Why Not Hold CSP Biddings Now to Assure Future Power Supply?

David Celestra Tan, MSK
8 November 2016

They are doing it again to electric consumers! There is a concerted effort to make the public believe that we are running short of power supply and that the current projects, specially by MVP Group and Meralco, need to be approved and permitted through the express lane. Like Scarecrows and pumpkin heads! Of course, power shortage can become a self-fulfilling prophecy.

It might be recalled that Meralco signed seven (7) midnight power supply contracts purportedly with various power generators that turned out to be all majority owned by its own subsidiary Meralco PowerGen. Not that they are bashful about announcing it. Most of the 3,551mw were signed only on April 26, 2016, five (5) months and 20 days AFTER the original CSP deadline of November 6, 2015 and filed with the ERC on April 29, 2016, just beating the new extension given by the ERC of April 30, 2016. The contracts with five different companies have similar language and pricing formula and obviously came from one template. Signed on the same day!

Meralco is claiming urgency and scaring the people about power shortages and brownouts. The truth is of the 3,551mw only 70mw (2%) is coming on line this year 2016. Meralco’s previous 440mw San Buenaventura coal project in Mauban is scheduled for 2018. That’s two years from now. And Most of about 3,500mw will come on line in 5 to 7 years yet. It takes only 3 to 4 years to build those coal power plants. We still have one year to go through an honest to goodness competitive bidding.

But no one seems to be interested in truly subjecting the power generation sector to open bidding, an essential to bringing least cost power to consumers and opening the sector to more independent investors, foreign and local. The government itself is apathetic to it. ERC moved its CSP implementation by five (5) months! If not stopped those 3,551 of midnight contracts will tie up Meralco’s captive consumers and cornering 90% of the energy needs of Meralco for the next 25 years. No real benefit of competitive generation rates.

Subjecting this to bidding will:

1) settle once and for all the least cost difference between self-negotiated and truly competitive bidding

2) self-dealing is minimized and harmful monopolization, cartelization, abuse of market power and anti-competitive behavior are controlled.

3) the generation sector will be opened to truly independent power generators and investors and thus better assuring the continued development of the power supply and the introduction of competitive approaches and emerging technologies and energy to the sector.

The true cost of the negotiated sister company power supply go beyond the initial price that is published. It is also in the fine print of the terms and the administration of contracts whose effective cost are also passed on to the consumers.

All these things will promote the public interest and would certainly be good for the country’s business competitiveness.

We have yet to hear from the new DOE on whether it is committed to bringing true competition to the power generation sector and treat the electric consumers better.

All the contracts are for coal and so there goes any pretentions of the government to even influence the energy mix of the country, much less a true commitment to climate change.

The MVP Group is trying to argue that they are the ones who can assure least cost for consumers. And that they have “aggressively negotiated competitive power deals with power generators” without mentioning that those power companies are their own Meralco PowerGen. Can you imagine Meralco squeezing the best power price from itself? Who are we kidding?

A Challenge to Meralco and the DOE and ERC

To settle all arguments on competitive power and how that can be achieved better, by “aggressive negotiation” with sister companies or by truly open bidding, why don’t we hold even one pilot biddings now?

A decent sized of 300mw coal to be located in Luzon, administered by an independent third party, where only the truly independent power generators can participate. (Meralco’s chosen partners in the seven (7) midnight contracts have been compromised and should not be allowed to participate in this pilot project intended to show truly independent bidders can result to better rates) or the bidding can just assure there would be a minimum of three independent bidders in the mix).

There are still independent bidders that may not be hopelessly compromised. Ayala Group, TeamEnergy of Japan, AES of USA, Kepco of Korea, Filinvest of the Gotianuns, GN Power, PeakPower of the Ng Family, First Gen of the Lopez Group, Energy World of Australia, TransAsia. Other Japanese, Korean, Singaporean, French and Canadian companies looking to participate in power generation.

True Competitive Bidding not Swiss or Price Challenge

By bidding, we don’t mean the swiss or price challenge type that the MVP Group wants because that type is a sham competitive bidding. It is rigged in favor of the supposed “unsolicited proponent” specially if it is the subsidiary of Meralco and MVP Group. It doesn’t even comply with the true wordings of the BOT law that allowed such unsolicited proposals. We are just plain games with the public.

