Meralco: Competitive Selection Process will hurt consumers
Meralco: Competitive Selection Process will hurt consumers
The policy is illogical and not in consumers' interest as it gives gencos the power to dictate prices says the head of the distribution utility, Manuel Pangilinan

MANILA, Philippines – The Manila Electric Company (Meralco) may consider seeking a court order to stop the implementation of a policy that mandates all distribution utilities (DUs) and electric cooperatives (ECs) to bid out their power requirements instead of entering into bilateral contracts.

“It’s something we don’t like to use but I hope people will see through whether the CSP (Competitive Selection Process) makes sense or not. We don’t think its promoting of consumer welfare,” said Meralco Chairman Manuel Pangilinan when asked if the utility firm will consider legal actions.

Illogical policy

Pangilinan said the CSP is “illogical” as it allows power generation companies (gencos) to decide whether or not to participate in the auction, leaving only a few qualified to serve the power requirements of the DUs and ECs.

This gives power generation companies (gencos) the ability to dictate prices.

“It’s seductively simple when they portray it as promoting lower price. We think it will create precisely the opposite. But it is illogical if you think about it because you shifted the power to price over to the gencos and we’ve seen what happened in December 2013 when power spiked,” said Pangilinan.

The 2013 incident pertains to when Meralco’s rates shot up by P4.15 per kWh (kilowatt hour) for December 2013 and  P5.30 per kWh  for January 2014 because it had to source power from the Wholesale Electricity Spot Market (WESM), the country’s electricity spot market where distributors, such as Meralco, buy their power supply from gencos.  

At the time, gencos were accused of collusion when they did not fully offer their output in the WESM. Eleven companies that operate 12 power plants allegedly breached the must-offer rule during the October 25-December 25, 2013 supply month when power prices shoot up.

Commenting on this incident, Pangilinan said, “The ability to price should be with the DUs because they are the last mile to the customers.”

“We are under obligation to serve electricity to our customers and we don’t make money out of it. The market power should be with the DUs, which are obligated by law to find the least cost. But if you are a power generation firm then you are not under that obligation,” Pangilinan added.

Antonio Moraza, president of Aboitiz Power Corporation, which has interests as both a DU and a genco, earlier said that imposing “a one size fits all” policy is not the solution.

“Each DU has its own issues,” he said, adding that government should instead “make sure the process happens and give DUs the freedom to make their own decision. After all, the are answerable to their consuming public and to the Energy Regulatory Commission (ERC).”

Aboitiz Power and Meralco are in favor of a voluntary implementation of the CSP. Gencos, on the other hand, are in favor of the CSP.

SMC Global Power Chairman Ramon Ang, in a separate interview, supported the CSP saying; “We will bid and supply power to everybody. That will be good for the consumers”.

Officials from AC Energy Holdings Incorporated of the Ayala group, on the other hand, said the CSP is no different from the PPP (Public Private Partnership) program of the government.

Guidelines postponed

Pangilinan’s comments come after the Energy Regulatory Commission (ERC) failed to release last October 27, the implementing guidelines (IG) for the CSP, a landmark policy of former Department of Energy (DOE) secretary Carlos Jericho Petilla.

Under DOE Circular No. 2015-06-008, the ERC has 120 days from issuance of the policy to release the rules governing the CSP.

The DOE had requested a meeting with the ERC before any announcement is made by both agencies. However, the meeting could not take place prior to the October 27 deadline because the department’s newly-appointed secretary, Zenaida Monsada, is out of the country for a business trip.

ERC Chief Jose Vicente Salazar said on October 28 that the it would defer any announcement on the CSP while preparing for the meeting with the DOE scheduled for November 4.

The ERC chief could not say if the IG would be issued right after the meeting but said there would that an announcement on the matter will be made after the meeting.

A source within the DOE said that it was considering moving the October 27 deadline to make way for further studies of highly-contentious issues, while another source said the ERC was ready at that time to release the rules if only the DOE had not requested for a meeting.

Meralco, in a recent public hearing prior to the October 27 deadline, had asked for an extension but was turned down.

Ronald Vallez, a Meralco lawyer, told officials during the public hearing that they need not rush the issuance of the IG amid concerns raised by various stakeholders.

“Perhaps we can defer the October 27 deadline. I don’t see any urgency on why we have to rush this. There is nothing in the law to meet the October 27 deadline. Maybe, we can address all issues first and have clear answers so it will be clear to everybody,” Vallez said. –

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