What’s the Big Deal About CSP?
David Celestra Tan, MSK
20 November 2016
You have been reading about CSP. What’s the fuss about?
If you thought CSP means Contracting Sister Projects, Contracted Sweetheart Prices, Customers are Screwed in Power, (or Capisanan ng mga Sipsip sa Pangulo), you are not entirely wrong.
What does CSP Really Mean?
CSP is acronym for Competitive Selection Process, the subjecting to competitive bidding the power supply contracts that a Distribution Utility like Meralco must enter into to assure power supply to its captive customers who are charged for whatever is the price agreed upon between the generator and Meralco. This is as opposed to the long time practice of allowing negotiations of power contracts between the electric distributor and its sister generators. Historical figures show the price difference range from 10 to 20%.
CSP actually was originally imposed by the Department of Energy for power supply contracts in the missionary areas since 2005 where the government is subsidizing the off-grid areas like Palawan, Mindoro, Masbate, Catanduanes, Marinduque etc. The reason for the CSP is exactly that. The generation charge is being paid for by the government who then passes it on to the electric consumers through the Universal Charge. It is now P0.195 per kwh. It is the public paying for it. It is similarly being abused through sham biddings, “swiss challenge”, and inexplainable rate increases that are blessed by the DOE and resulting to billions a year in added charges to missionary subsidy. One conglomerate bidded P7.07 in one island but is now being paid P13.00 per kwh. The same company bidded P9.38 in another island but the contract signed was for P12.80 per kwh. But that’s another story.
For the main grid, CSP is a policy boldly adopted by former Energy Secretary Carlos Jericho Petilla only in June 2015 in recognition of the anomalous situation and the unfairness of charging the consumers with negotiated rates. The implementing government agency, the Energy Regulatory Commission, with its then newly installed chairman lawyer Jose Vicente Salazar, passed its resolution No. 13 implementing the CSP policy requiring competitive biddings for any power supply contracts that will be submitted to the ERC for rate review and approval effective its publication on November 6, 2015.
Why is CSP necessary? or is the old practice of negotiating generation rates bad for consumers?
The price of power generation is charged to us consumers. It is called Generation Charge in your monthly electric bill. All its official rates and consequences in fine prints are passed on to the consumers. Fuel efficiency rates, fuel purchasing costs, downtime allowances, minimum off-take agreements, and others are passed on to the consumers. If these rates are negotiated between a DU and a sister company generator, the consumers have no protection at all. They are charged whatever the two related companies decided they want to charge the public.
That is more arbitrary and non-transparent than the government’s process of deciding on taxes which go through economic studies by the Finance Dept, the NEDA, the Congressional Committees and undergo deliberations, debates, and scrutiny. Once approved the taxes are monitored by the series of government checks and balance under penalty of the anti-graft law if they misappropriate those tax money, which is dipping into taxpayers’ pockets.
Monthly generation rates are no less impositions on the pockets of consumers. Additionally, it is clear in the law that Distribution Utilities like Meralco have obligations to supply power in the least cost manner. It is not only required by the Epira law of 2001, it is also a condition of the public service franchise that was granted to Meralco.
Meralco tries to say that their charges are subject to the “rigorous checking” and safeguards by the Energy Regulatory Commission. In theory yes. But the truth is competition beats regulation in achieving least cost power. You try not to feel your common sense is being insulted when Meralco say they are in the best position to assure “least cost” power and that they “negotiate aggressively” with their power suppliers, as if the people do not know that the various project companies with various minority “regulatory cover partners” are actually owned 51% by their own Meralco PowerGen.
The only way to assure least cost and protect the public is to market test these generation rates to truly competitive bidding or CSP. One that is managed by an independent bid administrator and participated by truly independent power generators.
The Evils of Self-Dealing and Negotiated Power Supply Contracts
At the time the Epira Law was being finalized in May of 2001, the lobbyists succeeded in inserting their own version of Section 45 which allowed distribution utilities like Meralco to contract with its affiliated companies up to 50% of its bilateral power supply contracts. Meralco itself was only lobbying for 35%. The 50% was not even deliberated and just got inserted in the final bill in the last 2 days.
Since then Meralco had signed choice power supply contracts at sweetheart prices. Meralco proceeded with signing a 1,500mw power supply agreement in 2002 with its own First Gas Power. When the power plants were about finished, Meralco reneged on its long term power supply contract with government owned Napocor which still had 2 years to run. Meralco’s rates shot up under the PPA adjustments, largely due to the sweetheart payments to the hardly operating gas plants in Batangas. The government got stuck with unused guaranteed take or pay BOT contracts. The government brokered a compromise deal where Meralco accepts a net P20 billion penalty.