The bidding process could take a maximum 12 months. Way enough time to build plants within 4 to 5 years.

How about it sirs?

Matuwid.org – See more at: http://matuwid.org/why-not-hold-csp-biddings-now-to-assure-future-power-supply/#sthash.AYJW53TT.dpuf


Let’s Be Realistic on Nuclear and Solar Power Options

David Celestra Tan, MSK
23 Sept 2016

The new Department of Energy has floated the idea of nuclear power and the reviving of the never operated 600mw Bataan Nuclear Power Plant (BNPP) as a lower cost and cleaner power supply solution as opposed to coal and natural gas. Additionally people are intrigued by the claims of solar developer Solar Philippines of the Leviste and Legarda families that solar has achieved grid-parity. That means solar power being low enough to compete with the P4 and P5 per kwh of coal and natural gas. This contrasted with the P7.70 to 9.60 per kwh that the Solar Alliance lobby group and the government owned NREB continue in pushing as the consumer FIT subsidy level.

First things first though. Even if nuclear offers a really good option and solar is as competitive as claimed, all these will not really happen because there will be no major buyers of power. Why? Meralco would already be contracted for most of its base-load power requirements until 2035 if they get away with their seven (7) midnight coal power supply contracts totaling 4,100mw. And they are all on Luzon island, same island as the BNPP and of the 7,000mw of existing power plants. Unless of course the government agrees that nuclear will also be majority owned by the MVP Group.

That said, lets start with nuclear power.

There is no question that properly operated nuclear power is for now potentially the cleanest and cheapest power generation technology outside of large hydro. Well at least until fusion technology comes around. We can probably get a rate of P3.00 per kwh. It is also true that there are countries like Japan and South Korea who have long years of successful experience in operating and maintaining nuclear power plants using the same technology as the BNPP. The other truth is the Filipinos have just about paid for the Billion dollars that the government borrowed to finance it.

The question is can the 620mw BNPP technically still be operated after it has never been operated and mothballed for 30 years since 1987? The South Koreans, as pushed for by Cong. Mark Cojuangco of Pangasinan, are interested in studying the BNPP’s revival and estimated that it will cost $1 billion (P47 billion pesos) to revive and operate. We believe the study alone with cost $2 million.

Assuming that the government is willing to explore the revival of the plant, should the Filipinos be asked to pay for the attempt? What happens if the plant, after spending $500 million will cost another $1 billion to finally operate. Let us remember that a lot of the equipment and installations have either been pilfered or deteriorated the last 3 decades. We believe that what would be rational and fair for the consumers is if the government wants to do it and KEPCO of South Korea are sure that they can make it work, it should be done on an ROM basis, “rehabilitate operate and maintain”. An agreement can be signed so that the DU’s are willing to buy the nuclear power output at say P3.25 per kwh and if the Koreans are successful they are assured of a market for the output. But surely it would be unreasonable for the government to spend or borrow a single cent for this adventure and to make the taxpayers take the risk if the concept does not pan out.

As pointed out by columnist Boo Chanco, there are other newer, safer, and cheaper nuclear options that are even smaller in size that fits the archipelagic landscape of the Philippines.

We bet that the Koreans will not go for a “no cure no pay” arrangement like ROM because they must know there would be a lot of headaches and risks. Most power generation professionals will tell you that it is actually cheaper and predictable to build a new plant instead of reviving an old one using old technology.

If we add nuclear to our energy mix, lets go for the smaller and safer technologies in the 200 to 300mw range. Spread it out in several islands. As to the BNPP, lets not do it. It is too risky and will not save much. Just charge it as part of our price for regaining democracy and liberty from martial law.

How about Solar?

Young Leandro Levistes Solar Philippines came into the solar scene carrying a pedigree and lobbying power. His focus had been roof top solar and people are giving him the benefit of the doubt since theoretically roof-top solar specially on the expanse of mall and school rooftop would be viable specially if Meralco cooperates in implementing it under the Net Metering program of the ERC.

