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

David Celestra Tan, MSK

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