DU Failure – When does an incumbent franchise holder deserve not to be renewed? And when does an EC’s franchise deserve to be cancelled? The term “ailing” is not clear and if we go by the definition of RA 10531, it means an EC is bankrupt and not able to operate. It is not enough for the area Congressmen, Governor, and Mayors to declare that an EC is ailing. (we have a long running joke. Before you can privatize and rehabilitate a coop, you must destroy it first!).

4. Other Policy issues on the takeover of an electric coop?

a) Who makes the decision on whether the coops franchise should be defended? The Coop Board or its member-owners? If you are an owner and your business franchise is being taken away which will marginalize your business value, would you not have a right to fight for it?

b) Who makes a decision on whether the coops assets should be sold? Should it not be the member-owners?

c) If your coop management has been taken over by the NEA, can the member-owners not demand that NEA rehabilitate the coop as required by law under RA 10531? What are your options if NEA is not doing enough to address the problems of the EC under its management?

d) What happens if your EC Board is not doing enough to protect the coop franchise and assets, can the member-owners call for an emergency stockholders meeting and elect a new Board? What are the rules if the EC is registered with the CDA? Would you not remove your Board if they are not protecting the interest of the stockholders?

e) Should the DOE not establish guaranteed service level improvements as a condition for the entry of the private sector? What happens if they fail? Can they also be replaced?

f) Will the consumers in these islands still be entitled to missionary subsidies? How much time is the new private franchise holder allowed to reduce his true cost of generation and the phase out of the government subsidy?

g) What will happen to the IPP’s who have long term contracts with the EC’s? Will their power supply agreements be rescinded or renegotiated by the new franchise holder?

h) Assuming the member-owners are willing to sell, Who determines what is the fair value of their shares and the distribution assets?

i) How about the employees of the EC’s? Will they get fair retirement packages?

j) Will the DU service compliance standards to their franchises obligations be the same for the off-grid and on-grid Distribution Utilities? Will our legislators hold Meralco to the same franchise compliance standards? And will they dare to even suggest a grab of Meralco’s franchise?

DOE and NEA as White Knights

Actually at this stage only the Department of Energy appear to be trying to do something to rehabilitate Paleco through a Task Force created by Secretary Alfonso G. Cusi and had recently issued orders for Paleco, NEA, and NPC to correct the problems that have been identified. Will the provincial and City officials impede the rehabilitation? (The DOE we understand had created similar task forces also for Mindoro and Masbate)

NEA under RA 10531 is mandated to step in when there are management problems of electric coops and service is deteriorating. They then are legally obligated to rehabilitate the EC like Paleco. With the DOE Task Force showing the way for Paleco problem corrections, will NEA, and NPC whose outdated transmission facilities on the 400km long island is part of the brownout problem, step up to really solve the problems on the ground? Or will they be tacit parts of the political campaign to make poor Paleco look terrible to justify its disenfranchisement?

Meanwhile, the DOE needs to see the writing on the wall that the big conglomerates, who can fund lobby campaigns to take over EC franchises of plum areas, will continue to launch hostile takeovers of EC’s and clear rules are needed quickly, and leadership provided, to assure the service to the public does not deteriorate. Maybe all it will take it to tighten and update the rules under the IMC program. (and delete that MC option for Christ’s sake!). Will it not be a wonderful EC world if we also find a solution to the unspoken “politically ailing” coops? Just kidding.

The Epira Law under Section 37 specifically mandates the DOE to supervise the restructuring of the power sector. And the takeover of the franchise areas of Electric Coops is a major tectonic power sector restructuring affecting millions of marginalized consumers.

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

TAKEOVER OF ELECTRIC COOPERATIVES – DOE NEEDS TO ESTABLISH RULES…QUICKLY. (Part 1)

David Celestra Tan, MSK
19 July 2019

Part 1

The acquisition of the electric distribution franchises seems to have become the new frontier of the big conglomerates for insane profit growth after they have all conquered power generation, water, telephone, condo building, roads and highways, and soon airports. We are sure it has not been escaping their corporate growth strategists the 25% annual return on equity of Meralco that the ERC’s PBR rules are allowing. That acquiring the franchise for the Distribution monopoly is also the ticket to the generation monopoly.

Due to the absence of clear rules of entry and engagement, it is going to be a wild wild west. Rules of takeover have actually not been necessary although there have been attempts at take overs of electric cooperatives in the past. Until recently, the takeovers by the private sector were mostly welcome and/or necessary. Like those of troubled Pelco by Meralco, Aleco by San Miguel. Others were patient and civil – years of attempts by Aboitiz on Daneco, Meralco on Batelec I and II in Batangas. Aboitiz attempts at gaining a foothold in Ceneco in Bacolod, the 2nd largest electric coop in the country.  Meralco, as if they don’t already lord over 73% of Luzon, had announced its desire to expand its franchise area to neighboring provinces of Pampanga, Tarlac, Batangas, Mindoro, and rest of Laguna.

