Power regulators blink

Price ceiling on spot market cut by half

Amid the growing public anger over the record rise in electricity rates, government regulators on Saturday decided to set a lower price cap for electricity being traded on the Wholesale Electricity Spot Market (WESM) while authorities are studying how to prevent power rates increases in the future.

The cap refers to the highest possible price that can be offered by power-generating companies selling their excess capacity on the WESM.

In a joint resolution with the Department of Energy (DOE) and the spot market operator, the Philippine Electricity Market Corp. (PEMC), released on Saturday, the Energy Regulatory Commission (ERC) set the new offer price ceiling on the WESM at P32,000 per megawatt hour (mWh), from the current P62,000 mWh, or P32 per kilowatt-hour (kWh), from the current P62/kWh.

The ERC, DOE and PEMC make up the WESM tripartite committee that monitors price volatilities on the spot market.

Regulators said the new ceiling would be in effect until the issuance of a new offer price cap “not later than 90 days” from the issuance of the joint resolution that was signed on Dec. 27.

Protests have greeted the huge increase in household electricity rates in Metro Manila and neighboring areas over the next three months from December, which power distributor Manila Electric Co. (Meralco) announced early this month.

Meralco explained the unprecedented P4.15/kWh increase in the generation charge as the result of a monthlong maintenance shutdown of the Malapaya natural gas plant in November/December as well as the unscheduled shutdown of other power plants, forcing it to source more of its power needs from the WESM where prices were higher than the Malampaya natural gas.

The WESM was created following the restructuring of the energy sector under the Electric Power Industry Reform Act (Epira) of 2001 for power suppliers to trade energy outputs and agree on prices.

The price paid is based on the last offer made to meet the demand, although a ceiling (called the “bid cap” or “price cap”) is set.

The spot market is designed so that distributors like Meralco and other buyers can get additional supply whenever electricity demand is higher than what the distributors have contracted for with power plant operators.

Pricing study ordered

Lowering the price that consumers have to pay for power is the main reason for the WESM’s creation. However, the spot market has been plagued by persistent price problems, culminating in spikes in the prices of traded electricity units from power generators last June.

The ERC has directed the PEMC to submit a study on the “appropriate” offer price cap within 30 days from the issuance of the Dec. 27 resolution. Hence, the new offer price cap is temporary and will remain in place only while the WESM pricing study is going on, the ERC said.

According to state regulators, the PEMC is already studying how to deal with several market design and implementation issues that recently became a hot topic with the record P4.15/kWh increase in the generation rate that Meralco will pass on to its customers in three phases starting this month.

Regulators noted during the period of the Malampaya shutdown that WESM prices were reaching the maximum offer price cap of P62/mWh “more often than usual and even during off-peak hours when demand for electricity is low.”

The resulting high market prices may have translated into considerable increases in Meralco’s and other distributors’ generation charges, which are passed on to electricity consumers, depending on the level of bilateral contracts and/or exposure on the WESM.

Market-driven

As the controversy over the Meralco power rate increase raged, the WESM tripartite committee convened on Dec. 13 to discuss possible adjustments to the offer price ceiling. On Dec. 20, the committee agreed to put in place procedures and measures to deal with extreme price spikes or prolonged price volatility, in another meeting on the resolution to lower the price cap which took place on Dec. 27.

The new cap is based on the recently promulgated offer cap set by the WESM tripartite committee for the commercial operation of the Interim Mindanao Electricity Market.

“The new and revised offer price cap will be subjected to a public consultation and will be subject to the regular review and adjustments by the WESM tripartite committee,” the joint resolution said.

PEMC president Melinda Ocampo earlier explained that WESM prices are market-driven, such that if there is sufficient power, buyers such as Meralco can even get lower prices than their bilateral contracts.

“If there is insufficient supply or scarcity, that’s when prices go up,” Ocampo said.

Fears of a whitewash

Militant party-list lawmakers meanwhile are suspicious that the DOE’s investigation into the alleged collusion of power generators in the uncommonly high electricity rate increases could end up in a whitewash.

Party-list Representatives Neri Colmenares and Carlos Isagani Zarate (Bayan Muna) said they were concerned over Energy Secretary Jericho Petilla’s reported statement that he wanted Meralco to appeal the Supreme Court’s temporary restraining order (TRO) stopping the P4.15/kWh rate increase.

Petilla was quoted as saying that Meralco may have to borrow money to pay for power purchases, which he said could lead the distributor into charging higher electricity rates to pay off interest costs.

Colmenares said Petilla—whose offer to resign over his supposed failure to restore electricity to 100 percent of areas struck by Supertyphoon “Yolanda” has been rejected by President Aquino
—should be replaced for his statements.

“It is clear that he (Petilla) views the extremely high power rate hike as aboveboard and regular,” Colmenares said in a statement.

“He should immediately be replaced because he is a threat to consumer interest,” he said.

He said Petilla’s statement indicated that he did not doubt the veracity of the computation of the rate hike, and was “practically preempting the Supreme Court and is siding with the power cartel.”

Zarate said the energy secretary had apparently turned his back on consumers affected by the “unjust” power rate hike.

“His statements totally unmasked the pretentious and misleading posturing of Secretary Petilla because in truth, he is a high-voltage defender of the now cartelized power industry. He is a protector of power oligarchs and their benefactors raking in billions of pesos from consumers. No wonder President Aquino retained his services,” he said.

The two party-list members said they were concerned that the joint DOE-ERC investigation into the alleged collusion among the power generators in the rate hikes would end in a whitewash.

Colmenares said he was optimistic the Supreme Court would strike down the Epira. He said the justification citing the Epira for the automatic rate adjustment by distributors was unconstitutional because it did not provide for consumers challenging the rate hikes.

“We believe that our case against Meralco and the ERC would win in the Supreme Court. We have a very strong case and we think that the [court] will declare the Epira unconstitutional precisely because it does not allow consumers the due process right to question the generation charges,” he said.

Party-list members and militant groups have filed three petitions in the high court to stop Meralco from imposing the P4.15/kWh rate hike.

They are also asking the high tribunal to declare unconstitutional several provisions of the Epira, among them the sections empowering the ERC to determine, fix and approve the universal charge to be imposed on all electricity users. –Riza T. Olchondra, Philippine Daily Inquirer with a report from Leila B. Salaverria

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