MERALCO Defends Competitive Selection Process

The Manila Electric Company (MERALCO) has strongly asserted the legality and necessity of its Competitive Selection Process (CSP) for power supply procurement, emphasizing that any delay in this process could lead to increased power rates.

MERALCO ensures that only the least-cost suppliers are chosen to protect consumers from high power rates.

This declaration, communicated in a recent statement, comes in response to various allegations and a heated debate over the Energy Regulatory Commission’s (ERC) mandate on the CSP, especially amidst the frequent red alerts in the power sector.

MERALCO reiterated that its CSP is conducted in strict accordance with existing rules set by the Department of Energy (DOE) and the ERC, as mandated by the Electric Power Industry Reform Act (EPIRA).

The company emphasized that the goal is to secure the least-cost supply transparently and openly.

"None of the prospective bidders, including generation companies that use Malampaya gas, raised issues that could justify postponing the bidding. Therefore, MERALCO has no valid reason to delay the process," stated Jose Ronald V. Valles, Senior Vice President and Head of Regulatory Management at MERALCO.

Addressing concerns about previous CSPs, MERALCO highlighted that the Terms of Reference (TORs) for these processes received certificates of conformity from the DOE. The ERC found the recent 1,200 MW CSP to be fully compliant with laws and regulations, granting a Provisional Authority to implement the resulting Power Supply Agreement (PSA).

However, First NatGas’ San Gabriel plant’s high price offer led to its non-compliance in this CSP.

"Any generation company can submit offers for our CSPs. While we prioritize power plants using indigenous fuel as required by DOE, we must ensure compliance with our least-cost mandate under the law. There is no preferential treatment; contracts are awarded to the compliant bidder offering the lowest cost," Valles reaffirmed.

MERALCO clarified that the Santa Rita and San Lorenzo plants, which use Malampaya natural gas, could not participate in the earlier 1,800 MW baseload CSP due to existing full contracts with MERALCO.

These plants lacked the extra capacity to meet the requirements. In contrast, the San Gabriel plant's bid for the 1,200 MW capacity was rejected as its offer of P8.45 per kWh exceeded the reserve price, significantly higher than the winning bid of approximately P7 per kWh.

Contrary to allegations of discrimination, MERALCO stressed that TORs for all CSPs apply equally to all bidders, without preferential treatment. The reserve prices and bid offers are inclusive of all costs, including fuel, with no hidden charges. No unsubmitted costs will be allowed as pass-through charges under the PSAs.

The Broader Scope

The issue surrounding the CSP has escalated due to allegations of discriminatory practices and excessive authority by the distribution utility. Critics argue that the exclusion of power plants powered by indigenous gas and the preference for newer plants in the TORs hinder fair competition.

This issue was recently addressed in a Senate hearing by the Energy Committee, raising concerns about the power supply awarding process.

One senator has called for the postponement of the upcoming 600 MW CSP scheduled for August 2, until these issues are resolved. Additionally, a new government procurement process signed by President Ferdinand Marcos Jr. adds another layer of complexity.

MERALCO has defended the CSP, highlighting its transparency and adherence to regulatory approvals. The bidding process, streamed live for public observation, ensures that only the least-cost suppliers are chosen to protect consumers from high power rates.

As the debate continues, there is an urgent need for the government to resolve these issues to prevent further delays in meeting power supply requirements. The ongoing conflict threatens the reliability of energy distribution and the economic stability of businesses and households.

In the broader scope, addressing the ownership structures of bidding companies and strategizing the construction of more baseload power plants are crucial steps towards achieving energy security and stability in the country.