Spot market price cap ‘not the answer’

Lowering the price cap for electricity traded on the Wholesale Electricity Spot Market (WESM) is “not the answer” to the sudden spike in power prices, but the Energy Regulatory Commission’s asserting its mandate to regulate electricity rates, according to petitioners against the P4.15 kilowatt-hour (kWh) increase in the Manila Electric Co.’s (Meralco) electricity rate.

“It seems that this move is just a knee-jerk reaction to the growing anger of consumers to the high power rates in the country … Regulators should have lowered the price cap years ago,” said party-list Rep. Neri Colmenares (Bayan Muna).

On Saturday, the ERC, with the Department of Energy (DOE) and the WESM operator, the Philippine Electricity Market Corp.

(PEMC), issued a resolution setting a new lower price ceiling for power being offered for sale on the electricity spot market at P32 per kWh, from the current P62/kWh.

The ERC, the DOE and the PEMC make up the WESM tripartite committee that monitors price volatilities on the electricity spot market, which was created under the Electric Power Industry Reform Act of 2001 (Epira) to provide power distributors like Meralco with an alternative source of power.

The joint resolution came amid public protests over the record P4.15/kWh generation charge that the Meralco wants to collect from its 5.3 million customers to recover some P9.6 billion in additional power costs.

Meralco said it had been forced to buy power at a higher rate from the WESM because of the monthlong maintenance shutdown of the Malampaya gas pipeline beginning last Nov. 11, and the unscheduled shutdown of other power plants.

The rate increase was to be implemented in December, February and March, but the Supreme Court on Dec. 23 issued a temporary restraining order stopping Meralco from implementing it for 60 days.

Exclusive to ERC

Pete Ilagan, president of the National Association of Electricity Consumers for Reforms (Nasecore), questioned why the DOE and the PEMC had to be a party to the joint resolution setting the new offer price ceiling on the WESM.

“[The] DOE and [the] PEMC have nothing to do with rate regulation. That’s the ERC’s exclusive authority and the ERC must assert that,” Ilagan said in a text message.

“[The] ERC should comply with its mandate to regulate rates by determining they are just and reasonable,” he said.

Ilagan said the tripartite committee that includes the DOE and the PEMC was not mentioned in Epira.

Under Epira, the PEMC’s role is to “introduce competition, a mechanism that should force the market to bring down power rates,” he said.

On the other hand, Epira requires the DOE to turn over the WESM to an independent market operator and also change the composition of the board of the PEMC, he said.

“[The] PEMC’s board is composed of power utilities’ representatives. So we are not surprised at these price spikes,” he said.

Ilagan said President Aquino needed to appoint to the ERC leadership “representatives of the consumers and not of utility owners and politicians”.

The ERC is currently headed by Zenaida Cruz-Ducut, a former Pampanga congresswoman who has been implicated in the pork barrel scam allegedly masterminded by Janet Lim-Napoles and several members of Congress.

Ilagan also said the price spike should also be investigated by the ERC, or a committee that it assigns.

The Department of Justice through its Office for Competition is investigating the price spikes to find out whether there was collusion among the power suppliers to push up Meralco’s electricity rates.

Abolish WESM

Colmenares said the WESM should be abolished and power generators and distributors should be regulated to prevent price spikes from happening again.

Doing away with the WESM would lessen collusion and the cartelization of the power industry and protect consumer interest, he said.

Free competition through the WESM is a sham because of the virtual cartels and cross-ownerships between distributors and power generators, Colmenares said.

“If power generation and distribution are not regulated and the WESM is not abolished, higher power rates are a certainty. The power industry should be service-oriented and not profit-driven. If not, power rate hikes will be a constant problem,” he said.

“The pricing of power should also be regulated and subjected to public hearings to ensure consumer participation. It should not be automatic,” he said.

Amend Epira

Colmenares said the abolition of the WESM should be part of the efforts to amend Epira, which created it.

He noted that since Epira was enacted to high expectations in 2001, there has been a 112-percent increase in Meralco rates; only five companies control 80 percent of power generation; the state generator National Power Corp.’s debt has remained virtually unchanged at $15.8 billion as of 2010 from $16.4 billion before Epira despite paying $18 billion in interest expenses during the period.

Colmenares claimed that Epira has made private corporations, which have long controlled the distributors, “more powerful since they now own the generation plants as well.”

“The transfer of ownership from the state to a few private corporations exposed the pretense of Epira about fostering competition for the benefit of consumers.

Due to oligopolies over generation and distribution, for instance, the so-called unbundling of rates to make the electricity bill transparent has become a meaningless exercise,” he said.

P32/kWh acceptable

Meanwhile, Sen. Sergio Osmeña III predicts the price cap of electricity being traded on the WESM will plateau permanently at P32/kWh.

Osmeña, the chair of the energy committee, predicted that the price ceiling of P32/kWh will be “acceptable” to many players and become permanent.

“P62 is very high. P32 would be very acceptable, there will be bidders,” he said in an interview with dzBB radio.
“Then, of course, there’s also political pressure,” he said.

Osmeña said he himself suggested to the regulators during the energy committee’s hearing on the power rate increase on Nov. 18 to lower the price cap by half.

The Senate energy committee inquired into the alleged collusion among power generators who were also players on the electricity spot market.

Osmeña did not rule out the possibility that Meralco would collect interest charges on the suspended collection of P2 this month if the high court eventually
ruled the rate increase to be warranted.

But he said this would be minimal. He said the ERC would likely approve Meralco’s collecting interest on the suspended collection.

“Interest rates are very low. It will be something like 6 percent a year, so that’s just .5 percent a month. One percent of P2 is one-fifth of 1 centavo. For goodness’ sake… nobody is going to cry over it. Forget the interest rate,” Osmeña said.

Osmeña said he would call another hearing on Jan. 23 and raise questions with officials of the DOE, PEMC and ERC on the outcome of their investigation into the possible collusion among power generators.

He said future hearings would focus on sections of Epira that could be amended. “I have not seen any collusion. But there could be something concealed. You know in investigations, at first glance you see nothing. I’m not saying there’s none,” he said.

Osmeña said Energy Secretary Jericho Petilla should not be assailed for reportedly advising Meralco to appeal the TRO. –Gil C. Cabacungan, Christine O. Avendaño TJ A. Burgonio, Philippine Daily Inquirer

Read more: http://newsinfo.inquirer.net/554381/spot-market-price-cap-not-the-answer#ixzz2pWA1atwF
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook