An Analysis on the Competitive Selection Process in the Procurement by

Distribution Utilities of Power Supply Agreement under the Electric Power

Industry Reform Act of 2001

In Partial Fulfilment for Legal Research at the Faculty of Civil Law University of Santo Tomas

By:

Ristel Mae B. Tagudando

1I

Submitted to:

Atty. Emma Ruby Aguilar

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 TABLE OF CONTENTS

Page

Chapter I
I. Introduction
I.1 Background of the Study

I.1.1 The Department Circulars on Competitive

Selection Process and the Electric Power Industry
Reform Act of 2001 2-3
I.1.2 The Manila Electric Company and its CSP 4

I.2 Statement of the Prob 4-5

I.3 Definition of Terms 6
Chapter II
II. The Competitive Bidding of Meralco 7-11
Chapter III
III. Analysis and Conclusion 12-13

Bibliography 14-15

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 CHAPTER I

INTRODUCTION

I.1 Background of the Study

I.1.1 The Department Circulars on Competitive Selection Process and the Electric Power

Industry Reform Act of 2001

Competitive Selection Process (CSP) is a policy mandating all distribution utilities (DUs)

and electric cooperatives (ECs) to bid out their respective power requirements instead of entering

into negotiated contracts. This is to maintain equality between profit and public service in the

energy sector. [1]

According to the Department of Energy, CSP also effectively implemented through a

Department Circular No. DC2018-02-0003 – entitled, "Adopting and Prescribing the Policy for

the Competitive Selection Process in the Procurement by the Distribution Utilities of Power Supply

Agreement for the Captive Market" – aims to promote the needs of the consumers as presented in

the Distribution Development Plan (DDPs) and Power Supply Procurement Plans (PSPPs) of the

Distribution Utilities (DUs). The DU shall embrace the principle of technology neutrality and

consider the reliability of energy services in a least cost manner. The DU shall also ensure that it

can meet the demand for its Captive Market at any given time. [2]

Prior to the aforementioned Circular, in 2015, DOE issued DOE Circular No. DC2015- 06-

0008 which is in pursuant to the mandate of the Department of Energy (“DOE”) under the Electric

Power Industry Reform Act of 2001 (“EPIRA”) adhering to “formulate such rules and regulations

as may be necessary to implement the objectives of this Act (EPIRA).

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 This 2015 Circular on Competitive Selection Process gave emphasis on mandating all

Distribution Utilities to undergo the CSP in securing Power Supply Agreements (PSAs) with

generation companies, and that the requirement for a competitive public bidding in the power

sector is primarily aimed at ensuring a fair, reasonable, and cost effective generation charge for

consumers, under a transparent power sale mechanism between the generation companies and the

DUs. The CSP was formulated for the protection of the consuming public.[3]

Moreover, under Section 5 of the 2018 CSP Circular, all DUs are hereby advised to

establish their respective Third Party Bids and Awards Committee (TPBAC), TPBAC Technical

Working Group (TWG) and TPBAC Secretariat (DOE-02-0003, 2018), these are the committee

and group responsible for assuring the fair and honest execution of the Competitive Selection

Process. Furthermore, it is also highlighted in Section 3 and 4 of the 2015 Circulation, all

Distribution Utilities shall procure PSAs only through CSP conducted through a Third Party duly

recognized by the Energy Regulatory Commission and the Department of Energy. (DOE-06- 0008,

2015)

The Electric Power Industry Reform Act, on the other hand, declares among others the

following policy of the state, in relation to Competitive Selection Process, that all Distribution

Utilities shall have the obligation to supply electricity in the least-cost manner to their Captive

Market, subject to the collection of retail rate duty approved by the Energy Regulatory

Commission. (DOE-06-0008, 2015) Which this also mandated the DOE to supervise the restricting

of the electric power industry through, among a number, in achieving greater efficiencies in the

conduct of a CSP; that the DOE recognizes that CSP in the procurement of PSAs by the DUs

ensures security and certainty of electricity prices of electric power to end- users in the long-term.

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I.1.2 The Manila Electric Company and its CSP

After the failure of the Manila Electric Company to conduct CSP during their power supply

bidding [4] the DOE suddenly issued DC 2018-02-0003 repealing Sections 3 and 4 as well as other

provisions of DC 2015-06-0008 which supposedly provides, by Section 3 of the latter, that deemed

the core provision of DC 2015-06-0008: enjoins all DUs to procure PSAs only through CSP

conducted through a third party recognized by the ERC and the Department of Energy (DOE).

