The Energy Regulatory Commission (ERC) wants the Manila Electric Co. (Meralco) to improve the bidding terms of the ongoing competitive selection process (CSP) for 1800-megawatt (MW) baseload capacity.
“We wrote Meralco to give them an opportunity to improve the terms. It was a letter to state our observations so they can consider and improve or revise the terms of the CSP, as needed,” said ERC Chairperson Monalisa Dimalanta.
There are currently six potential bidders for the upcoming CSP. These are GNPower Dinginin (GNPD), First NatGas Power, SP New Energy, Mariveles Power Generation, Excellent Energy Resources and Masinloc Power Partners.
“Meralco should make sure they are not unduly limiting the number of potential bidders to allow competition to produce the least cost,” Dimalanta said. “We will continue to monitor an act accordingly, given that we are in a new CSP regime.”
As the regulator of the power industry, Dimalanta said the ERC is mandated to promote competition, encourage market development, ensure customer choice, and penalize abuse of market power in the industry.
The ERC chief conveyed the same observations to lawmakers during the hearing of the House Committee on Legislative Franchises last week.
Congressman Dan Fernandez of the Lone District of Santa Rosa, Laguna lamented that the terms of reference for the said CSP allegedly favors certain power firms since the power plants that could join the auction are those that should be in commercial operation not earlier than January 2020 but no later than May 2025. “Your invitation to bid was for 1,800 MW, your provision for your power supply agreement calls for 1,800 MW and if I may read, what you also said in that provision of your bidding—single or portfolio plant provided a power plant should be in commercial operation not earlier than January 22, 2020,” he said.
“You have said in your power supply agreement in the bidding, hey power plants that have not started operations in January 2020 to May 2025, you can’t join, you are all excluded,” the lawmaker stressed.
“That is trademarking, that is branding. That’s tailor fitting, that’s illegal in accordance with the PCC [Philippine Competitive Commission] and international agreement which states that trademarking is prohibited, it does not allow ‘tailor-fitting.’”
Meralco, for its part, said the selection process of power supply contracts is strictly regulated by the ERC and the Department of Energy (DOE).
“Hinde po kailangan manggaling sa affiliated company ang supply. Kailangan sumali sila sa bidding. After bidding, kung sino mananalo, daaan sa ERC para sa regulatory evaluation and public hearing bago i-approve kung sakali man, in accordance with EPIRA,” said Meralco Vice President and head of utility economics Lawrence Fernandez.
Before conducting the CSP, Meralco also secured an approval from the DOE of its Power Supply Procurement Plan and the Terms of Reference (TOR) of its proposed CSP, to make sure that these are aligned with the requirements and standards set by the government.
“This is contrary to the baseless and malicious claims that Meralco’s TOR is tailor-fitted to favor select generation companies,” said Meralco First Vice President and Regulatory Management Head Jose Ronald Valles.
“Our past CSPs conducted are proof that no such tailor-fitting is happening, precisely because the TOR and other bidding documents are required to comply with existing policies of DOE and regulations of ERC, and the resulting Power Supply Agreement needs to be approved by regulator,” he added.
The company said its is just a rebidding of a valid CSP held in 2020. Unfortunately, the PSAs resulting from the original CSP were terminated by the two winning power suppliers due to lack of ERC approval for more than two years. The new CSP simply reiterated most of the provisions in the previous TOR that has been approved by DOE and its terms strictly followed the previous guidance of DOE particularly with respect to the requirement to limit the bidding to greenfield power plants to encourage new capacities, thereby ensuring security of supply and lowest cost to consumers.
At the same time, Meralco strongly denied the baseless claims made by the lawmaker that the distribution utility overcharged its customers starting 2012.
Meralco also said it has no power to unilaterally set its own rates. All rates reflected in the electricity bills of customers are approved by the regulator following a “very stringent and transparent process of public hearings.”
“I would like to reiterate that as a highly regulated entity, Meralco strictly adheres to the rules governing its operations and franchise and the rates we implement always have prior approval from the regulator. A testament to the strict review, these rates are still subject to periodic confirmation process by the ERC,” Valles said.
“The proper venue for discussing the refund claims is the ERC, which has the rate-setting power and the regulator has already decided on a refund totaling P48 billion, which Meralco implemented in a timely manner.”
The company said it is “unfortunate” that the lawmaker is focusing on Meralco when records will show that Meralco is, in fact, the only private distribution utility (DU) that has made a distribution refund in compliance with ERC directive.
As to his allegations that Meralco has an “extremely high weighted average cost of capital”, Meralco said the setting of the weighted average cost of capital (WACC) is a function of the regulator. Meralco’s last approved WACC is the lowest WACC given by the regulator under the Performance-Based Regulation.
The WACC was determined based on a set of rules that underwent public consultation and thorough review by ERC.
This WACC is an industry WACC that applies to all private DUs in the same category and is not company specific. In addition, Meralco does not have a determined WACC since July 2015 because there was no completed rate reset during that regulatory period up until now.
Further, Meralco cited a recent study of the International Energy Consultants which concluded that Meralco’s rates “are fair and reasonable” since they reflect the true cost of electricity as against other countries whose power costs are heavily subsidized by their governments.
This was the result of the company’s constant efforts to source the least cost available supply through, among others, the conduct of a transparent CSP.