ERC leisurely crafting new bid rules for beloved DU

October 15, 2019

'Everything has a price. The great struggle in life is coming to grips with what that price is. -- All the Money in the World Simply sitting on it had never wreaked so much havoc in a vital, strategic industry.

Apparently, historical foot-dragging is romantically justified for a state regulator in favor of a dearly beloved industry player in this particular case.

How else to explain why the Energy Regulatory Commission appears to be taking its own sweet time in issuing its own guidelines on how distribution utilities bid out power-supply agreements through a competitive selection process?

The delay opens a window of opportunity that an unscrupulous DU can exploit to foil CSP’s main objective of getting the least cost of electricity for consumers.  

Just how crucial are these ERC rules?

Well, in launching the CSP policy, the Department of Energy did not provide the template or formatted guidelines that include minimum standards and contractual provisions for the DUs to follow.

Thus, through Department Circular 2018-02-003 it issued on Feb. 1, 2018, the DoE instructed the ERC to draw up its own PSA regulations. The 2018 DoE circular specifically required the ERC to come out with its PSA rules within 60 days after the February 1 promulgation.

To date, however, the ERC has not released the PSA rules although news reports quoted ERC officials as saying the rules have not only been finalized; they are ready for promulgation.

The delay, whether by design or accident, is giving Manila Electric Co. an opportunity to bid out a PSA whose terms appear to contravene these draft ERC rules.

But so far, Meralco’s attempt to auction this supply contract failed because only a wholly-owned Meralco subsidiary showed up during a bidding held last month for this supply contract.

All other bidders snubbed it, apparently because they did not want to be props to legitimize a bidding whose terms appeared to favor only the wholly owned Meralco subsidiary.

These bidding terms gave interested parties a short two-month period to prepare all requirements — from designing the power plant, packaging the financing, getting permits, etc.

This short and unreasonable preparation time, of course, favors the Meralco subsidiary, which has the 1,200-MW coal-fired power plant project in Atimonan, Quezon, already past the planning stage.

The bidding terms as published in the invitation to bid (ITB) for this particular PSA -- a 1,200-MW Meralco requirement starting 2024 -- also show clear deviations from the draft ERC rules.

If the ERC rules were released today, these Meralco bidding terms would face certain rejection by the ERC.

For instance, this Meralco PSA sets a 20-year contract period or twice the maximum 10-year contract period in the draft ERC rules.

The draft ERC rules set the 10-year maximum contract period to protect consumers from being locked up with a PSA whose technology might become obsolete — and expensive — after 10 years.

The published Meralco invitation also provides for “variable costs” (fuel and variable operations and maintenance costs) in the bid price.

Again, this pricing structure is not in synch with the draft ERC rules, which prescribe a fixed bid price.

The ERC’s decision to require a fixed bid price would shield consumers from the practice among DUs, like Meralco, of passing variable costs to their customers.  

There is still a chance the Meralco PSAs would be forced to conform with the ERC rules, which definitely provide more protection to the consumers.

Meralco’s forced conformance would take place, if the Commission were to release its rules before the new Meralco PSA – and, for that matter, other Meralco PSAs containing the same questionable terms -- are filed with the ERC.

Not everything is lost to monopoly control because – as earlier noted – the bidding for this particular 1,200-MW Meralco PSA was declared a failed exercise. Hopefully, by the time Meralco holds a second round of bidding, the ERC rules would be in place.

However, the ERC has a history of foot-dragging, especially when it favors Meralco.

Recall that, when CSP was launched by the D0E in June 2015, the ERC also delayed its implementation by several months.

That earlier delay allowed DUs to award close to a hundred PSAs without bidding, including seven contracts for supply to Meralco of 3,551 MW of electricity that Meralco signed with its own power generation companies behind closed doors.

Fortunately for consumers, the Supreme Court nullified these contracts, including all seven big Meralco PSAs, for failure of the contracts to comply with CSP bidding rules.

After the much-publicized SC setback, Meralco supposedly has no recourse other than to comply with the CSP requirement.

In other words, it has to conduct an honest-to-goodness bidding.  

Unfortunately for consumers, the victory in enforcing CSP upon Meralco still can easily turn into a tragic farce, if Meralco is allowed to escape from the ERC rules; rules that help make the CSP a genuine bidding exercise.

Is the new delay at the ERC another modus intentionally meant to spare Meralco again from complying with rules that supposedly are for the protection of consumers?

Behold God’s glory and seek His mercy.

Pause and pray, people.