ERC sets regulated WESM pricing

Manila Bulletin

by Myrna Velasco

March 2, 2014

In an ‘after-the-fact edict’ that may harm the future of the power industry’s investment viability, the Energy Regulatory Commission (ERC) is working on a regulatory band-aid measure aimed at enforcing ‘regulated price’ for capacities traded in the Wholesale Electricity Spot Market (WESM) during the Malampaya shutdown.

This will result in a reduction of the cost of electricity purchased from the spot market during the supply months of November and December.

According to sources, the initial calculation of the ERC on WESM price cut on the questioned supply months had been at P0.15 per kilowatt hour (kWh) – reckoned from average cost of power on reference supply months versus the price spikes of November-December which the ERC and Department of Energy (DOE) have been claiming to have been hit with “failure of market competition.”

The ERC was supposed to decide on the matter last Friday (February 28) and promulgate a decision, but they opted to deliberate further this week.

A member of the Commission also hinted that a manifestation on the WESM price slash will be filed with the Supreme Court (SC), in deference to the case questioning the P4.15 per kilowatt hour (kWh) rate hike of the Manila Electric Company (Meralco) on its December billing.

Even without completing yet the investigation on the alleged collusion of power generators, Energy Secretary Carlos Jericho L. Petilla admitted to the media that he was really exerting pressure on the independent quasi-judicial ERC to calculate a reduction on November-December WESM prices, as he lodged questions on the zero capacity offers made in the market for some trading intervals.

The ERC, however, is also at a loss as to what would be its firm legal basis for doing unilateral reduction in WESM prices – because in essence, spot trading of electricity as a commodity must be driven by market forces and underpinned by supply-demand dynamics on those billing months. Price-regulation of a spot market is extremely ironic.

Regulators have noted that ‘motu propio’ market intervention may do the trick. However, under prevailing rules, the circumstances in November and December had not been properly defined if these are really covered by ERC’s allowable intervention in the WESM; and if they really suspected wrongdoing, the regulatory body could have suspended the market prior not undertake post-incident rulings which are questionable. The lack of transparency on the proposed WESM regulated pricing is also igniting investor worries.

Last week’s draft decision of the ERC stipulated that the WESM “regulated prices shall be calculated based on the load weighted average ex-post energy price of the corresponding trading interval,” – the reference months supplied.  source