ERC seeks to re-establish basis of WESM’s primary price cap

by Myrna Velasco, February 16, 2015
from Manila  Bulletin

The power industry regulator, in collaboration with the tripartite committee which counts the Department of Energy (DOE) and the electricity market operator as core participants, will be re-establishing the basis for an adjusted primary price offer cap of the Wholesale Electricity Spot Market from currently at P32 per kilowatt hour.

Energy Regulatory Commission (ERC) Executive Director Francis Saturnino Juan noted that while the Luzon-Visayas spot market price cap was anchored on the requirements then of the Mindanao grid, “there was definitely a basis why that cap was instituted.”

The WESM cap has been reduced from P62 per kWh to P32 per kWh – owing then to the controversies stirred by the price spikes resulting from the Luzon grid tight supply conditions in the November-December, 2013 supply months.

In that same period, the Interim Mindanao Electricity Market (IMEM) was being established, and regulators and policymakers were also exploring then some parallelism as to what would be the appropriate level of cost recoveries that investors would need to viably operate – especially for those providing the peaking needs of the power system.

Juan acknowledged there is indeed a “need to review and revisit” the existing P32 per kWh cap, but he stressed that such is still a work in progress – and a matter that is being consulted upon with the affected stakeholders.

In a recent energy forum hosted by the Norwegian Embassy, Lantau Group partner Mike Thomas has stressed that the WESM cap, if sustained for a long time at P32 per kWh, will guarantee a shortage in supply in the long run.

The industry regulators, however, averred that it is not a decision that they will cling on to for the long haul, and that estimates and measures are now being explored to come up with a revised and relatively acceptable primary WESM price cap.

Thomas has emphasized that while the WESM’s impact is still considerably marginal in the overall electricity rates, the spot market remains an important signal for investors to go ahead with their capital outlay decisions.

He similarly emphasized that despite the price shocks of the November-December, 2013 supply months, prices in the WESM in the last seven years or since its establishment in 2006 had been on a declining trend.