SPOT MARKET PRICE CONTROLS: Cost-recovery provisions for affected gencos urged

SPOT MARKET PRICE CONTROLS
Cost-recovery provisions for affected gencos urged
By Riza T. Olchondra
Philippine Daily Inquirer
7:34 am | Thursday, April 24th, 2014

MANILA, Philippines—Amid proposed additional price controls at the Wholesale Electricity Spot Market (WESM) by state regulators, SMC Global Power Holdings Corp. is pressing for cost-recovery provisions for generation companies (gencos) whose operations will be affected by the scheme.
SMC Global was responding to an invitation for comments from industry players from the Energy Regulatory Commission (ERC), the state regulator, on its proposal to put a secondary price cap at the WESM to temper any price surges for the months of May and June 2014.
The ERC has proposed that the WESM clearing price be lowered to P6,245 per megawatt-hour, or P6.24 per kilowatt-hour, when average prices breach the threshold of P7,808 per mWh, or P7.808 per kWh, over a 72-hour period. This move could cut spot market prices by 20.81 percent overall.
Basis for price cap
In its comment, SMC Global, a wholly owned unit of San Miguel Corp. (SMC), said the state energy regulator should clarify the basis for the proposed secondary price cap.
It said plants with production costs which are higher than the secondary cap, and hydro-electric plants which have high fixed costs, should have an option that would give them additional compensation.
SMC Global said the proposed changes do not include a provision for the filing, and methodology for the determination, of additional compensation when the short-run marginal cost (SRMC) is above the secondary price cap. The SRMC refers to the change in short run cost due to an “extremely small change” in output.
The WESM is designed such that distribution utilities like the Manila Electric Co. (Meralco) and other buyers can get additional supply whenever electricity demand is higher than what they 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.
WESM abolition
Meanwhile, party-list Rep. Neri Colmenares (Bayan Muna), who has called for the total abolition of the WESM, said the proposed changes at the WESM are just regulators’ “knee-jerk” reaction to growing public criticism of recent electricity price spikes.
“These regulators should have lowered the price cap years ago considering that since the enactment of the Electric Power Industry Reform Act (Epira) the cost of electricity has increased by 112 percent,” Colmenares said.
“To prevent this from ever happening again the WESM should be abolished and power generators and distributors should be regulated. The pricing of power should also be regulated and subjected to a public hearing to ensure consumer participation, it should not be automatic,” he said.
The ERC, Department of Energy, and WESM operator Philippine Electricity Market Corp. (PEMC) make up the WESM tripartite committee that monitors price volatilities on the spot market.
Consumers have been up in arms in recent months when tight power supply and high WESM prices resulted in a record generation charge hike of P4.15 per kWh in the electricity bill of Meralco customers last December.
Citing the impact of the maintenance shutdown of the Malampaya gas plant and WESM price spikes amid tight power supply, Meralco last December sought, and was granted, a rate increase of P4.15 per kWh to the generation charge. source