New era for power rates

DEMAND AND SUPPLY

By Boo Chanco – September 20, 2019 – 12:am
from The Philippine Star

A week ago, on Sept. 13, Meralco signed power supply agreements (PSAs) with Phinma Energy (now Ayala), San Miguel Energy, and South Premiere Power. The three PSAs, with a total contract capacity of 1,200 MW, will supply Meralco effective Dec. 26, 2019 for 10 years.

It is not an ordinary contract signing. It marks the successful conduct of the Competitive Selection Process (CSP) that really makes true market forces determine the electricity rate we pay. EPIRA is supposed to be about market forces working, but we have experienced that it needs help, the kind of help CSP provides.

Take it from Meralco president and CEO Ray C. Espinosa:

“We are confident that the prices resulting from this bidding are the least cost to consumers. In fact, the all-in rate already includes line rental and VAT and the cost of replacement power for all plant outages. Also, if the generator companies are unable to deliver power, they will be liable to pay a fine, which will be used to reduce the generation cost to consumers.”

Meralco’s Espinosa continues to explain the significance of the process:

“The prices from the PSAs we are signing today are significantly lower than the average generation cost today of around P5.88/kwh (VAT inclusive). Once the PSAs are implemented, Meralco consumers are expected to save around P9.46 billion annually for 10 years.”

I agree with Atty Espinosa, this is a great day for customers… a great day for us.

More significantly, it was good for Atty Espinosa to observe that “the success of the bidding clearly disproves recent claims that the bidding will not result in lower generation charges. Those critics were flat wrong.”

Indeed, those critics were among the ranks of the power industry who had always preferred bilateral contracts with power distributors. But those contracts are opaque and many consumer groups suspected sweetheart deals at the expense of consumers.

Also present during the ceremonial signing was president and COO of San Miguel Corporation – Ramon S. Ang. He gave a very candid confession of how cynical the power producers, even in his own group, felt about CSP.

“Actually,” Mr Ang said, “we were hesitant to join the bidding kasi grabe daw pigain. Sobra daw ang baba.  Tsaka walang fuel pass-on, talagang grabe ang risk.  Pero I know Ray (Espinosa) was trying to protect the consumer, and trying his best to show everybody in Meralco what the new president can be.

“Sa totoo lang, we bidded against the advice of our team kasi sabi ng Finance group ng power… ‘Boss, ang laking risk nito, ang baba ng presyo, tsaka high risk, eh kung tumaas ang fuel, talagang tutumba tayo rito.’

“At the end, I think naisip nila ang importante sa lahat nito ay the welfare of the consumer.  Ang pinakamaganda rito is makisama tayo dahil sa pagbabagong gustong gawin ni Ray Espinosa na mapababa yung presyo…  Tulad ng sinasabi ko lagi, lahat ng public bidding, sasalihan namin. Hindi kami umuurong sa kahit anong public bidding… mabigyan natin ng best deal, best price yung consumer…”

John Eric Francia of Ayala Power agrees.

“This is an entirely different mindset, it’s customer first.  It forces us to think more creatively to use our portfolio, to use renewables, etc…  So gagawan ng paraan…”

Last Monday, Sept. 16, Meralco held another PSA signing for contracts to supply Meralco 500 MW of mid-merit capacity effective Dec. 26, 2019 for a term of five years… The Bids submitted by First Gen Hydro Power, Phinma Energy, and South Premiere Power were declared the best bids.

Again, Meralco customers are the RUNAWAY winners. With these new PSAs, Meralco customers will enjoy savings of about P4.4 billion a year for five years.

The CSP was administered by the Third-Party Bids and Awards Committee (TPBAC) that was constituted pursuant to the DOE circular.

The rates were much lower than the prevailing rates and also lower than Meralco’s reserve LCOE price cap, Atty Espinosa said.

The LCOE price cap is a mechanism that Meralco devised to ensure that the rates will be lower than prevailing charges.  This reserve price cap which is lower, is shown only right before the financial bids are opened, creating a very high competitive tension among the bidders.

But let us not forget the one person who thought up of CSP. Power consumer advocate David Tan wrote me an e-mail on July 8, 2015 to give credit where credit is due.

“Secretary Jericho Petilla of the Department of Energy has officially left his post last June 30, 2015. But he has not gone without leaving a novel gift to power customers who have been long waiting for some generous act from his department that will somehow alleviate them of their electricity concerns.”

Icot Petilla was a respected former governor of Leyte for nine years until he was tapped by former president Benigno Aquino in 2012. Secretary Petilla’s two-and half years at the Department of Energy had been the most productive despite the short tenure because of his CSP innovation.

It was not easy for Petilla to buck the powerful industrialists behind our power industry. But he showed tough political will. He had been telling me that he was studying the system in Chile and that’s the basis of the program he introduced.

As I wrote in my column July 10, 2015, Icot Petilla is one classy guy. He could have made a big deal about his last bombshell of an order that will protect power consumers as he was running for the Senate.

But he issued no press release about the most important order of his watch. I only knew about it because we talked about it for months.

Petilla considered our power rates, the highest in the region, as his biggest challenge. It is a big negative factor for attracting job creating investments in the manufacturing sector.

Petilla deserves the appreciation of all power consumers for stepping up for us at personal political risk. Indeed, who remembers Icot Petilla now. After all, no good deed goes unpunished.