ERC orders WESM to cut power prices

MANILA, Philippines  (UPDATED) – Citing market failure, the Energy Regulatory Commission (ERC) on Tuesday, March 11 ordered the Wholesale Electricity Spot Market (WESM) operator to cut the generation charges it imposed on Luzon consumers in December and January.

In a 35-page decision signed on March 3 but released to the public on March 11, the ERC ordered Philippine Electricity Market Corporation (PEMC) to calculate and implement “regulated” WESM prices for the period October 26-December 25, 2013, when the Malampaya natural gas facility was on maintenance shutdown.

“The regulated prices are expected to be at least 70% lower on the average” than the original charges imposed by WESM, the ERC said in a statement.

The ERC ordered PEMC to send out revised bills for immediate settlement of distribution utilities in Luzon. The bill of Manila Electric Company (Meralco), however, would be maintained until the temporary restraining order (TRO) issued by the Supreme Court is lifted.

Meralco, the country’s largest power distributor, raised its rates to record highs in December and January to reflect WESM charges. It was supposed to implement the increases in tranches but it was stopped by the SC.

Meralco said that once it gets WESM’s new billing and the SC lifts its TRO, it would also adjust its rates.

“We view the ERC order as a positive development for our customers as this recalculation will reflect the true competitive cost of power for the supply months covered,” said Meralco First Vice President & Deputy General Counsel and Head of Legal William Pamintuan.

“Meralco will work closely with PEMC and with the relevant generation companies for the adjusted power supply bills.”

Market failure

The ERC said WESM prices during the Malampaya shutdown “could not qualify as reasonable, rational and competitive due to a confluence of factors.” 

It said that “lack of competition” resulted in a “contrived supply shortage” that drove electricity prices to high levels.

It added there was widespread withholding of power capacities as generation companies violated the must-offer rule of WESM.

“This created an environment wherein higher offers were practically assured of clearing in the market to the detriment of the consuming public,” the ERC said in its order. “The contrived supply shortage impaired the market and this resulted to market failure.”

The ERC directed PEMC to conduct an investigation into the breach of the must-offer rule within a period of no less than 90 days from receipt of its order.

“Thereafter, the result of the investigation of the PEMC Enforcement and Compliance Officer shall be submitted to the ERC with the recommended sanctions and penalties, if any,” said the ERC.

The must-offer rule requires generators to offer all of their available capacities in the market. It seeks to prevent artificial shortage of supply by capacity withholding, which may push prices up.

“During the period of the Malampaya shutdown, there was an average of 2,035.13 megawatts 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% or 925.29 MW. This is followed by the average capacity not offered by the oil plants at 29.92% or 608.9 MW. The average capacity not offered by coal plants stood at 12.42% or 252.77 MW,” the ERC noted.

The ERC conculded, “Government intervention is needed if there is a failure in the market to correct any inefficiency and prevent this from happening again.” – Rappler.com