Changes to planned WESM cap sought

Business World Online
Posted on April 23, 2014 10:52:33 PM
By Claire-Ann C. Feliciano, Senior Reporter

THE POWER UNIT of conglomerate San Miguel Corp. wants regulators to expand a cost recovery provision under a planned secondary price ceiling for power traded at the Wholesale Electricity Spot Market (WESM).

Proposed provisions of a planned secondary cap will benefit some firms more than others, a San Miguel unit said.

This was in response to a draft Energy Regulatory Commission (ERC) resolution that calls for a cap of P6.245 per kilowatt-hour (kWh) once an average threshold of P7.808/kWh is reached over a 72-hour period.

The WESM currently has a P32/kWh offer limit, also an interim ceiling that is almost half of the P62/kWh set when the market started operations in 2006.

In a comment submitted to the ERC, SMC Global Power Holdings Corp. said “another paragraph should be inserted in the proposed resolution to allow for the recovery of additional costs if the additional costs exceed the SRMC (short run marginal cost).”

“The additional costs should allow for the recovery of fixed costs,” it added.

The SRMC refers to variable costs of operating a plant, like fuel.

The proposed resolution currently provides an option to secure additional compensation for plants whose SRMCs are higher than the secondary cap -- which only applies for oil-based plants.

SMC Global said the proposed rule did not include a provision for a recovery filing and the methodology for the determination of additional compensation. It also said there was a need to clarify if the additional compensation covered fixed costs.

“Hydroelectric plants, which have low SRMCs, should also be allowed to claim additional compensation for their high fixed costs which cannot be recovered during periods when a secondary cap is in effect,” the company said.

SMC Global is the independent power producer administrator of three power facilities: the 1,000-megawatt (MW) Sual coal-fired plant and 345-MW San Roque hydroelectric plant, both in Pangasinan, and the 1,200 MW Ilijan natural gas plant in Batangas City.

The San Miguel unit also asked the ERC to explain the basis of the proposed cap and called for a higher price threshold.

While the ERC cited historical data as a basis of the P7.808/kWh threshold, SMC said the computation only considered two trading intervals hitting the P32/kWh cap. It noted that peak prices occur during 11:00 a.m, 2:00 p.m. and 7:00 p.m., and said the price cap should be considered for these trading hours.

Using such, the threshold should be P8.812/kWh, SMC Global said.

The firm also asked the ERC to specify the provisions of the 2001 Electric Power Industry Reform Act that were used as a basis for the proposed resolution. The resolution, it added, should be jointly issued by the ERC, WESM operator Philippine Electricity Market Corp. (PEMC) and the Energy department.

The ERC proposed the temporary secondary cap to protect consumers from supply-related volatility that could lead price spikes in the WESM.

It cited the “protection of public welfare” and “the urgent need to mitigate sustained high prices in the WESM on an interim basis during the months of May and June 2014.”

High WESM prices have been blamed for a P4.15/kWh rate hike that Meralco was supposed to start implementing in stages last December. The increase is currently subject to an indefinite Supreme Court restraining order.

Meralco also sought a P5.33/kWh hike for January but slashed this to P0.45/kWh after PEMC, acting on an ERC order, reduced WESM prices for the December supply month. Regulators have yet to decide on the petition. source