SMC Global wants WESM rules to allow recovery of add'l costs

By Iris C. Gonzales, The Philippine Star

Posted at Apr 24 2014 07:40 AM | Updated as of Apr 24 2014 03:40 PM

MANILA, Philippines - SMC Global Power Holdings Corp., the power generation arm of San Miguel Corp., is asking the Energy Regulatory Commission (ERC) to allow power plants to recover additional costs should they incur any if the ERC approves the proposed secondary price cap for the Wholesale Electricity Spot Market (WESM), the country’s trading floor for electricity.

The price cap is the highest offer that sellers can give when they sell their electricity to the WESM. Power suppliers in the market 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 a position paper submitted to the ERC regarding the proposed secondary price cap, SMC Global said: “Another paragraph should be inserted in the proposed resolution to allow for the recovery of additional costs if the additional costs exceed the SRMC or the short run marginal cost. The additional costs should allow for the recovery of fixed costs.”

The SRMC refers to marginal cost of operating a power plant.

The ERC wants to impose a secondary price cap for the WESM.

Thus, the ERC proposed a resolution imposing a secondary price cap of P6.245 per kilowatt-hour for the WESM upon reaching an average price threshold.

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ERC has sought comments from power companies and energy stakeholders on the proposed secondary price cap.

In its position paper, SMC Global said the proposed secondary price cap should be applicable only to the base-load and mid-merit plants while the peaking plants should be priced at P32,000 per megawatt-hour (mwh) or P32 per kilowatt-hour (kwh) if this is the clearing price.

“In other words, if the clearing price is P32 per kwh, 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,”

In the proposed resolution, the ERC said the secondary cap may be lifted whenever the rolling average is less than the defined threshold

Pending the approval of the offer cap of the WESM tripartite committee, the ERC said there is a need to mitigate the sustained high prices in the WESM on an interim basis during the months of May and June.

Any secondary price cap and average price threshold approved by the ERC shall be revised accordingly upon the approval of the final WESM offer cap, the ERC also said in its resolution.

The price cap at the WESM has been cut by half since December but only on a temporary basis.

In December, the tripartite committee composed of the Department of Energy, the Philippine Electricity Market Corp. (PEMC) and the ERC cut the price cap at the WESM to P32 per kwh from P62 per kwh amid the surge in electricity prices that month.

At the time, the December generation charge of Manila Electric Co. (Meralco), the country’s biggest power distributor, rose to P9.10 per kwh from only P5.67 per kwh in November.

This temporary price cap has been extended for 60 days from March 27 or until May 27.