DOE set to issue new rules on power firms’ CSP after standoff with Meralco

By Lenie Lectura - November 11, 2019

https://businessmirror.com.ph/2019/11/11/doe-set-to-issue-new-rules-on-power-firms-csp-after-standoff-with-meralco/

THE Department of Energy (DOE) is expected to issue new rules on the competitive selection process (CSP) to govern power firms that are engaged in both power generation and distribution.

 This proposal was raised by Energy Secretary Alfonso Cusi following the still unresolved issue on the rebidding of 1,200 megawatt (MW) greenfield power-supply requirement of the Manila Electric Co. (Meralco) via CSP. 

Cusi has provided inputs to Meralco on how the power-supply contract should be bidded out. Meralco, on the other hand, has insisted on its own terms of reference (TOR).  

Cusi said the agency received a letter from Meralco explaining why it prefers a new power plant, rather than existing power facilities, to supply the utility firm. There were also other concerns raised by Meralco in the letter. 

“They are a private entity…we have CSP rules…. It’s difficult in the case of Meralco; the reason I want it open [to all types of plants] is because they are the DU [distribution utility] and, at the same time, owner of generation. That’s why that system for that CSP should be different,” Cusi said. 

As such, Cusi pointed out the need for the DOE to come up with a CSP template to avoid conflict of interest. This template will spell out the rules on how supply deals should be bidded out, particularly if the DU’s affiliate or unit is also engaged in power generation. 

 Atimonan One Energy Inc. of Meralco PowerGen Corp.(MGen) was the sole bidder of the 1,200  MW greenfield power-supply contract. The Third Party Bids and Awards Committee decided to hold a rebidding since only one firm participated. The DOE, however, has yet to approve the TOR.  

MGen is the power generation arm of Meralco.

Cusi pointed out that existing power plants operated and owned by other power firms should also be allowed to participate in the CSP for Meralco’s 1,2000 MW greenfield power-supply contract for 20 years. 

 “We need power and energy. What we want is to make it competitive and open to all. What we are saying is, if they want me to approve the TOR, I am telling them the kind of TOR that I want. They said they don’t love my TOR, I can’t do anything,” Cusi said.

 Cusi said it is Meralco’s prerogative to publish the TOR. However, Cusi stressed that the TOR, if published, is not approved by his office. “[In] the first bidding, they said I approved it but I only approved the publication. I also replied to their letter,” Cusi said.

DOE may reprimand—Win

Meanwhile, Senate Energy Committee Head Sherwin Gatchalian said the DOE is authorized to reprimand Meralco should it push through with the publication.  

“Let competition come in and let the TOR be neutral, fair and transparent,” he said. “I think, well, if they don’t…there are many remedies. For example, if they insist on their own TOR,  I believe DOE can reprimand them and can also penalize them,” he said.

 The committee, he added, can also conduct an investigation.

 Meralco President Ray Espinosa had said that the company has considered the DOE’s inputs but “would proceed on the basis of what we have set out originally, which is to differentiate the brownfield from the greenfield.”

He meant to underscore that there are financial and economic differences between brownfield and greenfield plants. He also explained that power-supply agreements (PSAs) that are awarded to these types of plants vary and differ in financial and economic terms. 

“It will be difficult for us to move to a situation where a greenfield capacity that we need to ensure reliable and affordable supply will eventually be open to older and preexisting plants that will crowd out investors or power generators who want to build new plants. 

“It would simply be very difficult for them to compete. There is no discrimination against the existing and old plants.

“We cannot just have a situation where the existing plants and brownfield plants also compete for the greenfield capacity,” Espinosa said. 

Espinosa pointed out that Meralco’s intention is to explain to the DOE the need “to maintain this dichotomy because it’s only in this dichotomy that incentives are provided to build new plants.” 

 He added: “We feel that our position is reasonable and that we basically have the basis upon which to go for a second round of CSP for the 1,200 MW.”