MSK Consumer Group Seeks Bidding of Power Generation Contracts
The consumer group, Matuwid na Singil sa Kuryente Consumer Alliance (MSK) had submitted to the Energy Regulatory Commission its propose rules for the open competitive bidding of bilateral power supply contracts by distribution utilities like Meralco who passes on the generation charge to the electric consumers.
In its petition filed with the ERC last April 16, MSK said that actual generation cost data on Meralco’s buying prices showed that there are 20 to 30% difference in the higher selling rates of affiliated generation companies and truly independent and non-affiliated generators. For 2014 the premium price paid by Meralco to affiliated generators amounted to P13.68 billion a year. This is the compelling reason and irrefutable fact that it is inimical to the interest of Filipino consumers to continue allowing negotiation of contracts with sister companies or affiliated generators.
Meralco, the Philippines largest distribution utility that serves the National Capital Region and Metro-Manila representing 62% of the country’s energy needs had announced it would build 3,000 mw of power generation plants through its sister company Meralco PowerGen which shall be provided negotiated 25 year power supply contracts.
According to MSK In one proposed coal project in Mauban Quezon, Meralco announced it signed a negotiated power supply agreement without bidding at the price of P4.35 per kwh for 25 years, 19% higher than the average price of P3.65 per kwh from existing independent generators with only 4 year contracts.
The ERC required MSK at the public hearing on March 23 to submit its recommended rules and to comment on the draft rules prepared by the ERC on a similar move to require bidding of bilateral contracts. MSK commented that the draft rules appear to be designed only for electric cooperatives and not for the major distribution utilities like Meralco and the Aboitiz group which together supplied 70% of the energy needs of the whole country.
The proposed change in rules in the contracting of generation supply is part of the whole package of rule changes that MSK is proposing to achieve a P3 per kwh reduction in Meralco’s retail rates to residential and commercial consumers which is estimated to produce 60% of the revenue of Meralco.
Among the bidding rules it is proposing are the following:
1. To protect its consumers the Distribution Utility must assure contracted supply through open competitive bidding of a minimum 97% of its forecasted capacity and energy for base-load, intermediate power and 80% of their peaking, and reserve power.
2. Biddings where only generators not affiliated with the DU can participate can be undertaken by the DU bid committee provided DOE and ERC are represented in the bid committee and the terms of the bidding reviewed and approved by the DOE.
3. Biddings where affiliated generators can participate shall be undertaken by DOE’s chosen independent third party transaction advisers who have expertise in bidding for the similar technologies.
Affiliated generators must be certified by the ERC that in case it wins the bidding it would not exceed the limits in market concentration of generation capacity as defined by the ERC.
4.Unsolicited Proposal and Swiss Challenge can be allowed only for pioneering technologies not yet adopted and established in the Philippines, which shall be certified to by the DOE.
5. The ERC shall nonetheless establish the benchmark price on delivered cost basis for each bidding considering a reasonable price for the technology, the prevailing market prices of same service energy, transmission costs and congestion, financial markets, and such other methodologies that can be adopted.
6. The structure and terms of contract shall be build-own-operate (BOO). Hence, the supplier shall be guaranteed a minimum level of annual or quarterly energy off-take but not minimum capacity fees which should already be incorporated in the energy based fees. The energy fee formula shall nonetheless be broken down to capital recovery fee, fixed O&M, variable O&M, and fuel to allow for logical, equitable, and efficient indexing and allocation of risks between power supplier and the off-taker and its consumers.
7. Winning bidders shall be responsible for providing replacement power in times of excess downtime or under generation at the contracted price. Currently contracted power generators should be encouraged to submit power cost reduction schemes to be nonetheless approved by the ERC that will help reduce cost and improve reliable service to consumers.
8. For equitable pricing of power for consumers, a lower ladder pricing shall be required after the debt-service period of the first seven (7) years for greenfield projects and 5 years for brownfield projects. Bidders shall submit an initial price for the first seven (7) years and an economic price thereafter. The evaluated price shall be the weighted average of 67% of the initial price plus 33% of the reduced economic period price.
9. The winning bidder under this open bidding rules and meeting the benchmark price should no longer be subjected to regulatory review as to cost of investment and profitability. The DU however shall as usual apply for approval with the ERC who shall nonetheless validate the faithfulness of the CSP to the established bidding rules and terms of reference of the power supply and the fair and reasonable rate established by the ERC as benchmark for that bidding.
10. The DU can apply to the DOE for a waiver of the bidding for the base-load and intermediate supply after two failed biddings. Negotiation however shall be limited to those who participated in the bidding with preference to the lowest or lone bidder. A faster Request for Proposals (RFP) alternative can be allowed for short term and emergency peaking and reserve power service needed within four months and for a contract duration of not more than a year.
The consumer group further proposed that the Department of Energy shall provide a training program to build the capability of itself, the ERC, and the DU’s in appropriate and cost effective bidding practices and methodologies.The consumer group, Matuwid na Singil sa Kuryente Consumer Alliance (MSK) had submitted to the Energy Regulatory Commission its propose rules for the open competitive bidding of bilateral power supply contracts by distribution utilities like Meralco who passes on the generation charge to the electric consumers.
MSK estimates that subjecting the power generation supply contracts to open competitive bidding will result to a reduction in Meralco generation charge to consumers by P1.50 per kwh. The current higher power rates in the country had been undermining the Philippines economic competitiveness and discourages investments and employment.
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
