ERC mulls over WESM price cap for May, June

Regulators want to add another layer of price control in the energy market for May and June in yet another move to prevent rate spikes like the ones seen in recent months.

A proposed resolution from the Energy Regulatory Commission (ERC) to set a secondary price cap in the Wholesale Electricity Spot Market (WESM) is expected to temper “any sustained high prices” for the months of May and June.

The Department of Energy (DOE) already made several announcements on how tight the power supply would be in Luzon this summer, especially around May. But it added that power outages would be unlikely.

The ERC proposed that the WESM clearing price be lowered to P6,245 per megawatt-hour (mWh), or P6.24 per kilowatt-hour (kWh) when average prices breach the threshold of P7,808 per mWh, or P7.808 per kWh, over a 72-hour period. This move may lower spot market prices by 20.81 percent.

Francis Saturnino Juan, Energy Regulatory Commission (ERC) executive director, said in a text message that the secondary price cap would apply until until average prices fall below the threshold for a period of at least 12 hours.

“This determination will be done every 1 a.m. and 1 p.m., and if prices are already below the threshold, the application of the secondary cap will be lifted,” Juan said.

ERC has announced that all interested parties may submit to the quasi-judicial body their comments on the proposed resolution on or before April 22.

The WESM is designed such that Manila Electric Co. (Meralco) and other buyers can get additional supply whenever electricity demand is higher than what the distribution utility contracted from 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.

In December 2013, Meralco sought a rate increase of P4.15 per kWh, citing the impact of the Malampaya maintenance shutdown and WESM price spikes amid tight power supply.

However, various groups questioned the rate surge and, on Dec. 23, the Supreme Court issued a temporary restraining order that kept generation rates steady at P5.67 per kWh for the billing month of December.

On Dec. 27, regulators temporarily set a lower price cap on WESM trades (P32,000 per mWh or P32 per kWh from the previous P62,000/mWh or P62/kWh) while further studies are conducted to prevent future power rate spikes.

The new ceiling took effect until the issuance of a new offer price cap, which was originally said to be “not later than 90 days” from the issuance of the joint resolution. The deadline has since been extended by another 60 days.

In January 2014, Meralco said it decided to maintain the P5.67 per kWh in generation cost to avoid another price surge even though power generation costs—again partly due to WESM price spikes—were still high.

In a March 3 order, ERC told WESM operator Philippine Electric Market Corp. (PEMC) to recompute “unusually high” and “unjustified” spot rates that affected the billing months of December and January for customers of Meralco.

On March 18, PEMC cut WESM rates for months in question by nearly 80 percent. PEMC issued a new bill for Meralco’s December 2013 supply month, which reflected on customer bills for January 2014.

PEMC did not bill Meralco for the supply month of November, which reflected in the December 2013 Meralco bill.

Meralco cannot bill customers for the rate hike in the billing month of December due to an extended Supreme Court order barring rate hike collection from Meralco customers.