Regulators lower electricity spot market bid cap
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MANILA, Philippines – Power regulators have set a lower price cap on electricity spot market supply trades while further studies are conducted to prevent spikes in power rate.
The cap is to the highest possible price that may be offered by power generation companies trading excess capacity in the Wholesale Electricity Spot Market or WESM.
The WESM is designed in such a way that Meralco and other buyers can get additional supply of electricity whenever demand is higher than what the distribution utility contracted with power plant operators. Existing rules prioritize power suppliers with the lowest price offers for electricity buyers. However, the price paid is based on the last offer made to meet the demand, although a ceiling (called the “bid cap” or “price cap”) is set.
The Energy Regulatory Commission, in a joint resolution with the Department of Energy and spot market operator Philippine Electricity Market Corp. set the new offer price ceiling in the WESM at P32 per MWh, down from P62 per MWh.
The ERC, DOE, and PEMC make up the so-called WESM Tripartite Committee, which was created to coordinate, monitor, and mitigate price volatilities in the spot market.
Regulators said the new ceiling will be in effect until the issuance of a new offer price cap “not later than 90 days” from the issuance of the joint resolution, which was signed Friday, December 27.
The ERC directed PEMC to submit a study on the “appropriate” offer price cap within 30 days from the issuance of the resolution. As such, the new offer price cap is interim in nature and will be in place while a WESM design study is ongoing, the ERC said.
PEMC, the regulators said, was already studying how to address several market design and implementation issues that recently became hot topics in light of the record P4.15/kWh hike in power rates supposed to be passed on to customers of the Manila Electric Co. (Meralco) in three phases starting this month.
The scheduled 30-day maintenance shutdown of the Malampaya gas platform (Nov. 11 to Dec. 10) required the use of more expensive alternate fuels for the continuous operations of three natural gas-fired power plants, which were not scheduled for maintenance. However, regulators noted during that period, WESM prices were found to be reaching the maximum offer price cap of P62/MWh “more often than usual and even during off-peak hours when demand for electricity is low,” the ERC said.
The resulting high market prices may have translated to considerable increases in Meralco’s and other distribution utilities’ generation charges, which are passed on to electricity consumers, depending on the level of bilateral contracts and/or exposure in the WESM.
As the controversy over the price increase for Meralco customers raged, the WESM Tripartite Committee, on Dec. 13, convened to discuss possible adjustments to the offer price ceiling. On Dec. 20, the WESM Tripartite Committee agreed to put in place procedures and measures to address extreme price spikes or prolonged price volatility. Another meeting on the resolution to lower the price cap took place on Dec. 27.
The new cap is based on the recently promulgated offer cap set by the WESM Tripartite Committee for the commercial operation of the Interim Mindanao Electricity Market (IMEM).
“The new and revised offer price cap will be subjected to a public consultation and will be subject to the regular review and adjustments by the WESM Tripartite Committee,” the joint resolution said.
PEMC president Melinda Ocampo explained that WESM prices were market-driven, such that if there is sufficient power, buyers such as Meralco can even get lower prices than their bilateral contracts. “If there is insufficient supply, scarcity, that’s when prices go up,” Ocampo said.
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