ERC keen to extend second price cap on WESM rates

by Lenie Lectura, BusinessMirror

Posted at Jun 11 2014 09:33 AM | Updated as of Jun 11 2014 05:33 PM

MANILA, Philippines - The Energy Regulatory Commission (ERC) is looking into the possibility of extending the implementation of the secondary price cap on rates of the Wholesale Electricity Spot Market (WESM) to protect consumers from any sudden spike in the spot market.

The ERC will soon decide on prolonging the implementation of Resolution 8, Series of 2014, entitled “An Urgent Resolution Setting an Interim Mitigating Measure in the WESM.” In this order, ERC imposed a secondary price cap of P6.245 per kilowatt-hour (kWh) during the supply months of May and June this year.

If lifted by the end of this month, industry experts are worried this may cause renewed price spikes in the spot market.

“The ERC has just directed its market operations service to make such study. There is no discussion yet before the ERC,” ERC Executive Director Francis Saturnino Juan said on Tuesday. A review will be conducted before the end of this month, he added. For his part, Energy Secretary Carlos Jericho L. Petilla said it is up to the ERC if it will decide to extend the said order.

“The secondary cap is an ERC intervention. It is only put in place when there is tight supply. Once lifted, the assumption is [that] supply is [already] adequate and there should be no reason for prices to go up,” Petilla said.

The resolution states that the price cap will only be imposed upon reaching an average price threshold of P8.186 per kWh, from an earlier proposed P7.808 per kWh, over a 72-hour period.

“A secondary price cap…shall remain in effect until after the determination that the succeeding Generator Weighted Average Price rolling average is already less than the said threshold,” it said.

Juan emphasized that the secondary cap was put in place to dampen prices during periods of sustained high prices. “The possibility of the occurrence of these sustained high prices in the coming months may be looked into,” added the ERC official.

It can be recalled that there had been “unreasonably high” market prices for electricity during the Malampaya shutdown in November and December last year.

During the 30-day Malampaya gas-facility shutdown in 2013, the market clearing prices reached the maximum offer of P62 per kWh, “more often than usual and even during off-peak hours when demand for electricity is low.”

The WESM tripartite committee convened in December last year and discussed the possible adjustments in the price ceiling and recognized the need to constantly put in place procedures and measures to address extreme price spikes and prolonged price volatility.

The committee then reduced the offer price cap ceiling from P62 per kWh to P32 per kWh for 90 days. The said price cap is the same level of market cap imposed at the Interim Mindanao Electricity Market.

The set cap will be in effect only until the issuance of a new office price limit.