ERC lays groundwork for permanent price cap at WESM

MANILA, Philippines - The Energy Regulatory Commission (ERC) is laying the groundwork to put in place a permanent mitigating measure at the Wholesale Electricity Spot Market (WESM), the country’s trading floor for electricity.

In an interview, ERC executive director Saturnino Juan said the power regulator has already scheduled public consultations for a permanent mitigating measure, which could be a permanent price cap at the spot market.

“We will have the consultations on Sep. 29,” Juan said.

“All parties who have filed their proposal and comments would be given an opportunity to discuss and elaborate on their proposed measures during the above-scheduled public consultation,” the ERC said in a separate notice.

Juan also said that if there is a need for more consultations, the ERC can schedule additional meetings.

The consultations would help determine whether or not the secondary price ceiling in the electricity spot market implemented by the ERC would become permanent or another permanent measure would be put in place.

The interim price cap has helped cushion consumers from possible power rate hikes.

The price cap is the highest offer that sellers can give when they sell their electricity to the market. Power suppliers with the lowest price get to supply the requirements of distribution utilities but the last offer is the one that sets the price for which they will be paid.

In an Aug. 5 resolution, the ERC extended the measure for 120 days starting Aug. 10 or until a more permanent solution is put in place.

The ERC first imposed the price cap of P6.245 per kilowatt-hour (kwh) in May effective until June 26 but extended this to August 9.

In its Aug. 5 resolution, the ERC said it had to extend the secondary price cap because it still needs to evaluate the alternative mechanisms proposed by generation companies.

 “The alternative mechanisms submitted by the stakeholders necessitate further study to complete the process of finally establishing a permanent measure which could be applied in the WESM and thus the ERC found the need to extend the implementation of the current secondary cap mechanism,” it said.

The interim measure was put in place to mitigate sustained high prices in the WESM during the May and June 2014 supply months.

The Philippine Independent Power Producers Association (PIPPA) has said the ERC resolution should be struck down as unconstitutional, invalid and illegal.

However, Manila Electric Co. (Meralco), the country’s biggest power distributor, said the adoption of the WESM secondary cap mechanism was instrumental in shielding customers from high market prices due to multiple and sustained power plant outages.

“As can be observed, 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 on outage,” it said.

It added that a permanent secondary cap would continue to shield the consumers from sustained high market prices due to the expected tight supply situation and frequent plant outages.