In the recent months Leviste went on a media blitz announcing that solar has achieved grid-parity. If he means rooftop solar, maybe. If he means grid connected solar we are not sure. And it seems he is referring to large scale solar because he was talking about 1,000mw in Batangas and the low prices in the bidding in Dubai where it is down to $0.04 or P1.92 per kwh.

Before we get too excited, let us consider a few things.

1) What conditions in Dubai allow foreign bidders to bid that low for 300mw of solar? For one the solar irradiance level of Dubai (and the middle east) is almost double that of the Philippines so they get more energy out of their installation by 25% to 40%. Some reports also say Dubai offers attractive project financing support with negligible interest rates.

2) The lesson of Dubai for the Filipinos is actually not they got lower rates but that they did by holding an open competitive bidding or CSP. Our Department of Energy while admitting that the cost of solar panels have gone down by 70 to 80% is still insisting on doling out high Feed-In Tariff to their chosen RE developers. The government paid NREB (National Renewable Energy Board) recently recommended a subsidized rate of P7.70 ($0.16!!) per kwh for the 3rd round of Solar FIT’s.

Cannot President Duterte order these people to hold a competitive bidding instead?

3) When Leviste talks about grid-parity, we are wondering if he also means grid-compatibility? The lesson of the Visayas is that these solar farms cause grid interruptions every time there are passing clouds. And who buys and pays for the regulating reserve that is needed by the grid to stabilize the system? NGCP who then passes it on to the consumers. We doubt that Solar Philippines is referring to self-regulating solar farms. If they are and the rate is in the range of P4.50 per kwh, let’s go!

Let us be realistic. And be realistic that if Meralco and the MVP Group are allowed to evade the mandatory CSP policy for power supply contracts, all these talk for nuclear and energy mix are moot.

Just saying!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Comments on the Draft Implementing Guidelines of Section 3 of the DOE Department Circular No DC2015-06-0008



Page 8

Meralco’s Gump at DOE/ERC Hearing on CSP

07 October 2015

What we found amazing in the public hearing yesterday at the Intercon Hotel in Makati by the DOE and ERC is the continuing gump of Meralco to claim with a straight face that their negotiated contracts with sister companies result to least cost to consumers. This, despite clear evidence from their own data that the rate difference between their affiliated and non-affiliated generation rates run into billions in higher charges to consumers. A study by the Matuwid na Singil sa Kuryente Consumer Alliance of Meralco’s pass on generation charges to consumers showed that in 2013 the difference was P6.1 billion. In 2014 it went up to 10B. This year 2015 so far up to September, the difference has been P4.9 billion.

It is equally amazing on the positive side that the country’s top power cost policy making authorities, the Department of Energy and the Energy Regulatory Commission, are jointly holding the hearing, clearly on the same page, and hopefully will make a concerted effort to bring the 15-year delayed true competition into the generation charges of captive consumers. The good news for consumers so far is the two agencies seem to be committed to making the CSP rules, mandatory.

Meralco, and their consumer group, academe, and media drumbeaters, are either pushing for voluntary implementation and/or delay in its implementation. MSK suggested a standstill provision in case of delay to protect against mid-night contracts of Meralco to beat the applicability of the CSP rule and to once again outsmart the new rules.

MSK is advising against forced Aggregation because it is complex and can form an argument against the CSP itself. The DOE and ERC also needs to quickly clarify the role of the independent Third Party which should not be a superbody but one that should assure a better assessed capacity addition, transparent and objective bidding, and judicious evaluation and award. MSK estimates the involvement of A Third Party will cost only P0.01 to 0.02 per kwh which is something consumers would love to pay in exchange for the P0.38 to P1.05 per kwh premium between affiliated and non-affiliated generators.

We reiterate our call for a minimum bidding of at least 50% of the base-load requirements and for the rest of the power supply through an internationally accepted competitive selection process called RFP or request for proposals.

MSK raised concerns on the vague language of Section 9 “Repealing” that could be a built in loophole in the law in the same way the tricky-dick language of Rule 11 of the EPIRA IRR is allowing for monopolization.

We are posting in this website our full comments on the draft implementing rules for the CSP.

Please attend the public hearings. Today it will be in Davao.

