WESM power price not right, says DOE official

The Wholesale Electricity Spot Market (WESM) component of the record P4.15 per kilowatt hour (kWh) hike in power prices last December could have been wrong as data suggested that prices spiked due to missing supply offers, according to the Department of Energy (DOE).

At certain WESM trading hours during the Malampaya shutdown—from Nov. 11 to Dec. 10—at least 12 power plants and sometimes 36 or more seemed to have under-offered capacity, Energy Secretary Carlos Jericho Petilla said.

It is up to the Energy Regulatory Commission (ERC) whether—and how—it may regulate or recalculate WESM prices for the period, Petilla said in a text message.

Halt order

For now, the record price hike supposed to have been billed in December cannot be collected from the 5.3 million customers of the Manila Electric Co. (Meralco) since the Supreme Court extended the halt order on the pass-on charges.

Incidentally, a DOE report said that even considering plant outages and contracted power, WESM data showed large gaps between potential and actual spot offers.

“The capacities not offered ranged from 2,078 megawatts (10 a.m.) to 3,148 megawatts (2 a.m.). This explains the reason for the high prices because there is significant capacities not offered during the period. At the sample period, 8 a.m., the capacities not offered is 2,393 megawatts (MW),” the report said.

Lawyer William Pamintuan, Meralco company head of legal affairs, said separately that the DOE should “expedite” its probe to help set the “real” cost of electricity for the period. Meralco is now asking the Energy Regulatory Commission to recalculate WESM prices for November and December 2013.

During the hearings conducted in both chambers of Congress, it was revealed that, had all the available capacity reported by transmission system operator National Grid Corp. of the Philippines (NGCP) been offered or dispatched, WESM prices would not have hit the maximum P62 per kWh price several times. Of the P4.15 per kWh hike, generation charges accounted for P3.44 per kWh, and the rest were from taxes and related charges. Out of the P3.44 per kWh, WESM alone accounted for P2.38 per kWh, and P1.04 per kWh was from fuel cost as three plants supplied by Malampaya had to use more expensive alternative fuel.

How WESM works

The WESM is an hour-ahead market where the system generates hourly electricity demand/supply forecasts for the next hour. For example, at the start of the 8:01 a.m. to 9 a.m. trading hour, the system generates a demand/supply forecast for the 9:01 a.m. to 10 a.m. slot.

Generation companies (gencos), which operate power plants, submit offers (volume of energy capacity and price) for the coming hour through their respective WESM terminals.

The WESM system automatically sorts offers and “stacks” them from the lowest priced to the highest priced until the required amount of power is met. The last offer to fit into the power requirement becomes the market clearing price. All accepted offers for that hour, regardless of initial quotations, will be paid at clearing price level unless the same have been pre-contracted by a buyer such as Meralco.

The WESM system then generates plant operations schedules for the following hour based on the accepted offers and sends the information to the National Grid Corp. of the Philippines, which operates the country’s transmission superhighways. Generation companies are also informed of their schedule.

Since the WESM is a 24/7 market, the trading cycle simply repeats every hour, and pricing tends to differ each time. While trading for the next hour is ongoing, power is transmitted on schedule to distribution utilities, such as Meralco, and to directly connected power consumers, such as manufacturing estates. The electricity used is measured through meters which NGCP monitors.

After every 24-hour cycle, market operator Philippine Electricity Market Corp. gets information on how much of the gencos’ capacities were under bilateral contracts (say, with Meralco) which are settled at the price agreed by the contracting parties. With this system, a genco only gets paid at WESM prices for the volume of power traded net of bilateral contracts.