Amazingly under the deal, the government owned Napocor felt they had the power to provide that this P20 billion will be passed on to the consumers!!!!! In effect it is not Meralco or its owners being penalized but the electricity consumers for the owners self serving breach of contract with a government corporation no less. Talk about selling down your own countrymen !
Meralco consumers do not get any respect. Even our own government and regulators treat them as if they are just faceless people that they can pass on anything they want.
That P20 billion penalty has been sitting at ERC, frozen “to protect the consumers”. In effect Meralco is getting away with the P20 billion penalty. On top of that it is estimated that Meralco consumers are being charged a premium of P0.50 to P1 per kwh for First Gas power compared to an unaffiliated plant also using Malampaya gas. That’s billions per year!
The MVP Groups Own Negotiated Power Supply Contracts
The MVP Group apparently knew coming in after their takeover of Meralco in May 2010 that they can exploit this loophole in the law and proceeded immediately to form its own Meralco PowerGen with a declared objective of 3,000mw.
They launched the 600mw Redondo Power In Subic and a 480mw expansion of the Mauban coal complex. Both projects majority owned by Meralco PowerGen.
Then they announced seven (7) power supply contracts totaling 3,551mw four (4) days before the generous deferment to April 30, 2016 of the deadline for the CSP implementation all controlled by Meralco PowerGen.
It is estimated that conservatively the resulting overprice on these midnight contracts would be at least P12.3 billion a year for the 20 year lives of their contracts.
The “Consumers are Screwed in Power” for the next three presidents!
CSP would empower the Department of Energy to direct a strategic energy mix policy for the country.
The new Energy officials are just kidding themselves talking about crafting an energy mix policy for the country. Unless they stop Meralco,s seven (7) midnight contracts. Earlier they announced a 30% coal, 30% natural gas, 30% renewable, and 10% others. Now new Energy Secretary Cusi and new Energy Committee Chairmen in the legislative department are talking about energy mix.
But the reality is Meralco and the MVP Group had actually preempted the current and next 3 presidents on the energy mix. The 4,030mw they signed are all coal and the minimum energy (kwh) off-take on those projects represent at least 90% of the energy sales of Meralco.
Since Meralco is the largest distribution utility in the country with 64% of national energy demand, Coal is already 57% of the national energy mix. If you add the coal energy contracts of the other distribution utilities Davao Light, Veco, and electric coops nationwide, Coal would be 80% already. And that would be up to the year 2042! It is also cartelized and will see the death of a truly independent power generation sector. Say goodbye too to a truly competitive Wholesale Electicity Spot Market. Who are we kidding?
Such would be the disaster in energy mix and climate change that will befall the Filipinos if Meralco is allowed to evade the CSP policy with their 3,551mw midnight contracts.
We cannot expect the private sector like Meralco and the MVP Group to restrain themselves and not try to get away with as much as possible for profit. And there is a fine line towards greed.
It is up to the regulators to try protect the consumers when the private sector is abusing. It is very disheartening to see that the ERC who is supposed to be the last bastion of consumer protection and who has a clear mandate to protect the public interest and prevent monopolization and cartelization, is the one who paved the way for the circumvention of the CSP policy by mysteriously extending its own deadline of November 6, 2015 by five (5) months and 24 days! The MVP Group claimed they were being prejudiced by the November 6 deadline when they did not have contracts for those projects until April 26, 2016, just barely beating the new April 30, 2016 deadline generously given by the ERC.
As the highly respected columnist Boo Chanco wrote on the recent suicide of an ERC chairman of the Bid and Award Committee, “My concern is that the ERC is a very important agency… it regulates the power distribution companies. If, the late Jun Villa is right about corruption on the award of an audio visual presentation, which I consider small potatoes, I hate to imagine what is happening every time the ERC issues an order that raises our power rates or instructs power companies to do one thing or another.”
The drug problem affects a mind boggling 4 million Filipinos. The CSP issue affects the pockets of 100 million Filipinos and the production competitiveness of their employers. More than that it is an affront to our integrity as a nation to respect our own laws.
That’s how big a deal the CSP matter is now!
Let us hope the Duterte government takes notice and do something about it while they still can.
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org
Note: I just threw in “Capisanan ng mga Sipsip sa Pangulo” in jest. Just looking for a way to lift ones spirit with all these very depressing treatment of consumers.
