Meralco Adheres to Least Cost Mandate in Power Supply Deals

Manila Electric Company (Meralco), the Philippines’ largest power distributor, affirmed on Saturday that it strictly follows the least cost mandate in its power supply contracting, amidst recent criticism of its competitive bidding processes.

Commitment to Competitive Selection Process (CSP)

In a statement, Joe Zaldarriaga, Meralco’s Vice President and Head of Corporate Communications, emphasized that the Competitive Selection Process (CSP) is a government-mandated bidding mechanism designed to ensure that only power suppliers offering the least cost are contracted, thereby protecting consumers from high power rates.

“The CSP, as approved by the Department of Energy (DOE) and Energy Regulatory Commission (ERC), is an open and transparent bidding process where electricity consumers can observe,” Zaldarriaga said. He stressed that Meralco adheres strictly to CSP requirements, including securing DOE approval for their Power Supply Procurement Plan and the Terms of Reference (TOR) for each CSP.

Addressing Concerns

The statement comes in response to Senator Alan Peter Cayetano’s call for a deferment of Meralco’s 600-megawatt (MW) power supply requirement, citing fairness concerns. Cayetano questioned the TOR set by Meralco, suggesting it was unfair to older power suppliers like the Malampaya gas field.

Zaldarriaga countered these claims, stating, “Meralco does not amend the rules or TORs for our CSP to favor any generation company or limit competition as it is discriminatory and anti-competitive.” He noted that eight companies, including First Gas Power Corp. and First NatGas Power Corp., have shown interest in the 600-MW baseload requirement bid.

Ensuring Fair Competition

To promote transparency and fairness, CSP observers, including DOE representatives and consumer groups, witness the submission and opening of bids, which are also streamed live. The TOR ensures a level playing field for all participating generation companies, requiring all costs to be included in bid offers with no hidden charges allowed.

“Tailor-fitting the TOR to favor a particular company is prohibited as all TORs require DOE’s prior approval,” Zaldarriaga added. Meralco’s TORs encourage competition and the entry of new or greenfield power plants, promoting more competitive rates.

Recent Bidding Outcomes

In the recently completed CSP for a 1,200-MW baseload requirement, Meralco awarded the power supply agreement to South Premiere Power Corporation, which submitted the lowest offer of P7.0718 per kWh. This offer beat Limay Power Inc. and San Roque Hydropower Inc.’s joint bid of P7.1006 per kWh, and First Natgas Power Corporation’s P8.4489 per kWh bid, which was deemed non-compliant.

Zaldarriaga emphasized, “Awarding the contract to a generation company that submitted the highest and non-compliant bid clearly violates the law and existing regulations.” The ERC provisionally authorized the CSP for the 1,200 MW baseload requirement, confirming its compliance with all legal standards.

All resulting Power Supply Agreements (PSAs) must undergo ERC review and approval before implementation, ensuring regulatory compliance and protecting consumer interests.