Thereafter, Meralco was able to conduct CSP in their bidding. The 2018 amendment has allowed

Meralco to control the five-man TPBAC with three Meralco executives and two of Meralco’s own
[5]
appointees for the bidding of the power suppliers with various generation companies of the
[6]
contract energy capacity of 1200 Megawatts for a period extending up to 10 years.

Nonetheless, for Meralco, it would like to assure its customers that the Competitive

Selection Process conforms to all existing laws, rules and regulations and that the same is being

done to ensure adequate, reliable and quality power supply as required under the EPIRA law. [7]

I.2 Statement of the Problem

After the amendment of the DOE Circular on CSP wherein the 2018 Circular has repealed

the provisions of DC 2015-06-0008, especially its Sections which provides the power of DOE and

ERC to recognized who should be the members of TPBAC assisting and ensuring the integrity of

such CSP in the bidding as per under EPIRA, allowed the Meralco to exercise independently and

pass through the questions given upon them regarding, first, by their failure to conduct PSAs;

second, for including their own generation companies or those which are

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affiliated to Meralco; and lastly, for partially take control, still, of the bidding, with TPBAC

members connected to the company.

Prior to this, for some energy groups, such as the Institute for Climate and Sustainable

Cities adherence to the prescribed spirit of free and fair competition, both existing and new power

plants should be allowed to join Meralco’s upcoming bidding for a 1,200-megawatt power supply

agreement. The Department of Energy came up with a proposal to divide the Meralco supply

requirement up for bidding into smaller sizes and to allow stacking of bids will likewise foster the

desired competitive structure envisioned in EPIRA, or the Electric Power Industry Reform Act of

2001 as the rebidding of the 1,200-megawatt greenfield power supply requirement of Meralco

remained unresolved. (Cusi, 2019) The Department of Energy has provided inputs to Meralco on

how the contract should be bid out but Meralco has insisted on its own terms of reference. [8]

In 2019, Bayan Muna filed a petition for Meralco’s “abuse of market”. The party-list

through its chairman Neri Colmenares and Rep. Carlos Zarate argued that Energy Department

Circular 2018-02-0003—which repealed Sections 3, 4, as well as other provisions of DC 2015-

06-0008—is void for violating policies and provisions intended to protect consumers under the
[9]
Electric Power Industry Reform Act (Epira) of 2001 and the Constitution.

According to the petitioners the fact that that the DU appoints all the members of the third-

party bids and awards committee, which is the TPBAC, no longer makes a bids and awards

committee ‘third party’ despite the token name. Section 5 of DC 2018-02-0003 therefore, expressly

brings back the control of the bidding process to the DU by repealing the mandatory requirement

of a third party.

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I.3 Definition of Terms

a. Captive market- the electricity end-users who do not have the choice of a supplier of

electricity, as may be determined by the ERC in accordance with EPIRA

b. Competitive Selection Process (CSP)- the process wherein a Generation Company, is

awarded to supply electric power requirements of a Distribution Utility through transparent and

competitive bidding undertake by a DU or Aggregated DUs to secure supply of electricity based

on the evaluation criteria adopted by the DUs in accordance with the requirements of the public

policy.

c. Distribution Utility- any electric cooperative, private corporation, government-owned utility

or existing local government unit which has an exclusive franchise or is authorized by law to

distribute electricity to end-users.

d. EPIRA- Republic Act No. 9136 or the Electric Power Industry Reform act of 2001

e. Energy Regulatory Commission- the regulatory agency created under EPIRA

f. Generation Company (GenCo)- a person or body authorized by the ERC to operate facilities

used in the generation of electricity.

g. Grid- the high voltage backbone system of interconnected transmission lines, substations and

related facilities.

h. Third Party Bids and Awards Committee (TPBAC) – the third part committee established

in accordance with Section 5 of the Circular to spearhead and manage a DU’s CSP.

