Meralco’s Successful 1,200mw CSP…a Prelude to A Negotiated 1,200mw Atimonan One

David Celestra Tan, MSK
13 September 2019

Meralco’s media machinery is on overdrive hyping the successful holding of their CSP for 1,200mw of power supply. It appears successful for Meralco and its generation partners, particularly San Miguel. Whether or not it is successful for the consumers who will pay for those power supply remains to be seen. The devil is in the details. More specifically the pricing indices and the downtime allowances and guaranteed capacity payments.

Meralcos media onslaught trumpets that the Competitive Selection Process (CSP) bidding was undertaken by a third party bid and award committee although it is dominated by Meralco people and handpicked outsiders. To add credibility to this pseudo “third party” committee they had a DOE undersecretary defend the propriety of the TPBAC in a Manila Bulletin story. And yes the concept of calling a Meralco dominated bid committee as TPBAC is in the DOE’s own dc2018-02-0003. They also make it a point to mention that the DOE observed the bidding process, never mind that they were passive observers in accordance with Section 7 of the circular.

We are not assailing the integrity of the anointed chairman of the TPBAC but the fact that the bid committee and the technical working groups are Meralco people smacks of a hometown decision.  It is like putting the top boxing referee Kenny Bayless in the ring with a Club fighter and an opponent who was given only 4 hours to prepare? All the virtues of the chosen referee doesn’t matter. All he has to do is know how to count 1 to 10!

This is clearly contrary to the Supreme Courts decision exhorting the need for a truly competitive CSP to protect the public from exploitation.

Smokes and Mirrors

We are afraid that Meralco is actually playing a smokes and mirrors game on the DOE, ERC, JCPC, and its consumers. This bidding for 1,200mw in my opinion is a misdirection “believe what you see” prelude to the real trick of Meralco’s CSP magic.

Let us look closer

1.The 1,200mw is for delivery by December 2019 and clearly only for those with existing capacities.

a. This is not even among the controversial seven (7) midnight power supply contracts it signed with several chosen partners a few days before the ERC’s gratuitous “restating” of the CSP implementation date to April 30, 2016.

b. This 1,200mw is actually a replacement of the expiring power supply contracts that were signed seven (7) years ago with San Miguel for Sual (San Miguel Energy Corp.) and Ilijan (South Premiere Power Corp.) who are also the winning bidder for this “successful CSP” in addition to a 200mw of now Ayala owned Phinma Energy.

c. On August 19, 2019 Meralco announced that there were eleven (11) bidders interested in participating in an evident effort to project robust competitive bidding for this package. Of the 11, Four (4) are San Miguel affiliates – San Miguel Energy, South Premiere, San Miguel, and Masinloc Partners that it bought from AES and EGAT, Two (2) are Aboitiz companies – AP Renewables and Therma Luzon. The others were Quezon Power of EGAT and Meralco PowerGen, Southwest Power of DMCI, EDC of the Lopez Group, Phinma of Ayala, and Solar Philippines. We wonder how many of these supposed interested bidders owned existing power plants to meet the December 2019 delivery and  actually shelled out P6 million to buy the bid documents?

d. Of the eleven (11), five (5) bids were submitted, Four (4) were from San Miguel companies including Masinloc and 1 from Ayala, a non member of the Meralco Six.

e. Meralco announced the winning bids to be P4.8849 per kwh for 200mw from Phinma, P4.9299 for 330mw SMC Energy from Sual,Coal plant and P4.93 per kwh for South Premiere from Ilijan Gas. All supposed to be VAT paid.

f. Meralco announced the other bidders to be SMC Consolidated for 200mw and Masinloc Partners for 220mw, both San Miguel subsidiaries.

g. Meralco is touting a savings of P0.28 per kwh or a claimed total of P9.46 billion over ten years. I am not sure about this since we don’t really know yet the pricing indices that are in the fine print of these contracts.We can only tell you that for the Atimonan One contract, Meralco was publicizing a rate of P3.75 per kwh. When we applied the indices and updated the fuel prices it became P5.60 per kwh. Meralco cannot fault us for not taking their numbers at face value given their history of hoodwinking the public.

h. Tracking the Meralco power suppliers’ prices, the benchmark rates of SMEC Sual is P5.037 and SPPC Ilijan is P4.8489 per kwh not much different from the new bids.

i. In trying to project billion peso savings for its consumers, Meralco is using an average generation rate which is WESM price heavy and not a valid comparison.

