Power generators welcome ERC ruling on spot-market rates recalculation

A GROUP of power generators welcomed last week’s ruling of the Energy Regulatory Commission (ERC) which ordered the recalculation of the rates on the spot market.

“Ideally, this process should reflect market conditions absent unjustified violations of market rules, and all the rate-related adjustments contemplated in the order be done at one time,” said the Philippine Independent Power Producers Association Inc. (Pippa) said in a statement on Friday.

The group also said it will continue to cooperate with authorities investigating why the Wholesale Electricity Spot Market (WESM) failed from October to December last year.

“We hope the process will be concluded as soon as possible to put to rest the tension and uncertainty that the November-to-December price spike events have created,” Pippa’s statement said.

The ERC noted that there was widespread withholding of capacity through the non-observance or breach of the “Must Offer Rule” (MOR) under the WESM Rules amid all plant outages that occurred covering the period October 26, 2013 to December 25, 2013.

The MOR requires generators to offer all of their available capacity in the market. It seeks to prevent artificial shortage of supply by capacity withholding, which may drive prices to higher levels.

“During the period of the Malampaya shutdown, there was an average of 2,035.13 megawatts [MW] that were not offered by various plants. During the said period, the average capacity not offered by the hydroelectric plants constitutes the bulk of the total average capacity not offered at 45.47 percent, or 925.29 MW. This is followed by the average capacity not offered by the oil plants at 29.92 percent, or 608.9 MW. The average capacity not offered by coal plants stood at 12.42 percent or 252.77 MW,” the ERC noted.

In a nutshell, the ERC said there was “a market failure brought about by the tight supply condition arising from their failure to abide with the MOR.”

In reply to this, Pippa said “the circumstance of each generator cited in the ruling is unique, therefore each one will respond to the ERC independently.”

The group also called on critics who want to abolish the WESM to give the spot market a chance. “Compared to other markets in other countries, the WESM is relatively young. Market rules generally evolve, and generators welcome the efforts to continuously improve the WESM and, in fact, initiate many of the proposed improvements. We are confident that these efforts will evolve the WESM into an efficient market for the Philippines.”

Meanwhile, Energy Secretary Carlos Jericho L. Petilla said the DOE is eyeing an independent market operator (IMO) for WESM.

Under the Electric Power Industry Reform Act of 2001, the WESM must be transferred to an IMO after its establishment.

“We have to be careful. I want the IMO this year. My target is to make it an IMO on the premise that we are all protected,” Petilla said.

“It’s easy to shift to an IMO but we cannot go back anymore if we do, so we have to be careful.”

The IMO shall be composed of an independent board of directors but Petilla expressed concern on the criteria for the selection of the IMO board.

“Who chooses the independent directors? What is the composition of independent directors? Is there such thing as independent directors in this country?” Petilla asked adding that “Government will no longer be there.”

WESM is currently being operated by PEMC, which is chaired by Petilla.

PEMC has been operating the market since 2006 and is composed of 15 representatives from each sector of the electric power industry, as well as independent members.

The power generators, for their part, said the IMO must have a proven track record of not less than two years as a leading market operator of a similar- or larger-sized electricity market. –Lenie Lectura, Businessmirror