ERC rejects calls to lift secondary price cap in electricity spot market

Business Mirror
22 Aug 2014 Written by Lenie Lectura

The Energy Regulatory Commission (ERC) has rejected calls to lift the secondary price cap in the Wholesale Electricity Spot Market (WESM).

The regulator was reacting to a statement issued by the Management Association of the Philippines (MAP) that urged the commission to lift the said cap, saying this deters the entry of new and existing peaking plants by effectively disallowing them from recovering fuel costs.

When sought for comment, ERC Executive Director Francis Saturnino Juan said the ERC is “convinced that even with the secondary cap, the peaking plants will be able to recover their full allowable costs.”

Moreover, Juan said the ERC has already decided on this when it issued an order earlier this month extending the implementation of the secondary price cap.

“The cap will remain until a permanent mitigating measure is put in place. It sees the continuing need for this measure to prevent market power abuse and other anticompetitive practices, which affect prices in WESM to the detriment of the consumers,” the ERC official explained.

The secondary price stands at P6.245 per kilowatt-hour (kWh). This will remain in place for 120 days from August 10, or until the establishment of a permanent pre-emptive mitigating measure in the WESM is established.

“The ERC has taken cognizance of the need to establish permanent mitigating measures in order to mitigate the impact of extreme price volatilities and excessive levels of prices in the WESM to discourage manipulative acts therein,” said the agency in its recent order.

It can be recalled that there had been unreasonable higher market prices during the Malampaya shutdown in November and December last year.

During the 30-day Malampaya gas-facility shutdown, the market- clearing prices reached the maximum offer of P62.

The WESM tripartite committee convened in December last year and discussed the possible adjustments to the price ceiling, and recognized the need to constantly put in place procedures and measures to address extreme price spikes or prolonged price volatility.

The committee then reduced the offer-price cap ceiling from P62 per kWh to P32 per kWh. The said price cap is the same level of market cap imposed at the Interim Mindanao Electricity Market.

The cap shall be in effect until the issuance of a new offer-price cap.

Some power firms are opposed to the secondary price cap. SMC Global Power Holdings Corp. (SMC Global), in an earlier filing with the ERC, said the cap may not be enough for certain power plant operators to recover their costs.

“In the alternative, the secondary price cap should be applicable only to the base-load and mid-merit plants, while the peaking plants should be priced P32,000/MWh [megawatt hour] if this is the clearing price. In other words, if the clearing price is P32,000/MWh, only the peaking plants will be settled at this price, the base-load and mid-merit plants will be settled at the secondary price cap,” SMC Global had said.

Peaking plants generally run when there is high demand, known as peak demand, for electricity.

In particular, SMC Global explained that for plants have production costs which are higher than the secondary cap, and hydro-electric plants which have high fixed costs, an option for additional compensation must be provided, it stressed. source