2. The set up for the coming Meralco CSP trick under DC2018-02-0003

Let us all notice that while Meralco is heralding their 1,200mw successful CSP, they are also announcing the failure of bidding for another 1,200mw, a base load supply for delivery in 2024. This is what we believe to be the real coup de grace of this initial CSP and the test case for the rest of the seven (7) midnight contracts that clearly they are still trying to control nonetheless despite the Supreme Court rebuke.

a. This 1,200mw lot for delivery in 2024 is requiring the so called Super critical high efficiency low emissions advanced technology or HELE for coal generation.

b. This is evidently a CSP compliance exercise for the 1,200mw Atimonan One.

c. In the list of potential bidders they announced on August 19, 2019, the four interested companies were First Gen, PanAsia, Mariveles Power, and of course Atimonan One. PanAsia and Mariveles Power are San Miguel Subsidiaries.

d. Conspicuous by their absence for this greenfield project that will not be due until 2024 are Aboitiz, Ayala, DMCI.

e. Then they started dropping like flies. Panasia Energy of San Miguel wrote the Meralco TPBAC on August 28, 2019 that it is withdrawing from participation in the bidding process.

f. On the bidding date of September 10, 2019, Mariveles Power also of San Miguel also submitted at 8:45am a letter withdrawing from participation. First Gen Ecopower Solutions “failed to arrive”.

g. Atimonan One Energy of Meralco PowerGen arrived and submitted its documents at 8:27am

h. The Abstract of Bids concluded “the TPBAC has determined that there was a failure of bidding and has resolved to report back to the Distribution Utility on this matter”. The reserve price envelope was delivered back to the TPBAC by the escrow/custodian.

i. You wonder how a bidder (Atimonan One) owned by Meralco would not know the reserve price prepared by Meralco’s own employees and officers?

3. A Negotiated Contract for Atimonan One, the Coup de Grace

This bidding for 1,200mw greenfield project is careening downhill faster than a wayward bus towards a negotiated contract ending.  This would be a beautiful execution of Section 9 of the DOE DC2018-02-0003 CSP playbook that is allowing for “Direct Negotiation in Failed CSPs” after “only one Genco submitted an offer”. And you guessed right that it is Atimonan One. Under the Philippine environment, this is an easy thing to orchestrate especially when most of the players are actually partners.

Negotiated contracts are also elaborately provided for in the new ERC guidelines it proposed to the DOE for CSP.

4. “Successful CSP’s”

Today, Meralco again announced the successful CSP for the 500mw mid-merit supplies due for delivery 60 to 90 days from now or December 2019. The winners are Phinma of Ayala for 110mw at P5.5858, First Gen for 100mw at P5.3989 per kwh all in cost. South Premiere of San Miguel for 290mw at 5.7527 per kwh.

It is debatable whether these CSPs were actually truly competitive but since they are for power supply that need to be contracted for delivery by December 2019, it is limited to those generators that are existing or brownfield. And it is good for the consumers interest that at least this 1,700mw is contracted even if they don’t really represent additional capacity but extensions of mostly of old contracts.

What is important to us consumers and even to Meralco is that these two packages, the 1,200mw aggregate base-load for December 2019 and this 500mw are undertaken under CSP effort compared to straight negotiated contracts. Whether or not they are truly competitive is another matter.

We believe that even more important to Meralco is the demonstration that its own style of CSP’s are successful and will result to savings to consumers even if they are handled by their own “TPBAC” and bidders were only given 40 days to prepare a bid. This is the reason they are going to full blast media campaign to tell the whole world that their CSP is successful and will result to savings of P13 billion over 10 years or P1.3 billion a year.

We consumers however must not miss the fact that the winning rates being contracted for these 1,700mw are not major improvements from the existing contracts. No real competitive rates. We have yet to see the power cost benefit from a truly competitive bidding.

The Meralco CSP exercise is evidently to prepare the public to accept the CSP process for the 1,200mw greenfield project for Atimonan One even if it will result to a failed bidding and end up being a negotiated contract. Still it will be touted as “successful” because it would be in accordance with the CSP rules established by the DOE under DC2018-02-0003.

If you are feeling frustrated and wondering if there is someone in our country who will really change things and step up to protect the public and usher in an era of true competition and meaningful consumer respect, welcome to the club.

For now let us just take Meralco’s trumpeting of successful CSP with a grain of salt and a raised eyebrow. In the world of magic, the two CSPs totaling 1,700mw looks like misdirection plays and are set-up for a tantalizing negotiated contract for 1,200mw for Atimonan One.  Then we would be back to square one. Except it will be legitimized by the current CSP rules.

CSP is not a ritual but an objective to be truly competitive that should result to true lower cost to the consumers. By these measures, Meralco’s CSP biddings were not successful.


MatuwidnaSingilsaKuryente Consumer Alliance Inc.