Meralco’s Most Brazen Consumer Hoodwinking May Yet to Come on CSP

David Celestra Tan, MSK

1 March 2016

When Meralco supposedly agreed to respect the new policy for CSP contracting of power generation supply we were pleasantly surprised about the enlightened position of the long reviled utility. But now it seems the consumers cannot really drop its guard.

In the annals of its public hoodwinking, Meralco may yet to top itself in brazenness in its supposed compliance with the government and regulatory policy of subjecting to Competitive Selection Process (CSP) the power generation costs that are passed on to the consumers.

The policy is supposed to open the power supply contracts to competitive bidding to bring down power generation costs to the consumers instead of continuing to allow the electric distribution utilities to just negotiate with their sister generators at sweetheart prices that tend to be 15% to 25% higher than non-affiliated generators.
When the Department of Energy and the Energy Regulatory Commission steadfastly mandated CSP to bring to the consumers the lower price benefits of open competitive bidding of generation supply, Meralco after initially resisting and threatening to sue, decided to change course and announced that it would comply with the CSP policy.

In quick succession Meralco publicized the bidding through a “price challenge” of its short term reserve power supply supposedly for the summer. With impressive quickness, they announced the awards of power supply contracts with Vivant in Bauang for 100mw, Panay Power in Iloilo for 45mw, who, not surprisingly, did not have any competition.

Meralco clearly wanted to preserve a royal privilege to negotiate power supply contracts with sister generators and pass on their sweetheart prices to the consumers. They have been fighting tooth and nail against the mandatory use of independent Third Party bid administrators and for the use of swiss challenge. Unmistakably they wanted to run the bidding themselves and choose their proponent whose offer will be subjected to “price challenge”. Apparently the above biddings were intended to be “proof of concept” biddings. It’s a giant hoodwink to the regulators, the government, and the consuming public.

Meralco says with a straight face that Swiss Challenge is a legal and acceptable form of CSP and that it is their right to manage the biddings themselves with the clear signal that their battery of lawyers will defend this position in court.

Three of the five Commissioners at the ERC a including its Chairman are lawyers and can be expected to take pause and consider the ramifications of a legal battle with Meralco. The sad thing is the regulators, sufficiently threatened will take time to pass its more detailed implementing rules of the CSP, specifically on the issue of whether swiss challenge would be truly competitive and how the bidding can be truly transparent, objective, and level in playing field. In fact, the ERC had announced it will take six (6) months which is a long time to put power development on hold.

Consumers had been complaining about Meralco’s high generation charges resulting from sweetheart long term supply contracts they negotiated with sister and friendly company generators that up to today had been supplying 47% of its energy requirements. Meralco had been openly announcing that they target 3,000mw of long term power supply contracts with its sister company Meralco PowerGen. If they succeed MSK estimates that fully 85% of the energy needs of Meralco whose sweetheart prices will be charged to the consumers.

Meralco was able to beat the anticipated mandatory CSP policy for its 600mw Redondo Power in Subic and 460mw Mauban coal expansion which was negotiated at P4.30 per kwh compared to the P3.78 per kwh that electric coops got from its open bidding in the North. That’s a P0.52 per kwh difference with an estimated overprice of P1.74 billion a year or P34.8 billion in its 20 year contract.

Meralco may be intent on only complying with the form and gesture of Competitive Selection Process instead of the spirit of open and true competitive bidding for their bilateral power supply contracts for the plum long-term base load requirements.

The game plan it appears is to hold “price challenge” biddings for their minor emergency power requirements, forms of Swiss Challenge, that are totally managed by themselves and claim to the world that their proposed brand of CSP works. Of course, those type of short term reserve power contracts are for this summer that Meralco’s affiliate Meralco PowerGen does not have capacity for and hence unable to participate. Good for their gesture biddings that will have the effect of convincing the ERC, DOE, and the electric consumers that

1) Swiss or price challenge is okey and

2) self-managed CSP is okey and there is no need for an Independent Bidding Administrator or Third Party.

At stake will be Meralco’s future base-load power supply totaling 2,000mw for 20 years. Meralco captive consumers should brace themselves for another letdown in the supposed policy for DU’s like Meralco to subject to competitive bidding their power generation charge that are passed on to the electric consumers.

We in the 3 Piso Movement and all our allied cause oriented groups must prepare to take a stand in this brazen hoodwinking by Meralco. We will stand hand in hand with the DOE and the ERC and all patriotic and self-respecting Filipinos in this classic battle with Meralco for the consumers right to truly competitive and market tested generation charges vs their royal right to charge the consumers their negotiated sister company rates. There may be a need to challenge their suitability as a holder of a public service utility franchise.

Meralco’s monopoly right for their distribution franchise did not include a royal right to monopolize also the generation market.

Let us get ready to take a stand against Meralco’s apparent intent to hoodwink the public on its CSP compliance. Meralco’s CSP charade is quite brazen!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.