Serial self-dealing: Win-win for DU

October 20, 2019

Size, we are told, is not a crime. But size may, at least, become noxious by reason of the means through which it was attained or the uses to which it is put.  

— Louis Brandeis

Just how hard is it to admit we were wrong about the guy’s motives?

It turned out, he meant well.

He was fighting titans in defense of the little people.

Ped Xing can only wish it is not too late in the day for a good, old-fashioned atonement. Hope this would suffice.

Before Carlos Jericho “Ikot” Petilla (remember him?) quit as head of the Department of Energy in June 2015, he launched a much-awaited and controversial program meant to benefit millions of electricity consumers.

Called competitive selection process, the program is supposed to discourage, if not stop, the practice – or malpractice -- among distribution utilities of engaging in one-on-one negotiations with power generation companies for the supply of electricity.

These pre-CSP era negotiations were susceptible to abuse. They opened a vast vista  of opportunities for DUs to award juicy – or overpriced – power-supply contracts with gencos that the DUs favored – or owned.

The start of the CSP program saw Meralco scrambling to avoid bidding out its supply contracts.

Meralco, the country’s biggest DU, still negotiated and inked seven big PSAs with its own subsidiaries, sister companies and affiliates in late April 2016 -- roughly 10 months after Petilla launched CSP.

Note that not one of these so-called Meralco “sweetheart deals”, which Congress found out later to be onerous to consumers, complied with CSP.

Under CSP, a DU must conduct an open and competitive bidding before it can close a supply contract or power-supply agreement with a genco.

This requirement aims to attract the most number of bidders and in the process get the least cost of electricity that the DU would, in turn, retail to its customers.  

If a DU fails to attract the minimum two offers in two auction attempts then it may hold a negotiated PSA with a genco.

But Meralco argued that, at the time it awarded the supply contracts, CSP was not yet in effect; it could, therefore, award the contracts without the required bidding under CSP rules.

Its position might sound twisted now; but it got a semblance of legality from a resolution, issued months earlier by the Energy Regulatory Commission, which “restated” CSP’s start to the end of April 2016.

It was this controversial ERC resolution that emboldened Meralco to award the seven PSAs and to file them with the ERC just before the end of April 2016. These Meralco contracts were not only “sweetheart deals”; they were also “midnight deals”.

Got that? Sweetheart at midnight!   

Consumer group Alyansa ng Bagong Pilipinas, however, challenged before the Supreme Court the validity of the PSAs that did not undergo CSP.

In early May of this year, the SC sided with the ABP and ruled that all PSAs awarded after June 2015, including Meralco’s seven controversial supply contracts, must undergo CSP.

Quite curiously and surprisingly, Meralco did not bother at all to seek High Tribunal reconsideration.

Far from challenging the SC ruling, it suddenly became a vocal advocate and practitioner of CSP. Just a few months after the SC handed down its ruling, Meralco trumpeted the “successful” conduct of two CSP auctions.

So what prompted Meralco’s change of heart?

It turns out now that in February 2018 -- while the ABP case was pending at the SC -- the DoE released a circular introducing crucial changes to the CSP program. Kaya naman pala eh.

Suddenly, DUs like Meralco can now control the conduct of CSP under the 2018 DoE circular.

The original CSP circular that Petilla signed in 2015 stated that “a third party recognized by the DoE shall supervise the bidding process under the CSP policy”.

This crucial 2015 provision was no longer a requirement but an option under the 2018 DoE circular.

Instead of a third-party auctioneer, the 2018 circular calls for the creation of a Third Party Bids and Awards Committee. This five-man body is tasked to supervise the CSP bidding – from preparing the bidding terms to selecting the winning bidders.

But the use of the phrase “third party” is misleading; Three of the TPBAC’s members come from the DU itself, while the two remaining members are appointees of the DU.

Clearly, the body is not independent; it is controlled by the DU.

TPBAC played a big role when the DU conducted three auctions, ostensibly under CSP rules last September.

Two of the auctions — for supply of 1,700 megawatts of electricity from  “brownfield” or existing power plants — were successful.

But the auction for another 1,200 MW, this time from a “greenfield” or new power plant, failed.

And Meralco is now trying to hide bothersome indications behind the failure by highlighting the two CSP success stories.

It appears the CSP for this 1,200-MW greenfield power plant is being primed in favor of Meralco PowerGen Corp., a wholly owned Meralco subsidiary behind a 1,200-MW greenfield coal power plant project in Atimonan, Quezon.

This CSP failed because, under the bidding terms that the TPBAC drew up, no other genco other than Meralco’s own MGen would qualify. Not surprisingly, only MGen submitted a bid.

The CSP for this 1,200-MW PSA would turn into a negotiated contract between Meralco and MGen, if the TPBAC insists on customizing the bidding terms.

Now, we can understand why Meralco has become an avid supporter of CSP. The DoE’s 2018 circular all the while has offered an alternative to continue self-dealing, if Meralco lost the case filed by ABP against the DU.

Had the SC ruled that the PSAs awarded after June 2015 were valid, Meralco would have triumphed. However, the High Tribunal ruled in favor of ABP.

But Meralco is turning the loss into a win with the help of the 2018 DoE circular.

It was as if it was mocking us all the while: “Heads, I win; tails, you lose”.

Behold God’s glory and seek His mercy.

Pause and pray, people.