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 CHAPTER II

COMPETITIVE BIDDING BY MERALCO

Failure of conducting Competitive Selection Process by Meralco was given emphasis to

when the Supreme Court in their special En Banc session on 03 May 2019 and in a decision penned

by Senior Associate Justice Antonio T. Carpio, ruled that all Power Supply Agreements (“PSA”)

submitted by Distribution Utilities (“DU”) with the Energy Regulatory Commission (“ERC”) on

or after 30 June 2015 must undergo a Competitive Selection Process (“CSP”). (Alyansa Para Sa

Bagong Pilipinas, Inc., vs. Energy Regulatory Commission et al, 2019)

As per the decision of the Supreme Court, all PSA applications submitted by the DUs on

or after 30 June 2015 were required to comply with the CSP in accordance with 2015 DOE

Circular. Thereafter, the Supreme Court further ordered that the power purchase cost after

compliance with the CSP shall retroact to the date of the effectivity of the PSA, but in no case

earlier than 30 June 2015, for purposes of passing the purchase cost to the consumers. (Carpio, J.,

2019)

Meralco eventually held bidding and opened it to various qualified Generation Companies,

including its own GenCo with defense that there is no such prohibition in the law, the DOE

guidelines and even in the SC decision that prevent affiliate generation companies from

participating in the bidding for power supply requirements of distribution companies. Hence the

suggestion of the Executive Secretary of the Department of Energy to raise the issue. Meralco later

on proceeded to its bidding process.

Furthermore, DOE presented three conditions in the CSP of Meralco. It had prescribed the

removal of high efficiency, low emissions (HELE) technology requirement for the future

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power plant that will provide the capacity on that targeted volume procurement. The second CSP

condition set forth by the energy department is to split the capacity of the provider power plants

– not on a chunk of 1,200MW capacity, but even of smaller capacities. The energy chief stipulated

in his correspondence that qualified bidders can bid individually for any part of the 1,200MW

requirement and Meralco will aggregate the lowest-cost combination of bids; stacked starting from

the lowest-cost offer until the total 1,200MW is fulfilled. In that particular auction frame though,

interested parties on the utility firm’s new batch of CSP have opined that the “disaggregated

capacity” may not viably justify the economics of any new power plant to be built; and even non-

serious developers may be winning a low price bid, but they could not deliver the capacity in the

end. For example, it has been noted that one winner could just have 105 megawatts; then the second

lowest bid is at 270MW; and then the third winning bid could have the 1,200MW capacity – that

entails then that the third winning bid would have to reduce its capacity by 375MW. But sources

qualified there is danger on that precept because the entire economics of the bigger-scale project

could change versus when the facility-developer tendered its price offer in that particular CSP. The

third condition set out by Cusi is for Meralco not setting a classification whether its procurement

will be from greenfield (new plant) or brownfield (existing) generating facility. [10]

However, the issue here is despite the CSP as envisioned by the EPIRA of 2001, Meralco

was able to take, if not full, the chance to influence the bidding process by inviting people as part

of the TPBAC to assist in the bidding, who are affiliated to it. And, after all the DOE has the power

to demand that the purpose of its CSP policy be fulfilled in order to get the lowest possible price

for electricity and protect the consumers from self-dealing.

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 As per EPIRA, according to the Executive Summary by the Energy Department, its

(EPIRA) implementation as of April 2018 which includes accomplishments and various challenges

that were pursued by the DOE in collaboration with the Energy Regulatory Commission (ERC)

and the DOE’s Attached Agencies, namely, the National Electrification Administration (NEA),

Power Sector Assets and Liabilities Management Corporation (PSALM), National Transmission

Corporation (TransCo) and National Power Corporation (NPC), as well as other key private sector

entities, among others, the National Grid Corporation of the Philippines (NGCP) and the Philippine

Electricity Market Corporation. Correspondingly, the submission of this report to the Joint

Congress Power Commission (JCPC) shall serve as concrete basis of the JCPC to formulate

legislative recommendations to ensure that EPIRA objectives are being met.[11]

Stated in the Executive Summary by the aforementioned: initiatives to ensure consumer

protection were likewise spearheaded by the DOE, among others, the promulgation of Department

Circular No. DC2018-02-0003 entitled “Adopting and Prescribing the Policy for the Competitive

Selection Process (CSP) in the Procurement by the Distribution Utilities of Power Supply

Agreement for the Captive Market”, on 01 February 2018. The said policy is to ensure compliance

to Section 23 of the EPIRA, of all distribution utilities as they are mandated to supply the captive

customers in the least cost manner. the DOE issued the said policy will be applicable for both on-

grid and off-grid DUs and is envisioned to provide mechanism for fair and transparent procurement

process that will promote competition and greater private sector participation to attain adequate

capacity to meet the demand in the captive market. Likewise, the DOE started consultation process

for the policy on uniform billing and review of the implementing rules and regulation of the

EPIRA.

