ERC adopts mitigating mechanism at WESM

MANILA, Philippines - The Energy Regulatory Commission (ERC) has adopted a permanent mitigating measure similar to the secondary price cap implemented at the Wholesale Electricity Spot Market (WESM) following the lapse of the cap on Dec. 8. 

In a briefing yesterday, ERC executive director Saturnino Juan said they may issue the final order on the new measure in early 2015 as the agency has yet to firm up the resolution.

“The Commission has agreed in principle to adopt a mitigating measure similar to the secondary cap implemented since May this month although the resolution has not been firmed up,” Juan said.

He said the ERC is targeting to put in place the price threshold mechanism early next year in time for the looming power shortage in the summer of 2015.

The Luzon grid is projected to have a power supply deficiency of at least 700 megawatts next summer on the back of higher demand and no new capacity.

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 May, the ERC imposed the secondary cap of P6.245 per kilowatt-hour (kwh) at the WESM after rates at the spot market skyrocketed in December 2013, resulting in the record high generation charge of Manila Electric Co. (Meralco) to P9.10 per kilowatt-hour during the month from only P5.67 per kwh in November 2013.

The secondary cap takes effect whenever there is a breach of the average threshold of P8.1855 per kwh over a 72-hour period at the spot market.

The ERC has extended the secondary price cap until Dec. 8 after conducting hearings on the issue.

During the hearings, power generators have said the price cap is too low but Juan said the permanent mitigating measure took these concerns into account.

But Juan stressed there is no final figure yet for the permanent measure although the design will be similar to the secondary cap.

He hinted nonetheless that the mitigating measure would have a higher threshold.

“The new measure will take into consideration the concerns of market participants. We’re looking into that concern. Most likely, the numbers will be revised and there will be an upward adjustment in threshold,” Juan said.

In the meantime that the secondary price cap has lapsed, Juan said there is no similar measure aside from the primary cap but he noted that this may not be necessary as demand for power is low so prices at the spot market are not likely to shoot up.