Meralco: Power supply deals follow least cost mandate

The Philippines’ largest power distributor, Manila Electric Company (Meralco), said on Saturday it strictly adheres to the least cost mandate in contracting power supplies, amid criticism of its recent competitive bidding.

In a statement, Meralco vice president and head of corporate communications Joe Zaldarriaga said the “Competitive Selection Process or CSP is a government-mandated bidding to ensure that only power suppliers that offer the least cost supply will be contracted by a distribution utility to protect consumers against high power rates.”

Zaldarriaga added that the CSP, as approved by the Department of Energy and Energy Regulatory Commission, “is an open and transparent bidding” where consumers of electricity are allowed to observe.  

“We would like to emphasize that Meralco strictly follows the requirements of CSP prescribed by the government, which includes securing prior approval from the DOE of our Power Supply Procurement Plan and the corresponding Terms of Reference (TOR) for every CSP,” he said.

Meralco issued the statement after Senator Alan Peter Cayetano called for a deferment of Meralco’s 600-megawatt (MW) power supply requirement amid concerns over fairness.

Cayetano questioned the TOR set by Meralco for the upcoming CSP for its 600-MW baseload requirement, which he claimed was unfair for older power suppliers such as the Malampaya gas field.

Zaldarriaga, however, said that “Meralco does not amend the rules or TORs for our CSP to favor one generation company or limit competition because that is obviously discriminatory and anti-competitive.”

He said that for the 600-MW requirement, eight companies, including First Gas Power Corp. and First NatGas Power Corp. that source fuel from Malampaya, expressed interest in submitting offers.

The other generation companies are Mariveles Power Generation Corp. and Masinloc Power Co. Ltd., GNPower Dinginin and Therma Luzon, Inc., Southwest Luzon Power Generation Corp., and Quezon Power (Philippines) Limited Co.

“Just like all our other CSPs, we are hoping that all these companies will submit their offers to maximize competition. This will allow us to secure the best bid and least-cost supply that will really benefit our customers,” Zaldarriaga said.

Moreover, the Meralco official said that in the case of its recent 1,800-MW and 1,200-MW CSPs, “the TORs also considered suggestions of the ERC Chairperson before they were published.”

He also emphasized that to ensure transparency and fairness, CSP observers, including the DOE and consumer groups, witness the submission and opening of bids.

The proceedings are also streamed live.

'Level playing field'

“In addition, the TOR ensures a level playing field for all generation companies participating in the bidding because all the rules apply to all bidders without exception, and all bidders are required to include all their costs in their bid offers for purposes of determining the lowest and winning bid.  No hidden costs are allowed to be charged to consumers under Meralco CSPs,” Zaldarriaga said.

“Since the TORs require prior approval from DOE, tailor-fitting to favor a particular generation company is prohibited. Meralco’s TORs promote competition by ensuring that more generation companies are able to participate and offer competitive rates, while at the same time encouraging the entry of new or greenfield power plants to replace old and unreliable power plants,” he added.

The Meralco official said that while the power distributor prioritizes power plants using indigenous fuel as required by DOE, the company ensures that it will not violate the least cost mandate under the law.

“There is no preferential treatment, and Meralco always awards contracts to the lowest compliant bidder,” Zaldarriaga said.

In its recently completed CSP for its 1,200-MW baseload requirement, Meralco awarded the power supply agreement to South Premiere Power Corporation after it submitted the lowest offer of P7.0718 per kWh.

It bested the P7.1006 per kWh offer of the joint venture of Limay Power Inc. and San Roque Hydropower Inc. for 150MW capacity; and First Natgas Power Corporation’s bid of P8.4489 per kWh.

First Natgas, which uses indigenous Malampaya gas for the San Gabriel power plant, was deemed non-compliant as the offer went beyond the reserve price set for the bidding.

“Awarding the contract to a generation company that submitted the highest and non-compliant bid clearly violates the law and existing regulations. Even ERC found that our CSP for the 1,200MW has complied with all legal requirements when it issued a Provisional Authority,” Zaldarriaga said.

“All resulting PSAs will also have to undergo the review and approval process of the ERC prior to implementation,” he said. — VBL, GMA Integrated News