A fund-raising activity?

HIDDEN AGENDA By Mary Ann Ll. Reyes (The Philippine Star) | Updated October 21, 2015 - 12:00am

What was he thinking?

A few days before resigning as energy secretary, Jericho Petilla signed a directive that could unduly jack up electricity rates beginning next year.

Why spoil it? After all, consumers were just beginning to enjoy reductions in their electricity bills. Meralco, the country’s biggest distribution utility (DU), has reduced its overall charge from P9.67 per kwh in January to P8.55 in September, and everyone was hoping the trend would continue.

Yes, Petilla, the Liberal Party senatorial bet, just screwed up our hopes for a continuing regime of affordable electricity rates.

The Competitive Selection Process (CSP) policy the Energy department put in place through Department Circular (DC) 2015-06-0008 is reportedly meant to promote greater transparency in the sector and stabilize or pull down the cost of electricity, in step with the spirit and intent of the Electric Power Industry Reform Act (EPIRA), if we were to go by DOE’s propaganda.

According to the order, which took effect upon its publication last June 30, “the The DOE recognizes the adoption of competitive selection as a policy that will encourage investments in the power-generation business, thereby ensuring electric power-supply availability in a regime of transparent process in securing PSAs, which is an integral part of the power-sector reform agenda.”

Now, DUs and electric cooperatves (ECs) are required to source their power requirements only through a competitive bidding called the CSP, thereby prohibiting them from securing their electricity through individual or bilateral negotiations with generation companies (Gencos) by way of standard contracts known as Power Supply Agreements (PSAs).

According to industry observers, DUs and ECs are able to get better, if not the best, deals for their respective customers under bilateral PSAs with Gencos of their choices, so as to be able to each get the most optimal long-term deals they could from potential suppliers.

Bilateral or company-to-company negotiations have been a common norm for DUs and ECs to secure their electricity supply from sources other than the Wholesale Electricity Spot Market (WESM) being run by the Philippine Electricity Market Corp. (PEMC).

The DOE and ERC are supposed to determine the wholesale supply or energy requirements of each DU and EC, to find out the respective volumes that each firm needs to bid out via the CSP beyond their supply needs that, for now, are still covered by their existing PSAs.

Petilla’s order has met strong resistance from industry stakeholders and experts who believe that DC 2015-06-0008 actually impairs EPIRA, as the CSP is neither transparent nor a mechanism to stabilize or cut electricity prices for the benefit of consumers.

They say that once CSP is made mandatory, ECs and DUs will be confined to the Gencos that will join the bidding process, which means the participating Gencos can and will naturally dictate prices.

We saw this in December 2013 when the abnormal supply shortfall enabled Gencos to drive WESM prices up to record highs.

Why fix it when it ain’t broke?

Meralco just announced a reduction in the consumers’ monthly bills this October, the sixth rollback in six months. This just goes to show the current system of bilateral agreements being used by Meralco works.

Experts have also noted WESM rates are also driving the lower electricity prices. But with the CSP, WESM would be rendered inutile.

Meralco’s only supply contracts are those with the Sta. Rita and San Lorenzo facilities, both of which are supplied by the Malampaya natural gas field in the West Philippine Sea, which Shell Philippines operates on behalf of the joint venture of Chevron Corp. and the state-run Philippine National Oil Co. Exploration Corp. (PNOC-EC).

Fears about so-called “sweetheart deals” are, therefore, without basis.

In a position paper submitted to the DOE and ERC, consumer activist group CitizenWatch asked government to suspend the implementation of DC 2015-06-0008 to give regulators enough time to further study its implications.

CitizenWatch secretary general Wilford Wong noted the DOE-ordered setup would never work in an environment where there are just a few Gencos, and would thus be “prone to abuse resulting to higher cost of electricity.’

He said the new process, which mandates the hiring of third-party auctioneers to conduct the biddings for the energy requirements of DUs and ECs, is full of loopholes and is so specific it could restrict the participation of experts that may have experience in other forms of competitive selection. Consumers would also have to pay for the appointed experts.

CitizenWatch convenor Tim Abejo likewise stressed there is no provision in the guidelines for public stakeholder input in the selection of the third part experts, without which ordinary consumers would ultimately suffer from the additional burden of higher power prices.

“To lower power prices, the mechanism that we envision needs to put the consumers primary concern above anything else by not adding another pass on charge to the consumers,” Abejo said.

Wong and Abejo noted that similar efforts in the past, such as by the Central Luzon Electric Cooperative Association-First Luzon Aggregation Group, had only resulted in failures in the bidding process instead of lowering electricity prices.

Party-list group Agham is also opposed to Petilla’s CSP. Agham president Angelo Palmones noted the circular, which was issued allegedly without the benefit of prior public consultations, would only lead to higher electricity rates for consumers.

Palmones agrees with the view aired by Rep. Reynaldo Umali, chairperson of the House Committee on Energy, that the circular is constitutionally and legally infirm, its issuance being an encroachment by the DOE into the policy-making power of Congress.

Citing a news report, Palmones said that in a test-run of the CSP in Central Luzon, a number of ECs were not able to strike better deals for their power supply contracts as they were limited to three Gencos that had participated in the bidding. It was discovered the winning bidder did not even offer the lowest per-kWh rate.

Industry players have also argued the CSP could work only if considered as a voluntary option in a mixed system that also includes bilateral negotiations and WESM purchases. For Meralco president Oscar Reyes, what will work for them is “a mix of bilateral, voluntary CSP and WESM.”

So what is Petilla’s real agenda? If this is not an election-rated fund-raising activity, supported by certain vested interests that want to enter the local market, then what is it?