DOE’S PROPOSED DASAP IS SEC. PETILLA’S POTENTIAL LEGACY

David Celestra Tan

Updated 27 October 2014

One of the hallmarks of MSK’s recommendation to reduce the cost of electricity in the Meralco area by P3 per kwh is opening the power supply contracts of these private distribution utilities to open competitive bidding instead of allowing them to self-negotiate and monopolize the generation charges that are passed on to the consumers.

We therefore at MSK were overjoyed when we read in the newspapers that the DOE is issuing guidelines on supply contracting auction for Distribution Utilities. Will they be requiring Meralco, Davao Light, VECO, and etc (as a DU) to subject their power supply contracts to auction (bidding)? Wow, this is a game changing bold move (potentially) for the consumers that no other Secretaries of Energy had dared to take before, and it is happening under the watch of former Leyte Governor Carlos Jericho L. Petilla!

The DOE had posted the draft guidelines in their website and requested stakeholders to submit their comments by October 10, 2014, the day we read about it in the Manila Bulletin.

After reading the draft though, you get the feeling that the authors are sheepishly tip toeing into tinder territory, apparently being careful not to step on some very big toes. The initial version is an NGE (not good enough) and on its way to keeping the WD tradition of power and energy laws including the Epira Law. (Watered Down!). Calling it an “auction” instead of competitive bidding is already a give away of its own lowered expectations.

The DASAP Guideline is underwhelming and self-limiting in its current form and a bonafide work in progress, so we hope the Committee in charge of finalizing the guidelines is open to deeper comments and suggestions that can make it a truly beneficial rule for the consumers and something that can elevate Energy Secretary Petilla as a bold visionary with political will (sorry for the tired word) in an industry where the rules and regulations are dominated by what has become a powerful oligarchy.

Our Comments, Clarifications, and Suggestions on DASAP.

1. Premises of the Guidelines (Pages 1 to 3)

One main reason power cost in the country is high is because low power cost is not a declared government policy.

The premises of this DASAP Guideline is not an exception. With all the big words contained in the premises up to Section 1 “general policies and Principles”, it failed to categorically state that the objective of the guideline is to “aggregate demand and subject them to competitive bidding to reduce power costs”. Why does it seem so afraid to say so clearly which we thought is the real intention? Instead it continues to settle with the vague concepts of “transparent, reasonable and affordable” rates which by this time we already know do not mean low rates to the power players and regulators.

2. Coverage. Who and What will be subjected to bidding (or auctioning)?

Will Meralco and the private utilities be really covered by this guideline even if Section 2 says the DU’s are mandatory participants? Private DU’s serve about 72% of the energy needs of the country with only 28% served by the 119 electric cooperatives.

1. Only the “un-contracted”energy requirements of the DU’s will be included in an “auction”. So what if Meralco says they already contracted the next 3,000mw of its energy requirements to Meralco PowerGen through its self-negotiated contracts? So DASAP will not mean anything to the Meralco consumers? Davao Light and Visayan Electric Co. would have all its future energy requirements contracted to Therma South companies.

To provide real teeth and purpose to this Guideline, why not include a standstill provision that says all new power supply requirements for delivery starting in 2017 will be subjected to competitive bidding under DASAP. And all un-contracted energy requirements for delivery in 2015 onwards will also be subjected to this bidding.

2. It is not clear in Section 3 which agency will aggregate the power demand from the private DU’s. It doesn’t say it under the Department of Energy’s responsibilities. The need to sign commitment to buy agreements with the DU’s is not provided. Is this an oversight?

The National Electrification Administration (NEA) on the other hand is clearly mandated to aggregate and facilitate the “auctioning” of the demand of the Electric Cooperatives under Section 3 ( c).

3. “Aggregation must be amongst the contiguously located DU’s”

In a grid-connected system where most DU’s are connected by transmission lines to the national grid, there is no reason why DU’s of Northern Luzon cannot be aggregated with the demand of those DU’s in Southern Luzon even if they are not adjacently located because they are all part of the delivery system of NGCP’s system. The winning generator can deliver power to all of them in Luzon through the Luzon transmission grid. Why cannot an Isabela coop aggregate with a Meralco big tender, and benefit from the economies of scale?

Geographical contiguousness unnecessarily limits the potential for aggregation.

4. Short Term contracts to existing generating plants

Section 4 ( e) proposes to offer only 1 to 3 year contracts to existing generators. This discourages the new investments in the expansion and upgrading of existing power plants and effectively promotes only greenfield new projects by offering them up to 25 years. Existing plants that are made more efficient and increased in capacity would most likely offer lower rates at surer timetables because they don’t have to deal with the permitting, financing, construction, and start-up challenges of new greenfield projects. New plants tend to run into environmental resistance. Why not give at least 10 years for upgraded existing power plants?

5. DOE’s “Notice of Award”

It is not clear what would be the legal standing of a DOE’s “Notice of Award”. Are the DU’s really bound by its terms? Who actually would be contracting party? Under what mechanism would DOE have the legal power to force the DU’s to enter into a long term contract? If the DU’s would be committed to enter into these bilateral contracts, why are they not part of the Auctioning team? What would be the role of DOE in guaranteeing the paying ability of the DU’s? Would NEA guarantee the energy purchases of the electric coops?

Would the winning bid price already be accepted by the ERC for tariff approval or will it still be subjected to an evaluation for “fair and reasonableness”?

6. Auctioning Team

Bilateral Power Supply Contracts are complex in terms and pricing formula. How does DOE strengthen the contracting capability of its EPIMB (Electric Power Industry Management Board) to craft a solid template for power supply contracts? Would they be hiring consultants? Would the envisioned bidding template allow for special provisions to deal with the unique requirements of certain bids? Or would it have a “one size fits all” expectation?

The success of a DASAP depends a lot on comprehensive and introspective bidding terms that will be unassailable in determining the winning bidder. Essential to that is a credible Auctioning Team.

On the subject of mandating the competitive bidding of bilateral contracts, this is not prohibited by the Epira Law of 2001. Section 45 (b) is silent on bidding of bilateral contracts and hence all the ERC has to do is pass a regulatory resolution requiring competitive bidding for contracting of bilateral power supply contracts. In fact, the ERC had a draft resolution along these lines that was being pursued. It was presented by ERC to the Power Committee of the Philippine Chamber of Commerce. Some groups made it disappear? Will DOE’s DASAP suffer the same fate?

According to the BusinessMirror Sec. Petilla said “the draft circular if implemented is going to be a landmark policy under his term”. He proceeded to express his expectations on what DASAP would accomplish. The DASAP Guidelines as currently worded however will disappoint the Secretary because it will not deliver the vision that he has in mind. It has the makings of another effete rule for the consumers.

Let us hope the DOE Committee will address the above concerns with an open mind. Unless there are powerful influences behind the writing of yet another watered down rule and regulation that is always derailing well intended objectives to truly achieve what they are supposed to deliver to the electric consumers.

Energy Secretary Petilla is again on the right track in a key reform…but again his implementing and advising team may be missing key expertise elements or may not have the true heart for the consumers. Pirming Bitin. Pirming Naliligaw. In Tagalog, DASAP so far is “D malaSAP”. (hey its late so you can excuse me for getting corny!).

Wish you the best of luck in this one Secretary Petilla. We the electric consumers and MSK are holding our breadths.

By the way, Dear Secretary, the people are waiting for the improvements in the trading rules of the WESM that will protect the consumers and prevent manipulation. WESM equally need a task force urgently.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.