There has been no shortage of Governors and Congressmen willing to sell their electric coops to those willing to make a deal. Still the overtures remained subtle and civil….until recently.

Wake Up Call

The wake up call that maybe clear rules are necessary is the recent bold and succeeding attempt of MORE of the Razon Group to takeover private DU Panay Electric Company (PECO) that serves metro Iloilo. And after having whet their appetite, MORE is now going after the franchise for the main island of Palawan, one of the world’s most beautiful islands and hence a prestigious service area. Things however can get ugly unless rules of entry and engagement are established quickly by the government.

The Paleco electric cooperative in Puerto Princesa is under siege. Brownouts had reportedly gotten worse despite the NEA takeover. Government officials seem bent on making the coop look “ailing”. The City Government, a known ally of the Governor who is an open supporter of the disenfranchisement of Paleco,  had sued it and seeking the resignation of all the board of directors. Service will deteriorate and soon the world’s most beautiful island would also be one of its darkest….and hottest in the daytime without aircon!

The Epira Law of 2001 had tasked the Department of Energy to supervise the restructuring of the power sector. It is incumbent upon the DOE that ground rules for the entry of the private sector into the electric coops and/or the takeover of their franchises can be made in an orderly manner or in a way that serves the public interest.  After all, electric service is an essential public utility and every care should be taken by the government that they don’t fall into chaos…all in the name of a franchise takeover.

Existing Rules for Entry of the Private Sector into Troubled EC’s

Actually there are already rules for the entry of the private sector into really troubled electric coops that need private investment – This has been the Investment Management Contracts or IMC that was promulgated by the DOE with funding from the World Bank way back in 2004 a couple of years after the EPIRA law was passed in 2001.

This wonderful IMC program for an organized entry of the private investment and management sector to rehabilitate financially ailing electric coops however did not prove appealing to even troubled coops after they saw an “MC” agreement that took over Zambales Electric without an investment and collected fat fees for “management”. That deal stigmatized the IMC program. (We understand the Management Contract or MC option in the rules where there could be a management takeover without making an investment was surreptitiously inserted by a consultant and the DOE did not catch it)

One recent successful entry of a private investor under the IMC rules was the takeover of Zamboanga Electric Coop by Crown Investment Holdings and Desco in 2018. Zamcelco had been suffering from 22% systems losses and was P1.2 billion in debt. Crown-Desco pumped in P2.5 billion with P1.2 billion paying for debts and the balance of 1.3 billion for rehab and working capital. The new managers are working on reducing the systems loss down to the regulatory limit of 13% and have reportedly discovered that its power supplier WMPC has been charging it 50mw of capacity fees when its peak demand had been only half or 25mw. Now Zamcelco is seeking a P441 million refund.  Aboitiz apparently lost out in the bidding for the IMC and the Meralco group backed out early.

The Dangerous Trend Towards the Franchise Grab

It appears the IMC route is too inconvenient, too slow, or too unsure to some players. They have elected to go the “franchise grab” scheme through friendly members of the Legislative Franchising Committee.  Except they are trying to grab DU franchises that are not yet up for grabs.  One such case is More Reedbank application for the franchise for Palawan service area when the incumbent PALECO’s franchise is still valid for nine (9) more years.  And Paleco, while having solvable problems, is far from being ailing or bankrupt as defined in the applicable law which is RA 10531. The franchise application of More Reedbank is sponsored by two congressmen of Palawan.

Another case is the franchise application by a supposed farmworkers cooperative “GamboaHermanos” to provide electric service for the whole island of Negros. (Can you believe it!) Amazingly, the franchise application was approved in one reading according to the papers by the Legislative Franchising Committee.

People point at MOREs apparent success in taking over the franchise of PECO in Iloilo City by lobbying in the Legislative Franchising Committee and winning a Franchise from Congress. PECO’s case is different. First its Franchise was actually expiring, and the LFC can argue that it was just exercising its right to grant a franchise. Second difference is PECO is a private distribution utility and the rules for required rehabilitation under NEA Law 10531 do not apply.

 

Happy SONA!

 

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

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

2 May 2019

POSITION PAPER ON LONG TERM SOLUTIONS FOR STABLE POWER SUPPLY

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Submitted to:

The Joint Congressional Power Committee

Hon. Senator Sherwin Gatchalian

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

Public Hearing May 2, 2019

Dear Sirs:

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

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

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

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

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

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

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

2. Insufficient Reserve and Need for Additional power supply

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sincerely yours,

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

David Celestra Tan
Co-Convenor

Evelyn Viray Jallorina
Executive Director

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

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.

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