Trust the system

First, they wanted a competitive bidding process. Now that it is being done, they want it stopped. Damned if you do, damned if you don’t.

In 2015, the Department of Energy issued a circular mandating all distribution utilities (DU), including electric cooperatives and private companies like Meralco, to undergo competitive selection process (CSP) in securing power supply agreements (PSA). The circular took effect on June 30, 2015.

However, the Energy Regulatory Commission issued CSP guidelines which provided that the CSP shall not apply to PSAs already filed with the ERC on or before Nov. 7, 2015, which was later postponed to April 30, 2016.

The Alyansa Para sa Bagong Pilipinas (ABP) had filed a petition in 2017, with the Supreme Court claiming that ERC committed grave abuse of discretion in postponing the effectivity date of the CSP, thereby amending the 2015 DOE circular which required CSP to take effect on June 30, 2015. Bayan Muna Rep. Carlos Zarate and chair Neri Colmenares later joined the case as intervenors.

But something needed to be done immediately to avert a power crisis. In February 2018, the DOE adopted and prescribed a CSP policy in the procurement by DUs of PSAs for their captive market. It ordered the establishment by DUs of an independent third party bids and awards committee (TPBAC) to manage the CSP, three of who will come from the DU and two from the captive customers. Energy Secretary Al Cusi deserves all the commendation for doing what is right for the consumers and making sure that they get their power supply at the least possible cost when he fought for the immediate adoption of the CSP.

In a decision last May 3, the SC said that ERC does not have the authority to postpone the effectivity date of the CSP and amend the 2015 DOE circular and ordered the ERC to require CSP on all PSA applications submitted on or after June 30, 2015, including more than 90 PSAs submitted to the ERC in April 2016.

The SC explained that the requirement for a competitive public bidding under the CSP in the power sector is primarily aimed at ensuring a fair, reasonable, and cost-effective generation charge for consumers under a transparent power sale mechanism between the generation companies and distribution utilities. In the same ruling, the court also upheld the 2018 DOE CSP circular.

Reacting to the SC ruling, Cusi said it reaffirms their longstanding conviction on the fundamental role of the CSP as a mechanism to ensure transparency and fair competition in the procurement of power supply, and to protect the consuming public from power rate spikes, pass-on charges, and avert predatory practices. He called on DUs to immediately conduct CSPs for their PSAs, saying that with power development, especially in Luzon, having been at a standstill for three years, the country can no longer afford any delay and there is a need to act with extreme urgency to make up for lost time.

The ERC and Panay Energy Development Corp. asked the SC to reconsider its May 3 decision, but the SC in a July 23 resolution affirmed its earlier decision.

In compliance with the SC ruling and DOE’s 2018 CSP guidelines, Meralco’s TPBAC recently conducted a bidding for the 10-year supply of 1,200 megawatts of its power supply requirements starting Dec. 26, 2019 up to Dec. 25, 2029 which was won by Phinma Energy Corp. of the Ayala Group, San Miguel Energy Corp. (SMEC), and SMC Global Power subsidiary South Premiere Power Corp. which offered the lowest rates. Meralco has already issued the notice of award to the three best bids, but the respective PSAs are still subject to ERC approval.

Meanwhile, First Gen Hydro Power Corp., Phinma Energy, and South Premiere submitted the best bids for the supply of 500 MW of mid-merit capacity to Meralco starting Dec. 26 for a term of five years in an auction held via the CSP and administered by the TPBAC. The bids, however, will still undergo post qualification

Meralco PowerGen Corp. subsidiary Atimonan One Energy was the lone bidder for a 20-year power supply contract for 1,200 MW of baseload capacity, also in an auction under the CSP, so the TPBAC declared a failure of bidding. Atimonan is developing a 1,200-MW coal fired power plant.

Secretary Cusi oversaw the Meralco bidding process, just to make sure that everything was done strictly in accordance with DOE’s directive. Under the 2018 CSP circular, DOE said it would closely monitor the competitive bidding process to guarantee that the exercise is conducted in an open, transparent, effective, efficient, and equitable manner, and if the process grossly fails, the department would not hesitate to enact all necessary measures to uphold the integrity and completion of the CSP.

Inspite of the bidding having been conducted by Meralco in a transparent and competitive manner, and in accordance with the SC ruling and the 2018 DOE circular, Bayan Muna led by Colmenares and Zarate still accused Meralco and DOE of manipulating the bidding to favor Meralco-owned companies.

Of the three biddings, only one was participated in by a Meralco affiliate (Atimonan), and that bidding was declared a failed one. It was for a greenfield project, something that will still be built. But even if a Meralco-affiliated genco participated and won, something which the law does not prohibit, what’s wrong with that if all the requirements for a competitive CSP are complied with?

Colmenares and Zarate’s accusations is another desperate move to delay the construction of much needed power plants that will help address the country’s energy security. Their warning that the bidding could result in higher electricity rates has no concrete and factual basis. 

Meralco has explained that the CSP bidding will result in the least cost to consumers. The rate is all in and generators assume responsibility for plant outages. Generation companies are also liable to pay a fine if they are unable to deliver power which would be used to reduce the generation charge to consumers.

True enough, Meralco ensured that the bids will be lower than current generation charges through the mechanism of a sealed reserve levelized cost of energy (LCOE) cap which was lower than prevailing generation charges. In fact, the bids of Phinma, SMEC and SPCC were even lower than Meralco’s reserve LCOE cap, thus proving that the Meralco CSP bidding created a very price competitive atmosphere which resonated across all bidders. It is expected that the other biddings to be conducted by Meralco will also result in lower generation charges to the great benefit of its consumers.

The SC has already decided with finality on the CSP. Bayan Muna wanted a CSP and now that it is here, they again go to the SC, but this time to stop it, something which just doesn’t make any sense anymore. If these critics are really well-meaning, then they should start setting aside their personal agendas and begin trusting an open and transparent bidding process for the sake of the majority.

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