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 In the recent successful CSP of Meralco in September 2019, it stated that Meralco the CSP

would result in additional savings and, ultimately, least cost to consumers. It said the bids’ all-in

rate already includes line rental and VAT and the cost of replacement power for all plant outages.

The generator companies will also be liable to pay a fine if they are unable to deliver power, which

will be used to reduce the generation cost to the consumers. [12]

According to the power distributor: along with the results of the first successful CSP,

consumers are projected to enjoy total savings of around P13.86 billion per year, or a rate reduction

of P0.41 per kWh. The aforementioned is in line with the vision of the EPIRA and what the CSP

aims to.

However, going back to the issue, Bayan Muna filed for a petition for Meralco’s “abuse of

market” for conducting CSP in the bidding wherein the latter chose the third parties. Bayan Muna

Party-list asked the Supreme Court to refrain the Energy Regulatory Commission (ERC) from

implementing a circular allowing distribution utilities to select the “third party” that will supervise

the conduct of a competitive selection process (CSP) on all power supply agreements (PSAs).

Section 3, deemed the core provision of DC 2015-06-0008, enjoins all DUs to procure

PSAs only through CSP conducted through a third party recognized by the ERC and the

Department of Energy (DOE). The petitioners contended that Section3 ensures that the DU does

not have complete control of the bidding process so the said DU cannot frame the terms of

references to favor affiliates, associate firm or selected suppliers. Moreover, it added that a third-

party auctioneer recognized by the ERC and DOE or the National Electrification Agency (NEA),

is intended to ensure a sense of checks and balance, as well as transparency, in the bidding

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process. On the other hand, Section 4 grants the DOE and the ERC not only the power to issue

guidelines but also a continuing role to monitor compliance with its guidelines in the design and

execution of the CSP, which redounds to greater transparency in the procurement of electric

supply.

As noted by the petitioner, Section 7 of DC 2018-02-0003 relegates the DOE from one

who will decide which third party to recognize and come out with guidelines to guide DU in the

design and implementation of the CSP, to a mere observer that cannot even be involved in

deliberations of TPBAC, which has the power to select the winning bid. And that the DOE has the

duty to ensure the CSP processes are insulated from illegal self-dealing, and craft policies that plug

the gaps that allow self-dealing. Since it may render the entire process vulnerable to abuse of

dominant market by a monopoly of the captive market of the DUs.

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 CHAPTER III

ANALYSIS AND CONCLUSION

Section 23 of RA 9136 the EPIRA of 2001 provides the functions of Distribution Utilities.

It is said that a distribution utility shall have the obligation to provide distribution services and

connections to its system for any end-user within its franchise area consistent with the distribution

code. Any entity engaged therein shall provide open and non-discriminatory access to its

distribution system to all users. A distribution utility shall have the obligation to supply electricity

in the least cost manner to its captive market, subject to the collection of retail rate duly approved

by the ERC.

The preceding statement paved way to mandating Competitive Selection Process in the

procurement of Power Supply Agreements by the Distribution Utilities. (Alyansa Para Sa Bagong

Pilipinas, Inc., vs. Energy Regulatory Commission et al, 2019); and for it is to secure and keep a

balance between profit and public service in the energy sector.

A quote from former chief of DOE says that they (that businesses) need rules to be put in

place, he is tasked to protect the interest of the people and them (the business) they can't be blamed

for it, is to maximize profit. because they're a business, and as pointed up by this paper, in presence

of CSP is where everything is a level-playing field and everybody competes other than just

negotiate.

The year 2016 is characterized by a significant increase in electricity consumption at 10%

and peak demand at 8.7% attributed to several factors such as the increase in temperature and

utilization of cooling equipment aggravated by the strong El Niño, the conduct of National and

Local elections during the first half of the year, increase in economic growth, and entry of large

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power generating plants. The residential and industrial sectors remained the major drivers of

electricity consumption in the country while Luzon remained the largest on a per grid basis.

However, amidst these, the increase in the price perseveres as well. (Department of Energy, 2016)

With the CSP, as stated by EPIRA Act of 2001, supply of electricity shall be in the least

cost manner to its captive market, subject to the collection of retail rate duly approved by the ERC.

