PSALM president breaks down, denies power price manipulation

A defiant Nieves Osorio, president of the Power Sector Assets and Liabilities Management Corp. (PSALM), was brought to tears as she denied before the joint Congressional Power Commission yesterday that there was price manipulation in the wholesale electricity spot market (WESM).

The Market Surveillance Committee (MSC) of WESM operator Philippine Electricity Market Corp. (PEMC) had alleged that PSALM had helped in the manipulation of power prices from August to September.

A visibly irked Osorio repeatedly told the committee members from the Senate and the House of Representatives that no price manipulation took place in the WESM, which is on its 5th month of operation.

Meanwhile, President Arroyo vowed to strengthen the mechanism of the WESM even as PSALM is expected to escape any penalty because of the immunity granted to WESM players for the first six months.

This developed as Albay Rep. Joey Salceda, the congressman who had exposed price manipulation in the WESM, called for punishment of the manipulators.

The price manipulators should not be allowed to "get away with murder," said Salceda, chairman of the House appropriations committee and one of Mrs. Arroyo’s economic advisers.

Salceda proposed that sanctions should be imposed on the price manipulators, including officials of PSALM, an agency created by Congress under the Electric Power Industry Reform Act of 2001 to take over assets of the National Power Corp. and sell them. It controls 50 percent of electricity sold in WESM, while Napocor sells about 20 percent.

WESM is envisioned to work like the stock market, where sellers and buyers haggle on prices based on supply and demand.

Tears of anger

In several instances, Osorio threw dagger looks at the direction of PEMC president Lasse Holopainen, particularly when he was telling the commission about the alleged manipulation done by the traders of PSALM.

After the hearing, an agitated Osorio raised her voice, saying that what Holopainen said is a grave accusation.

When the hearing was concluded, an agitated Osorio drank several glasses of water.

Energy Secretary Raphael Lotilla approached Osorio to pacify her, but instead she broke down in tears.

Osorio was overheard telling Lotilla that she wanted to resign, but not before contesting the allegations before the Energy Regulatory Commission (ERC).

"There was no due process. We will fight this up to the Supreme Court," Osorio was heard telling Lotilla.

She reined in her tears while talking with other officials, until she was escorted out of the hearing room by Lotilla.

Earlier, Osorio told the congressional commission that in the first two months of operation of the WESM, PSALM lost a lot as the weighted average price of electricity was way below the approved rate provided by the ERC.

In the first three months of WESM operation, the average price of electricity was recorded at P2.81 per kilowatt-hour, P3.07 per kWh and P4.853 per kWh respectively.

In contrast, the ERC approved rates for the three months were P4.91 per kWh, P5.57 per kWh and P7.647 per kWh.

It was in the third month that the so-called red flags were raised in the monitoring being conducted by the PEMC.

The sudden jump in the price of power in the WESM during the third month coupled with what Holopainen said was a suspicious pattern of bidding, prompted the investigation into possible price manipulation.

Holopainen was quoted as saying that there was connivance between the four trading teams of PSALM that led to the alleged price fixing.

PEMC, in its statement, also noted that PSALM "behaved anti-competitively and abused market power."

Osorio explained that the alleged significant increase in the offered price patterns during the third month was attributed to the efforts to recover or at least minimize production costs.

"We say that there’s no manipulation and the bid offers of PSALM do not constitute anti-competitive behavior or market power abuse because the increase in bid offers in the third month can’t be considered as excessive (as) the resulting load weighted average price of P4.853 /kWh is still less than the ERC-approved grid rate," Osorio said.

She added that the offers of the PSALM trading teams were all within the bid cap of P62,000 per megawatt-hour set by the so-called tripartite committee in June.

"It’s a very grave accusation and we will contest that before the ERC which has jurisdiction," Osorio said.

Sen. Joker Arroyo said he believes the controversy in the WESM was "structurally due to the composition of the board of WESM and PSALM."

Arroyo said there are several officials sitting on both the PSALM and WESM boards, particularly the Secretary of Energy.

"The interlocking relationship is incestuous, meaning how can you have a fair proceeding when PSALM, the supplier of 50 percent (of electricity traded in the WESM) is also there playing the role of trader?" Arroyo said.

He lamented that the ploy of PSALM and the National Power Corp. to recover their losses through the spot market would eventually have a damaging effect on consumers.

Arroyo warned the people of an even graver situation arising from the WESM controversy when PSALM bids out the National Transmission Corp. (TRANSCO) by the end of the year.

He pointed out that the sale would be the biggest ever conducted by the government in the energy sector and he expressed concern that allegations against PSALM could affect the process.

"With the credibility of PSALM kind of damaged because of what happened in the WESM scandal, how can they now be able to conduct a clean process?" Arroyo said.

PSALM should first clean its image so that the bidding process and whoever is awarded will not be subject to suspicion, he added.

Press Secretary Ignacio Bunye said Mrs. Arroyo would have to take into consideration the recommendation of the PEMC to suspend penalties for WESM players because they were still on its infancy and "learning curve."

Mrs. Arroyo earlier called for a full investigation into the matter and said those responsible would have to be held liable under the law.

She said no parties should take advantage of the consumers who were supposed to benefit from a free electricity market.

Bunye quoted PSALM president Osorio as saying the parties involved acted "in good faith."

While considering the PEMC recommendations, Bunye said Mrs. Arroyo would "act on the basis of public interest" by preventing any possible recurrence of the reported price manipulation.

He said the Department of Energy had stepped up the monitoring of the WESM to ensure this.

"President Arroyo is firmly committed to defend the welfare of the consumers. That said, we are confident in the capacity for self-repair by the WESM which is still in its infancy," Bunye said.

"Free competition is still the best way of establishing prices and we will continue to strengthen this mechanism even as the government pursues the privatization of assets," Bunye said.

The MSC recommendation stated that a six-month period of immunity from penalties would be granted to the players because they would be working in a complex system and everybody was only beginning to learn.

To stave off public uproar, the PEMC board ordered a correction of the affected bills on the third and fourth billing month to ensure that the higher price offers in the WESM would not be passed on to consumers.

ERC chairman Rodolfo Albano Jr. said PSALM officials are not yet off the hook after they were spared from paying possible huge penalties for alleged price manipulation.

Albano said that the ERC’s mandate includes going after these violators of fair pricing. — Aurea Calica, Jess Diaz, Donnabelle Gatdula, Paolo Romero