Electricity pricing in PH enters new era

Filipino consumers may not be aware of it, but the policy to subject power supplies to a competitive selection process, or bidding, is making the cost of electricity product more transparent and market-driven.

It is a breakthrough reform in the power sector and effectively wipes out suspicions of a sweetheart deal between electricity producers and distributors.

The purchase of electricity under the CSP option will translate into relatively lower cost given the nature of the bidding process. Critics of the power reform, thus, should rethink their view because the old procurement system has not resulted in lower electricity prices in the Philippines, one of the highest in Asia.

Over the last couple of months, Bayan Muna party-list Rep. Carlos Isagani Zarate and chairman Neri Colmenares have been blocking the implementation of the CSP, even filing a temporary restraining order before the Supreme Court to stop the process. Ironically, the two were initially among the heavy supporters of CSP and its implementation.

The Supreme Court has ruled that all power supply agreements, or PSAs, filed after June 30, 2015  are obliged to undergo the CSP  to allow other potential suppliers bid for the contract. The process seeks to provide consumers the best power supply contract. The   PSA is a requirement from the Energy Regulatory Commission and Department of Energy to encourage generation companies to build power plants in order to meet the country’s demand.

The  CSP has finally proceeded, with Meralco, the largest utility company in the country that Zarate has been consistently blaming for the nation’s acute power shortage, awarding PSAs to three generation companies. 

Phinma Energy Corp., San Miguel Energy Corp. and South Premiere Power Corp. offered the lowest rates in the utility firm’s search for the supply of 1,200 megawatts starting December.

Two days after the first round of bidding, the Third-Party Bids and Awards Committee oversaw another bid—this time to supply Meralco’s 500 MW of mid-merit requirement effective December, 26 2019 for five years. TPBAC, headed by local and international procurement expert Ferdinand Domingo and former Trade and Industry Undersecretary Adrian Cristobal Jr., declared the offers of First Gen Hydro Power, Phinma Energy and South Premiere Power as the best bids.

The formation of TPBAC and its task belie the accusation of Bayan Muna that Meralco and the Department of Energy were manipulating the CSP.  

Lower bids

The CSP drew the interest of other companies. Besides the three winning gencos in the 1,200-MW contract, two more companies, SMC Consolidated Power Corp. and Masinloc Power Partners Co. Ltd., joined the procurement process.

The results of the bidding will eventually benefit electricity consumers. They can save around P0.28 per kwh or P9.46 billion annually for 10 years starting in 2020 from the new 1,200-MW PSA. On the 500-MW contract, consumers are expected to save another P4.4 billion annually over the next five years. This is equivalent to an additional rate reduction of around P0.13 per kWh for consumers by the end of the year.

Consumers had the most to gain from the CSP, especially since the rates from all three best bids were evidently lower than the average generation cost today, contrary to Zarate’s claim.

The CSP also imposes penalty on the winning bidder if it fails to honor its contract. The terms of the supply deal stipulate that the generator that fails to follow through with the contracted capacity will pay a fine of P908 multiplied by each megawatt-hour per day. The fine will be used to reduce the generation charge to consumers.

The successful CSP bidding process has actually contradicted Bayan Muna’ allegations.  The CSP in fact  ensures power-sourcing at the best possible least cost and encourages the build-up of reserves to minimize, if not avoid, supply interruptions.

Constructing new power plants is an urgent measure to solve the country’s energy security requirements. Nobody wants to again experience the serious power shortages in the early 90s that crippled the Philippine economy.

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