Matuwid na Singil sa Kuryente Consumer Alliance Inc. 

Meralco’s Proposal for Voluntary CSP is a Ruse To Buy Time

Meralco’s President Oscar S. Reyes had reportedly proposed that the Department of Energy’s circular that requires Competitive Selection Process (CSP) in power supply deals be implemented voluntarily for at least 2 to 3 years.

This is clearly a ruse to buy time for Meralco to finalize the various bilateral contracts totaling 3,000 megawatts that its sister company Meralco PowerGen had been announcing is their target. So far they have announced 1060mw, 460mw for Mauban expansion and 600mw for Redondo Power in Subic.

A voluntary implementation for 3 years would give Meralco sufficient time to find minority partners and finalize its bilateral contracts for its project companies that are majority owned by Meralco PowerGen. Within that time frame Meralco would have gotten ERC approval or have at least filed its application with the ERC as required to be exempted by the DOE Circular 2015-06-0008. This would render useless the DOE’s mandate for open competitive bidding of bilateral power supply contracts for captive consumers.

Meralco had announced that they target 3,000mw of 25-year power supply contracts with its sister company Meralco PowerGen, a contract quantity that we estimate will supply about 60% of the energy needs of Meralco for the next 10 years. If we consider that Meralco still has more than 10 years left on the sweetheart deals it signed with the former owners that currently supply at least 40% of the needs of Meralco, in 3 years Meralco would be already cornered 100% of its energy needs by current and former sister companies with their sweetheart contracts. The utility giant will once again outmaneuver reforms that are intended to promote the interest of the consumers and reduce power costs as its former owners had done with the Epira Law in 2001.

The professionally glib Meralco said in the press release that the DOE must allow competitive bidding “to be done side by side with bilateral negotiations if only to set leverage on which ones could really yield a better deal for electricity consumers. It should co-exist with bilaterally-negotiated contracts so that you can have the best of all worlds. If you do that you will see who gets the best contract. Industry will tend to migrate to the best terms and conditions – whether it is bilaterally-negotiated or CSP”. Somehow these supposed soothing words ring hollow to Meralco’s electricity consumers.

We agree however with Meralco CEO Reyes that mandatory bidding “has not been tried before and that it would not be an easy process”. It has never been tried by Meralco since the passing of the Epira Law of 2001 but many electric cooperatives and some private distribution utilities have tried open competitive bidding and the results have been positively advantageous to the consumers.

Surely, Meralco will find it an easier process to just negotiate with a sister company across the breakfast table but it is its duty as a public service utility to supply power in the least cost manner and if that takes the inconvenience of going through a transparent competitive bidding and doing business with unrelated companies, so be it. Meralco should not deny its captive consumers the right to competitive power just because it would not be an easy process.

Mandatory open bidding will take away the control of the generation market by the DU, a market power that intimidates legitimate and truly independent local and foreign power generation investors from competing with the sister company generators of Meralco. While there are gaping loopholes in the Epira Law of 2001 and its Implementing Rules that allowed Meralco and the Aboitiz group( who together must be controlling 70% of the countrys energy needs), to effectively expropriate the power market, there are also sufficient openings in the law that will allow for rectification for the protection and benefit of the electric consumers.

Electric Consumers should thank former Energy Secretary Carlos Jericho Petilla for being bold, prescient, and caring enough to lead the Department of Energy in this historic first step that can set the country on the road to making amends to the long abused and neglected electric consumers.

Mandating the open bidding is NOT prohibited by the Epira law under Section 45(b) and certainly it is in the public interest and the only way Meralco can truly say it will be supplying in the least cost manner. Obviously there are bidding and contracting safeguards that need to be put in place to protect the public but those are mechanics that can be worked out.

Allowing Meralco to voluntarily bid in parallel with its continued right to negotiate with a sister company as they propose will give them a 3-year window to corner its generation market with untold billions excessively charged to the consumers. There is nothing to prevent them from holding token and gesture biddings just to show they are doing a CSP and negotiate its juicy power supply contracts behind the smokescreen.

We estimate the difference in the current generation price of Meralco’s sister company generators and the non-affiliated generators is approximately P13.68 billion a year.

