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The Manila Electric Co. building. ELMER DOMINGO (CC BY-SA 3.0)
The Manila Electric Co. building. ELMER DOMINGO (CC BY-SA 3.0)

Meralco, power units’ sweetheart deals bared

By Luis Leoncio 

Giant electricity distributor Manila Electric Co. (Meralco) has “sweetheart” deals with seven power plant affiliates for the supply of some 90 percent of its power supply requirements in violation of anti-trust provisions of the Electric Power Industrty Reform Act (EPIRA). 

Consumer group People Opposed to unWarranted Electricity Rates (POWER) said state regulator Energy Regulatory Commission (ERC) even abetted the illicit arrangement.

The ERC and Meralco are now being investigated by Congress on charges that the ERC allowed the power firm to skirt rules on the required competitive bidding of power contracts.

The ERC initially required all power distributors to undergo a competitive selection process (CSP) for its power supply agreements (PSAs) starting November last year. The ERC, however, moved the deadline to April 2017, allowing Meralco to finish negotiating seven PSAs with its affiliated companies.

In a joint hearing by the House committee on good government and House committee on energy last July 4, POWER pointed out that the seven PSAs of Meralco with its sister companies cover 3,551 megawatts, or approximately 90 percent of its power requirements for the next 20 to 25 years.

“By extending the deadline by six months on the CSP, the ERC allowed Meralco to evade competitive bidding for 90 percent of its power purchases covering the next 20-25 years. Worse, these contracts were with its sister companies,” said POWER Convenor and former Bayan Muna representative Teddy Casiño.

Under section 45 of the Electric Power Industry Reform Act (EPIRA), Meralco and other power distributors are allowed to contract not more than 50 percent of its power requirements from affiliated companies to avoid price manipulation and other monopoly practices.

“Sec. 45 of EPIRA is a token safeguard but a limitation nonetheless on monopoly practices in the power industry. The more Meralco is allowed to buy power from its sister companies, the more they can connive with each other in jacking up power rates,” Casiño said.

During the hearing, Meralco admitted that Meralco PowerGen Corp. owned 48 percent of Redondo Peninsula Energy Inc., 50 percent of St. Raphael Power Generation Corp., 100 percent of Atimonan One Energy, Inc., and 49 percent of Mariveles Power Generation Corp.

POWER said through Meralco PowerGen Corp., Metro Pacific Investments Corp. and PLDT Communications and Energy Ventures, Inc., Meralco’s owners also own 65 percent of Panay Energy Development Corp. and 73 percent of Global Luzon Energy Development Corp.

Because Meralco’s PSAs with these companies did not go through an auction, non-affiliated companies were not given the opportunity to compete for Meralco’s huge market.

“The problem is that historically, Meralco buys power from its sister companies at a much higher price than with non-affiliated power generating companies,” said Casiño.

At present, Meralco’s seven PSAs are all pending approval by the ERC.

POWER said it is impossible for Meralco not to have known about the DOE order and ERC rules on CSP because in January 2016, it successfully bidded out some of its short-term PSAs to Toledo Power Co., Panay Power Corp., and 1590 Energy Corp.

Meralco, in deciding to bid out its short-term PSAs, in compliance with ERC rules while negotiating its long-term PSAs shows deliberate bad faith and should be looked into by Congress, the group said.

During the House hearing, it was found there were 108 PSA applications covering the supply of 4,500 megawatts (MW) filed during the extended deadline for the CSP.

Of this, the bulk consisted of Meralco’s seven PSAs, covering 3,551 MW. In other words, Meralco gained the most from the ERC’s delay of its CSP policy, POWER added.

Three of Meralco’s PSAs – with Redondo Peninsula Energy, Inc.; Atimonan One Energy, Inc.; and St. Raphael Power Generation Corp. – appear to have been filed with the ERC AFTER the 5 p.m. deadline on April 30 to show the ERC itself bended backwards, in violation of its own rules, to accommodate Meralco’s midnight deals.

Meralco stands to gain tremendously, and its consumers stand to lose immensely, from ERC’s actions, POWER said.

By negotiating these PSAs instead of undergoing a bidding process through the CSP, Meralco effectively denied consumers the chance of having a lower generating cost.

Last June 29, the ERC was also sued before the Ombudsman for graft for favoring Meralco in the grant of allegedly “sweetheart” power supply deals.

In their complaint affidavit, Sanlakas Secretary-General Atty. Jose Aaron M. Pedrosa Jr., Freedom from Debt Coalition Secretary-General Samuel Cesar Gamboa, and reporter Heidi Nicodemus accused the ERC commissioners of causing undue injury to government when it gave unwarranted benefit to Meralco after suspending the competitive selection process (CPS), a power supply procurement scheme requiring public bidding instead of a negotiated procurement.

“The respondents caused undue injury to the public and/or gave Meralco unwarranted benefits, advantage or preference by suspending the CSP mandatory implementation to accommodate Meralco,” the complaint stated.

Included as respondents are Commissioners Josefina Patricia Magpale-Asirit, Alfredo Non, Gloria Victoria Yap-Taruc, and Geronimo Sta. Ana.

The complaint alleged ERC commissioners Asirit and Taruc “strangely” revisited an earlier resolution issued under the term of former Energy Secretary Jericho Petilla that required the competitive selection process, prompted by complaints from big distribution units and generation companies with expiring PSAs.

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