An Open Letter to President Duterte on ERCs Intended CSP Rules

14 October 2018

An Open Letter to

President Rodrigo R. Duterte

CC: ERC Chair Agnes Devanadera

By Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Subject: Proposed ERC Rules Allowing Unsolicited Proposals and Swiss
Challenge in Procurement of Power Supply Contracts.

Dear Sir:

Greetings!

The ERC is now conducting public consultations on its 2nd draft of a proposed “RULES GOVERNING THE PROCUREMENT, EXECUTION, AND EVALUATION OF POWER SUPPLY AGREEMENTS ENTERED INTO BY DISTRIBUTION UTILITIES FOR THE SUPPLY OF ELECTRICITY TO THEIR CAPTIVE MARKET”

We are constrained to bring to your attention, on behalf of the Filipino electric consumers, this alarming attempt of the ERC to legitimize Unsolicited proposals and Swiss Challenge type biddings in the Competitive Selection Process rules which we see as a set-up to yet again allow the circumvention of open and true competition in the contracting for long term power supply charges that are passed on to the people.

We invite the esteemed Office of the President to join our abused electric consumers in stopping this ERC attempt for the following reasons:

a. Allowing Unsolicited Proposals and Swiss Challenge type biddings in the official guidelines of power procurement will enshrine the rigged and manipulated practices and effectively makes it a government policy to deny the consumers their right to true least cost power that results from a truly open and competitive bidding.

b. Under the ERC’s draft it approved last September 21, 2018, it is trying to allow SWISS CHALLENGE bidding under Section 32 and its precursor, UNSOLICITED PROPOSALS under Section 28, as proper parts of a CSP process when in the power sector these are precisely the prevalent practice of DU’s in rigging the bidding process for power supply contracts to favor their chosen or preferred supplier by scheming to give them original proponent status and defining the terms of reference according to what was offered by the chosen proponent.

c. In fact, Allowing Unsolicited proposals and the eventual Swiss Challenge are contradictory to ERC’s own stated Objectives under Article I, Section 1 (e) “to promote competition among Generation Companies (Gencos) in providing the best offer of power supply which will ensure least cost of electricity for the DU’s captive market in terms of the generation component of their retail rates.”

d. Improper Contradiction of DOE Policy
This ERC proposal allowing Unsolicited Proposals is further contradictory to the policy issued by the Department of Energy last March 21 2018 unequivocally declaring that “the CSP Circular does not allow unsolicited proposals from suppliers in accordance with the “buyers market principle” under RA 9136.

The Department of Energy is the policy making authority and the Energy Regulatory Commission is the regulator mainly on rates as mandated by the EPIRA law or RA 9136, our law of the land that governs the power sector. The ERC should be implementing and complementing the policy decisions issued by the DOE.  It is suspicious why the ERC appears to be asserting its own policy and contradicting DOE. ERC sometimes is justified in deviating from a DOE policy if it is better for the public interest. In this case, making unsolicited proposals and swiss challenge as an officially permitted CSP procedure for power supply bidding is clearly against the public interest.

e. In Line with Meralco’s Desires
Not coincidentally, Swiss Challenge is the method of CSP that the Meralco group had been lobbying to be allowed to do by ERC in 2015 and early 2016 for their announced 3,000mw target for their own Meralco PowerGen.

Putting in enabling regulatory rules after the fact will give distinct appearance that it was done to justify ERC’s approval of the negotiated seven (7) midnight power supply contracts totaling 3,551mw for which the ERC got in trouble with consumer groups and the Office of the Ombudsman. We objected to Meralco’s attempts because they were clearly intended to favor their own Meralco PowerGen in a swiss challenge bidding or its’ even more sham version called “price challenge”. We estimate negotiated contracts are higher by P0.40 to P1.25 per kwh than truly competitive and arms-length biddings which in Meralco’s case will amount to P20 billion a year for 20 years. We need help in protecting the consumers.

f. Legality of Swiss Challenge in the Power Sector
Unsolicited Proposals and Swiss Challenge had their legal origins from the BOT law of the early 1990’s when the country invited the private sector to help build the deficient public infrastructures including power. The BOT Law however allowed Swiss Challenge only for pioneering projects and technologies not yet envisioned by the government. In the power sector, the need for additional power supply is widely envisioned and the technologies of coal, natural gas, diesel, and now solar are no longer pioneering. Swiss Challenge is not proper now and should not be a regulatory policy.

g. Evils of Unsolicited Proposals and Swiss Challenge Schemes in the Power Sector

1) In practice and reality Swiss Challenge bidding is a signal to experienced and legitimate power generators that there is already a chosen/annointed proponent who will be given the “right to match” or “right to top” advantage. Therefore instead of “promoting competition” potential genco bidders are dissuaded from spending the time and expense of seriously studying and preparing a bid.

2) Swiss Challenge biddings tend to result to higher prices and favored winner. The technical specifications tend to be restricted to what was offered and defined by the chosen “original proponent” who is already given many advantages. The biding in effect is narrowed down only to price based on technologies and scope of supply as defined by the original proponent. It closes the door on the consideration or offering of alternative technologies or terms that could be more favorable to the DU and the government.

3) We invite the government to check the bid results and awardees and prices of the PSA’s that were awarded under Swiss Challenge biddings. In the off-grid areas they have resulted to higher awarded rates, improper sizing of plants, and hundreds of millions in anomalous higher missionary subsidies that are eventually charged to Filipino electric consumers nationwide as part of the UC-ME. We estimate the excess charges amount to P1 billion a year in additional missionary subsidies.

4) Swiss challenge biddings encourage corruption and collusion leading to potential bidder “challengers” to back out resulting to No challenges and an automatic award to the anointed original proponent.

5) Unsolicited proposals and swiss challenge biddings also effectively bestow “qualified” status to the original proponent who in many cases would not qualify if the credential requirements of the bidding are applied to him.

6) It is no wonder that many electric coops are also applying for permission to conduct CSP’s under swiss challenge. The DOE we understand are no longer allowing them. The ERC’s attempts is suspicious and alarming.

Chairman Devanadera, it is perplexing that this attempt at legitimizing rigged biddings through the unsolicited proposal and swiss challenge scheme is happening under your watch. Na-koryente po ata kayo by some “advisers”.

President Duterte, we hope sir that you can join us the electric consumers in insuring that the rules of contracting for power generation services that are charged to the consumers would be truly open and competitive on arms-length basis. Such open bidding is what we need to encourage more independent and truly competing investors and technologies and assure the continues inflow of investments, improving technologies, and least cost options for power supply.

Sana po tulungan ninyo kaming mga electric consumers.

God Bless Mr. President.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
David Celestra Tan, Co-Convenor
david.mskorg@yahoo.com.ph
Evelyn Viray-Jallorina, Executive Director