Business Mirror
17 Sep 2014 Written by Lenie Lectura
THE Manila Electric Co. (Meralco) fully supports the imposition of a permanent secondary cap in the Wholesale Electricity Sport Market (WESM), saying this will shield the consumers from sustained high market prices due to the expected tight power-supply situation and frequent plant outages.
In a letter to Energy Regulatory Commission (ERC) Chairman Zenaida G. Ducut, Meralco First Vice President and Head of Regulatory Management Office Ivanna de la Peña said the price cap is a more reasonable measure than requiring distribution utilities (DUs) to contract 100 percent of their requirements through bilateral contracts.
“To require the DUs to fully contract their power-supply requirement will necessarily include contracting both for peak and off-peak power requirements of the DUs. This will result in the unnecessary payment by consumers of capacity and/or energy that is not being used or is not needed during off-peak hours,” said de la Peña, adding that full contracting would still not totally produce the need for purchases from the spot market in the event forced outages and scheduled maintenance shutdowns overlap.
Meralco sources less than 10 percent of its power requirements from WESM, while the remaining 90 percent are from bilateral contracts.
The secondary price stands at P6.245 per-kilowatt-hour (kWh). The ERC has ruled that this will remain in place until a permanent preemptive mitigating measure in the WESM is established. Nonetheless, the regulator is soliciting comments from industry stakeholders, who are divided on the issues on whether to lift the secondary price cap.
A public hearing is set on September 29. “All parties who have filed their proposal and comments would be given an opportunity and elaborate on their proposed measures during the public consultation,” the ERC said.
The ERC said there is a continuing need for this measure to prevent market-power abuse and other anti-competitive practices, which affects prices in WESM to the detriment of the consumers.
The Meralco official noted that the WESM price goes up during plant outages and that the adoption of the WESM secondary price cap was instrumental in shielding customers from high market prices. “Clearly, the consumers should not be prejudiced in the form of high WESM prices as a result of these outages that are beyond their control,” de la Peña said.
She added: “The outages of power plants have been increasing in frequency and duration, and there is no clear indication of their reduction. It is during such periods of persistent tight supply that the secondary cap mechanism is activated and consumers are benefited by shielding them from high WESM prices due to prolonged periods of capacity outage.”
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 last year, the market clearing prices reached the maximum offer of P62.
The WESM tripartite committee, thus, convened last December 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.
Some power firms are opposed to the secondary price cap because some said it may not be enough for certain power plant operators to recover their costs. They said the secondary price cap should be applicable only to the base-load and mid-merit plants but not for peaking plants, which generally run when there is high demand.
But Meralco said there should be a proper mechanism for peaking plants. “The provision for additional compensation for specific power plants appears reasonable given that the secondary cap may not sufficiently cover the fuel cost and variable O&M [operation and maintenance] of oil-based peaking plants,” de la Peña said. source
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