We call on the Energy Regulatory Commission to hold true to its own mandate to protect the public interest and to immediately put in place the regulatory rule requiring mandating open bidding or competitive selection process. It has put in place elaborate competitive mechanisms for the contestable customers. The process of CSP would comparatively be a lot simplier and will benefit 50% of the Meralco consumers that pay 60% of Meralco revenues.

Let us not fall for the Meralco Ruse to buy time to corner its generation market.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
24 July 2015

Signs of Life and Hope for Meralco Consumers

Matuwid na Singil sa Kuryente Consumer Alliance, Inc.
21 June 2015

Meralco had been highly publicizing recently rate reductions in its average generation rates and in its distribution rates. My Meralco bill shows a generation rate of P 4.4556 per kwh compared to P5.50 six months ago, a more than P1 per kwh reduction. They have asked the ERC to allow a reduction of P0.18 per kwh in its distribution rates. Meralco consumers are of course thankful for any rate reductions specially during this school opening months.

What these rate reductions mean is if Meralco works hard enough and adopts a mantra to truly treat its captive consumers fairly as they should as a public service utility, they can really bring down power cost and not nonchalantly dismiss increases in generation and transmission rates to be beyond their control. For the most part the reduction in generation rates are results of opportune drops in the world oil and coal prices. Even natural gas is in a state of glut and prices have dropped.

Generation rates are within Meralco’s control. They can honestly and vigilantly watch the downtime allowances and the pass-on fuel consumption of their power generation contractors, only paying for capacity if they are truly within their downtime limits especially those that got sweetheart contracts. Shepherding their maintenance schedules to assure availability during critical demand periods. Managing their availment of the WESM spot market prices and themselves assuring their own contractors do not engage in supply and price manipulation. They can monitor the purchasing of substitute fuel by its natural gas generators.

Most importantly Meralco must open their generation market to open competitive bidding. For now it seems they are determined to negotiate 3,000mw of their new power supply requirements through its affiliate Meralco PowerGen which will be the majority stockholders of the generation companies. Meralco negotiated a 460mw expansion of the coal plant Mauban at a rate of P4.30 per kwh. Comparatively eight electric cooperatives in Northern Luzon consolidated their requirement of 105mw and held an open bidding. They got a rate of P3.78 per kwh, P0.52 per kwh less or approximately P1.5 billion a year.

Meralco must excuse its captive consumers if we are not overjoyed by these temporary reductions that can go back up when no one is looking. What consumers are looking for are long term reductions through systemic reforms and corrections of anti-consumer rate making methodologies.

It will take only plant shutdowns and upheaval in energy prices to make all these price reductions disappear.

Many suspect that all these “do good” programs are intended to disarm the public and not pay attention while they are negotiating their 3,000 mw power supply contracts with its own sister companies. Metro Pacific openly announces in its corporate website that it intends to fully take advantage of the opportunities in the generation sector, an “in your face” defiance of the words and spirit of the Epira Laws call for competition and anti-market domination. No one in government seems to care about the clear monopolization of the generation sector.

My electric bill still show a 10% systems loss when it should not be higher than 8.5%. PBR is unfair because it gives them a return on investments they only forecasted and not actually incurred as required by law. Meralco highly publicizes at consumer expense its various rate reduction and energy efficiency programs for large commercial and industrial users. Let us not make no mistake. Those wonderful programs are not really undertaken because they care about these consumers. They have do it to prevent their large consumers from exercising their “open access” options as “contestable markets”, consumers who can go somewhere else for their power supply.

The true measure of Meralco’s commitment to fair and reasonable rates is to undertake programs that will permanently reduce its rates to captive consumers (residential and commercial customers) from which it gets 60% of its revenue. This it can achieve only by agreeing to opening its generation market and to the correction of the various anti-consumer rate methodologies.

For now we can only be content with signs of life and hope at Meralco for the consumers. However, we have been waiting for a long time and things are getting worse.

ERC Hears MSK Petition to Subject Power Supply Contracts to Open Competitive Bidding

The Energy Regulatory Commission held a public hearing last March 23 on consumer group Matuwid na Singil sa Kuryente’s petition to make it mandatory for distribution utilities like Meralco and Aboitiz to subject to open competitive bidding their power supply contracts instead of negotiating with their own sister companies.

