Gas and Coal Economics, page-56

URGENT BIDDING FOR POWER SUPPLY CONTRACTS NEEDED TO ASSURE FUTURE POWER SUPPLY. And Lets Pray No Previous ERC Officials are Recycled.
David Celestra Tan, MSK
22 December 2017
The suspension of the four (4) ERC Commissioners by the Office of the Ombudsman over the inexplicable postponement of the CSP policy will throw in limbo the 3,551mw that Meralco signed with sister company Meralco PowerGen that it hoped will come on line from 2020 to 2025. Or more accurately the future supply of power.
While the government is sorting this out, it is important that we don’t lose sight of the country’s need for power in the future, a total of about 2,000mw by 2021. The DOE and ERC must spearhead a backup plan to assure the building of new power plants and maybe curing the CSP deficiency of some of Meralco’s contracts.
1. In the least, the government can hold truly competitive biddings for 300 to 400mw of coal plants and similar size for LNG among IPP’s who are not members of the Meralco Cartel. Ayala, TeamEnergy, Kepco, Lopez Group, Phinma, Zamora Group, Puregold, and the Group of Greggy Araneta that is rumored to be actively getting into power. The result of this bidding can be used as a benchmark for future power supply. Meralco PowerGen should be barred from being a partner in this project to assure a truly competitive bidding. This can be administered by an independent 3^rd party.
The DOE can go on a road show to invite power generation companies to come to the Philippines and participate in a truly competitive bidding.
2. The seven (7) midnight contracts of Meralco PowerGen
One thing interesting about these seven contracts with template terms is that they are all binding only upon approval by the ERC. It seemed they knew that the contracts can be questioned on CSP grounds. The other thing that is interesting is the projects where the Aboitiz group is a major partner and probably the managing partner of Meralco PowerGen, are the ones progressing fast in getting ERC approval. Redondo (300mw) and Atimonan One (1,200mw).
Another compromise option is for the Meralco partners, Aboitiz, DMCI, San Miguel, EGAT, and Global Business give up half of their signed contracts and the remaining be subjected to swiss challenge or for them to commit to reducing their rate to the benchmark bidding.
3. The Bidding will not result to lower rates if the terms negotiated by Meralco with sister company power gen in the seven midnight contracts are adopted in future CSP. Capacity payments even for maintenance period should not be allowed. No availability and no output, no pay. Procurement for fuel must be truly competitive and not from overseas sister companies like in Singapore. Fuel consumption allowances must be verified. Etc.
4. LNG
This is an excellent time to use the buying power of Meralco to help boost the LNG projects promotion of the government instead of all of them being coal as planned by Meralco PowerGen. Perhaps Meralco can hold a bidding for LNG fueled power. The DOE and ERC must send a strong message to Meralco the distribution utility that unless there is a true CSP, there will be no approval of projects. Let us not forget that it is the condition of Meralco’s distribution franchise to supply power in the least cost manner.
5. MVP Group
The Epira law already allows the MVP Group that owns Meralco to have 50% of their energy requirements from sister companies. There only needs to be an assurance of market testing the prices and terms. It appeared they wanted to corner 100% of Meralco’s requirements at negotiated rates. 50% is already a lot of contracted power. 15 billion kwh a year! Let us moderate our “grid”. If they really want to invest, why not own 100% of each project instead of 49 and 51%?
6. Brownfield projects
It should not be forgotten that while the country’s existing power plants are getting old, they can still be rehabilitated and efficiently be made to provide reliable installed capacity. There could be a bidding among brownfield projects with completion times of 12 to 18 months instead of three (3) years for greenfield projects. Most likely they can be more cost competitive. Besides, why destroy more terrain and scenery to build new plants?
7. Strategic Generating Capacity
It is also time to rethink the need of the government to own strategic generating capacity to serve as protection of consumers and calibrator of power supply and prices. The Malaya Power Complex is one and the Agus Hydro Complex in Mindanao is another. Bidding for reserve capacity can also be considered strategically.
8. Cartelization
Cartelization and oligopolization needs to be verified by the ERC and considered in the holding of the subsequent CSP’s. MSK had filed a petition with the ERC to investigate the cartelization of power generation. That was in September 13, 2017 with ERC Case No. 2017-007. It has been 100 days and we have not yet heard from the ERC. Yet almost weekly we hear about rulings and hearings on the Redondo and Atimonan One application of Meralco.
9. Locational strategy
Where should these power plants be? That is a function of where are the transmission lines and where strategically we can spread out the plants to protect from natural disasters and assure redundancy lines for power reliability?
10. OIC’s for ERC
Most likely the Office of the President will appoint OIC’s to replace the four (4) suspended ERC Commissioners so that the Agency can function while its Commissioners are suspended.  Let us hope that the ERC gets fresh faces with more regulatory soul. Let us hope ERC officials from the past who messed up the regulatory agency in the first place are not able to talk themselves into getting reappointed to ERC. (it happened in one government energy organization).   There are many knowledgeable people with integrity who are qualified to act as Commissioners at ERC. If we start with people with good hearts, their minds will follow.
Meanwhile, the DOE and ERC should call for truly competitive biddings on generation supply to assure we have sufficient power at market tested prices.
11. Hello DOE!
One thing odd about this seven (7) midnight contracts of Meralco is that the DOE has been conspicuous by their silence. A lot of people have been wondering why. The future of power supply is at stake and we wish the DOE can provide some direction on some resolution for the national interest.
12. New Chair Agnes Devanadera has her work cut out for her. But she is used to being in a hot seat and she is up to the challenge. There are good career professionals in the regulatory agency. Just need some good OIC’s who will be sources of solutions and not more problems at the Agency.
Notes on the Ombudsman Decision:
We have to be impressed with the discernment the Office of the Ombudsman displayed in evaluating the merits of the complaint lodged by the Alyansa para sa Bagong Pilipinas (ABP). The OMB saw through the lame excuse of the Commissioners and hit it right on the head. The Commission acted as a collegial body and we will not really know who pushed for the CSP deferment to accommodate Meralco. Some decent and competent professionals are going down in flames.
Let us hope this is a start of an ERC that would be truly and honestly looking after a balance of interest between power service providers and the consumers.
Merry Christmas to all Electric Consumers!!!