In the case of Meralco, it may have adhered on the CSP rules; and was actually favored by

the amendments in the circular to give the utility the liberty to choose the people to conduct and

assist such bidding. However, choosing people affiliated to it disregards the supposedly fair

competition as envisioned by the EPIRA of 2001, and that according to Section 6 Article 12 of

the 1987 Constitution: all economic agents shall contribute to the common good. Individuals and

private groups, including corporations, cooperatives, and similar collective organizations, shall

have the right to own, establish, and operate economic enterprises, subject to the duty of the State

to promote distributive justice and to intervene when the common good so demands.

The case of Meralco’s self-dealing may be pending and is patient for the Court’s decision

but as said by Bayan Muna: The fact that the DU appoints all the members of the third-party bids

and awards committee ([TPBAC) no longer makes a bids and awards committee ‘third party’

despite the token name. And such process is vulnerable to abuse of dominant market by a

monopoly of the captive market of the DUs.

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 BIBLIOGRAPHY

[1] DOE CSP Advisory. (2018). Retrieved December 1, 2019, from

https://www.doe.gov.ph/announcements/competitive-selection-process-advisory .

[2] 2018 Department Circular. (2018). Retrieved December 2, 2019, from

https://www.doe.gov.ph/laws-and-issuances/department-circular-no-dc2018-02-0003 .

[3] Scph. (2019, May 6). scph. Retrieved December 7, 2019, from
http://sc.judiciary.gov.ph/3311/.
[4] (n.d.). Https://Www.bworldonline.com/Sc-Requires-Bidding-for-All-Power-Supply-
Agreements/ .

[5] Affairs, G. M. A. N. and P. (n.d.). Meralcos own genco in supply bid may result in power rate
hikes -Bayan Muna. Retrieved December 9, 2019, from
https://gmanetwork.com/news/money/companies/715433/meralco-s-own-genco-in-supply-bid-
may-result-in-power-rate-hikes-bayan-muna/story/
[6] Invitation to bid Conract Capacity of 1200-MW . (2019). Retrieved December 9, 2019, from
https://company.meralco.com.ph/news-and-advisories/invitation-bid
[7] Affairs, G. M. A. N. and P. (n.d.). Meralco defends own genco power supply -Bayan Muna.
Retrieved December 9, 2019, from
https://www.gmanetwork.com/news/money/companies/699934/meralco-defends-own-gencos-in-
power-supply-bid/story/

[8] Energy Green Group Bats for Open and Transparaent Power Supply Bidding rules (2019).
Retrieved December 9, 2019, from https://business.inquirer.net/283179/energy-green-group-
bats-for-open-and-transparent-power-supply-bidding-rules

[9] Stop DOE Order Letting DUs Pick Third Part in Power CSPs SC Told (2019). Retrieved
December 9, 2019, from https://businessmirror.com.ph/2019/09/10/stop-doe-order-letting-dus-
pick-3rd-party-in-power-csps-sc-told

[10] DOE Revises CSP Terms with Meralco (2019). Retrieved December 9, 2019, from
https://www.doe.gov.ph/energist/doe-revises-terms-meralco%E2%80%99s-new-csp
[11] Executive Summary of EPIRA Implementation (2019). Retrieved December 9, 2019, from
doe.gov.ph/electric-power/32nd-status-report-epira-implementation

[12] Meralco concludes another successful csp (2019). Retrieved December 15, 2019, from
philstar.com/business/2019/09/13/1951235/meralco-concludes-another-successful-csp

[13] Group Urges ERC to Cite Meralco for Alleged Abuse of Market Power (2019). Retrieved
December 15, 2019, from https://businessmirror.com.ph/2019/12/11/group-urges-erc-to-cite-
meralco-for-alleged-abuse-of-market-power/

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[14] Bayan Muna: Meralco in Defense of Self Dealing Confirms Anti-Competitive
Practices (2019). Retrieved December 15, 2019, from
https://business.inquirer.net/274795/bayan-muna- meralcos-defense-of-self-dealing-
confirms-anti-competitive-practices

[15] Meralco Chooses Bids Three Companies (2019). Retrieved December 15, 2019, from
https://www.doe.gov.ph/energist/meralco-chooses-bids-3-companies

[16] ‘Genuinely competitive’ bidding for greenfield baseload a must – party-list solon (2019).
Retrieved December 15, 2019, from https://news.mb.com.ph/2019/11/20/genuinely-
competitive- bidding-for-greenfield-baseload-a-must-party-list-solon/

[17] Department Circular NO. DC2015-06-0008 (2019). Retrieved December 15, 2019, from
https://www.doe.gov.ph/department-circular-no-dc2015-06-0008

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