ENERGY Secretary Alfonso G. Cusi has proposed subjecting the pending power supply agreements (PSA) between distribution utility Manila Electric Co. (Meralco) and power generation companies to a “Swiss challenge” to move the contracts forward ahead of the expected rise in electricity demand in the coming years.
“From my personal point of view, i-subject nalang ninyo sa (why don’t you just subject the contracts to a) Swiss challenge,” he told reporters in an informal gathering on Wednesday at the Philippine National Oil Co. compound in Bonifacio Global City.
Mr. Cusi said he wanted the PSAs to undergo a Swiss challenge considering that the contracting parties are confident the rates they forged for the supply of electricity are the lowest available to benefit consumers.
He said he talked to Meralco PowerGen Corp. (MGen) President and Chief Executive Officer Rogelio L. Singson about his proposal, who in turn pointed to how the Energy Regulatory Commission (ERC) will act on the PSA applications.
MGen, a subsidiary of Meralco, is among those that have committed to build power plants but could not proceed with signing an engineering, procurement and construction (EPC) contract ahead of the ERC’s approval of the PSAs. Lenders also require an ERC-approved PSA to ensure that the power plant developers will have a steady stream of revenues to repay their loans.
On these bilateral contracts, Mr. Cusi questioned why Meralco and the generation companies would ink a deal that does not involve consumers who will eventually end up paying for the electricity rates for 25 years.
“I’m not against Meralco… It’s just a good process,” he said, referring to Swiss challenge, a process that allows the original proponent to match the offer made by a challenger.
With his proposal, Mr. Cusi said he was looking at affordability and at the same time a tariff that is “fair to everybody.” However, he has not formally submitted his proposal to the DoE, since he is making sure it is legal.
In May 2016, Meralco announced that it had sought regulatory approval for seven PSAs, covering 3,551 megawatts (MW). The contracts were forged just before the April 30, 2016 deadline set by the ERC. After that date, companies are required to first undergo a competitive selection process (CSP) before forging a PSA.
The ERC promulgated CSP in November 2015 but had to restate its effective date until April 30, 2016 through a resolution in March 2016. It said the move was prompted by letter-inquiries from distribution utilities and generation companies assailing the legal implication of the CSP to existing power supply deals.
The ERC developed and promulgated the CSP as an additional safety net to promote consumer interest, even if this is not a mandatory requirement under Republic Act No. 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001.
The Meralco PSAs were based on its long-term load projections as it expects a continuous increase in electricity demand and number of customers, coupled with the impending expiration of contracts from 2019 to 2020. — Victor V. Saulon