Secondary cap ordered for WESM

REGULATORS have ordered the implementation of another temporary price cap for power traded at the Wholesale Electricity Spot Market (WESM), seeking to shelter consumers from volatility.

The Energy Regulatory Commission (ERC), in a May 5 resolution that was published yesterday, announced the adoption of a P6.245 per kilowatt-hour (kWh) secondary cap once an average threshold of P8.186/kWh is reached over a 72-hour period.

The WESM currently has a P32/kWh offer limit, also an interim cap that is almost half of the P62/kWh set when the market started operations in 2006.

ERC Executive Director Francis Saturnino C. Juan said the resolution dropped the P7.808/kWh threshold initially proposed.

“The original threshold proposed was changed to P8.186/kWh. There were comments from different parties and we adopted SMC Global [Power Holdings Corp.] proposal on how to adjust it,” Mr. Juan explained.

SMC Global Power had said the computation should consider three peak hours hitting the P32/kWh price ceiling.

Mr. Juan said the new threshold was computed based on historical summer rates, with an allowance for three trading intervals reaching high market clearing prices.

“What will happen now is that when average WESM prices for a three-day period go beyond the threshold, the secondary price cap will kick in and apply until average prices are brought down to below the threshold level,” Mr. Juan said.

The ERC initiated the implementation of the new cap given sustained high clearing prices at the WESM.

It noted that market reports showed a weekly increase of at least 20% from February 24 to March 23 of this year. The rise during the last week of the period, in particular, was 164% higher from the previous week.

The regulator, acknowledging that demand would further increase during April and May amid tight supply, cited the need to protect the public welfare.

The ERC further also ruled that while the secondary cap remained in effect, oil-based plants are entitled to secure additional compensation to cover costs incurred.

This will be determined by the Philippine Electricity Market Corp. (PEMC) and the plant operator should submit proof that the secondary cap was not sufficient to cover the costs.

“PEMC is hereby directed to process the claim for additional compensation by oil-based plants of no more than … 30 days from receipt of supporting documents,” the May 5 resolution states.

PEMC officials were not immediately available for comment.

PEMC is still in the process of determining a final price ceiling that will replace the current P32/kWh cap, in effect since December last year amid higher market prices. — C. M. C. Feliciano, Businessworld