Meralco sees risks in bid-only power deals

Business World Online
Posted on July 22, 2015 08:03:00 PM
By Claire-Ann M. C. Feliciano, Senior Reporter

MANILA ELECTRIC Co. (Meralco) said the Energy department’s requirement that all power distributors obtain their supply via competitive bidding may not be the best approach for a least-cost outcome.

Oscar S. Reyes, president of the largest distribution utility (DU), said on Monday night that a competitive selection process (CSP) must be supplemented by other means of securing power supply.

“We would like to think that in order ensure cost-competitive or least cost power, having a mix of bilateral negotiations and CSP on voluntary basis would be a more appropriate way,” Mr. Reyes told reporters on the sidelines of Power Tech Launch in Pasig City.

Mr. Reyes said more venues for securing supply requirements will provide more opportunities for the DUs and electric cooperatives to get the best deals.

“Having CSP on a voluntary basis will also allow us to see if that will produce the best [deal],” Mr. Reyes said.

He said giving distributors more options is better than enforcing “a one size fits all” policy.

“I think would provide the best mechanism rather than going for something that is untried,” Mr. Reyes said.

Meralco currently sources almost all of its supply needs via bilateral deals.

Mr. Reyes however emphasized that Meralco doesn’t necessarily oppose the CSP.

“We want that but it’s hard when enforced. Different utilities have different requirements,” he explained.

CSP cannot ensure least cost of power because generating facilities have different costs and specifications, he said.

Some of the generating companies, Mr. Reyes said, may opt out of the CSP if bidding favors low-cost power that is less reliable.

“The question is who will guarantee the performance of generation companies in the end,” Mr. Reyes said.

He added that this may even produce a negative outcome in terms of quality of supply.

“Our view is that the CSP doesn’t promote the best interests of the consumers,” Mr. Reyes said.

“It’s an attractive concept but I think we still have to see if it will work,” he added.

The official, however, agreed that CSP may make securing supply needs more transparent.

But Mr. Reyes also emphasized that bilateral deals are already transparent since the terms are subject to regulatory approval.

“If we find out that power costs are lower with CSP, then we will migrate to CSP but what if bilateral negotiations result in lower costs? At least we will have a comparison,” said Mr. Reyes.

Mr. Reyes also noted that CSPs, like any other public bidding, may encounter problems.

“When someone loses, questions will be raised and it will affect the entire process of securing supply,” said Mr. Reyes.

“What we have to ensure is that we get the best, most reliable and highly efficient plants,” Mr. Reyes said.

“We can’t just get the cheapest ones. I think we need to look at the competitive cost for the entire life cycle,” Mr. Reyes said.

Meralco plans to formally submit its position on the matter to the Energy department soon.

“We haven’t filed our position. We will still review it but offhand, that’s our stand,” Mr. Reyes said.

Through a circular dated June 11, the Energy department required all power distributors to undergo a CSP when securing power supply agreements in a bid to ensure security in electricity prices for end users in the long-term.

CSPs, the department said, should be conducted annually, enhancing transparency, reducing risks, promoting competition in procurement and resulting in contracts that ensure both least cost and security for the public. source