MSK presented generation cost data from Meralco’s own website showing that Meralco consumers are paying an extra P13.68 billion per year for the higher rate of negotiated sister company generators compared with those negotiated with non-affiliated generators. This showed the evils of self-negotiated power supply contracts that we hope to correct by subjecting those power supply contracts to open competitive bidding, said the MSK spokesmen in the hearing.

MSK lawyer Attorney Ernesto P. Tabao asked the ERC to pass a resolution mandating that distribution utilities hold open competitive bidding for power supply that will serve the captive consumers of Meralco which comprise 60% of the energy market of the exclusive distribution utility for the National Capital Region and most of the Calabarzon areas.

Utility Economist David Celestra Tan, a co-convenor of the consumer group, presented an analyses showing Non-affiliated suppliers of coal power to Meralco averaged in price at only P3.49 per kwh for the four months from October 2014 to January 2015. Quezon Power price however averaged 4.65 per kwh for the same period or a higher rate by 33%.

For Natural Gas power using Malampaya gas, Meralco’s two affiliated suppliers, First Gas Sta. Rita and San Lorenzo averaged in price at P5.47 per kwh. In contrast, the non-affiliated South Premiere owned by San Miguel averaged in price at only P4.45 per kwh or P1.02 per kwh or 23% lower.

A representative of Meralco raised questions on the claims of MSK by saying First Gas and Quezon Power are no longer affiliates of Meralco. He claimed also that Meralco does not understand the source of this information.

Asked for comment, MSK technical analyst said the figures came from Meralco’s own website and that common consumers can plainly see the disparity in prices. David Tan stated that it is clear from Meralco own generation cost data that negotiated power supply contracts and prices from sister companies hurt the consumers. He claimed that Meralco PowerGen’s new 460mw coal project in Mauban in partnership with minority owner EGAT of Thailand is priced at about P4.35 per kwh, much higher than the average of non-affiliated companies at P3.49 per kwh.

MSK representatives acknowledged that Quezon Power and First Gas Power are technically no longer sister companies of Meralco since the Lopez group sold its majority ownership of Meralco to the Metro Pacific group in 2010. However, when the 20 and 25 year bilateral power supply contracts were self-negotiated and signed, Meralco was fully controlled by the Lopez that owns First Gas Power. Now, MSK continued, Meralco’s power generation affiliate, Meralco PowerGen has boldly announced 5 or 6 projects totalling 3,000 mw of generation capacity all with negotiated contracts for 20 years. Conversely, non-affiliated power generators only get 4 or 5 year power supply contracts. Additionally, the Summit Group which owns significant shareholdings in Meralco also announced a 600mw power project, evidently also with a negotiated long term power supply contract.

The MSK petition is part of a Php3 Movement of consumer groups that is seeking to reduce Meralco residential and commercial rate by P3 per kwh by eliminating anti-competitive behavior and regulatory loopholes in the various charges that are passed on to the consumers like transmission, systems loss, performance based rate making, VAT taxes, and universal charges.

MSK expressed fears that by the year 2020 Meralco’s energy supply will be monopolized at least 80% by these sister company generators all with negotiated sweetheart rates with the Meralco consumers, specially the captive consumers, having no benefit of competition and transparency.

For its part, the Energy Regulatory Commission hearing officer Attorney Roviel V. Macigan informed the MSK consumer group that the ERC actually had held public hearings on a draft resolution establishing rules for a competitive selection process for bilateral power supply contracts. The hearing officer gave a copy of the draft resolution to MSK who was asked to submit their comment within 10 days.

A representative of the Aboitiz affiliate SNAP hydro generators pointed out that the law does not prohibit distribution utilities from holding a competitive bidding for bilateral contracts. MSK responded by saying that while that is true, DU’s like Meralco and Aboitiz have not really called for open bidding for their power supply contracts in at least 15 years. They are all negotiated with sister companies. Hence, there is a need to make it mandatory to subject all these power supply contracts to open competitive bidding to protect the electric consumers.