ERC extends electricity price cap despite court case

MANILA, Philippines – The Energy Regulatory Commission (ERC) will pursue the implementation of the secondary price cap in the spot market for another 45 days starting Wednesday, June 25, despite a case filed before the Pasig Regional Trial Court seeking to nullify it.

The Philippine Independent Power Producers Association (PIPPA), a group of power generation companies and independent power producers, filed early this month a petition seeking to declare as void ERC Resolution No. 8.

The resolution calls for the imposition of a secondary price cap amounting to P6.245 ($0.1424) per kilowatt hour (kWh) at the Wholesale Electricity Spot Market (WESM) upon reaching an average price threshold of P8.186 ($0.1867) per kWh over a 72-hour rolling period.

WESM is the country’s trading floor for electricity. The Philippine Electricity Market Corporation (PEMC) facilitates the trading.

“Unless restrained, the ERC is determined to implement its interim mitigating measure for the protection of the electric consumers,” ERC Director Francis Saturnino Juan said in a text message, Tuesday, June 24.

The ERC resolution is “unconstitutional, invalid, and illegal” because, for one, it was issued without the conduct of a public hearing, PIPPA president Ernesto Pantangco, said.

Unconstitutional

The unlawful imposition of the secondary cap causes undue damage because the generation companies (gencos) are obligated to offer power but at a price that will not allow them to recover their costs, PIPPA said.

The resolution also expects gencos to absorb the losses from unrecoverable costs and lack of any return on investment, while allowing other WESM participants to avail of low-priced electricity at the expense of the gencos, PIPPA added.

“[The] significant decrease in the supply of electricity is not among the grounds for which it may intervene in the WESM,” it stressed.

ERC is only empowered to suspend the operation of the WESM or declare temporary WESM failure in cases of national and security emergencies, PIPPA added.

But imposing a secondary price cap, which the ERC said is meant to protect the consumers and to mitigate sustained high prices in the WESM, “distorts the restructured power industry and impairs market competition in the generation sectors, as well as the ability of the gencos to recover electricity generation costs thereby imperiling their viability, if not directly leading to the closure of some of the existing plants,” PIPPA explained.

Consequently, the ERC resolution will discourage investors from investing in the construction of new power plants due to the instability of the regulatory regime.

“The inevitable result will be frequent and long power outages that will be more daunting for the consumers and unbearable for the country,” PIPPA said.

WESM participants determine the total demand of power supply for a certain hour. They submit their bids and the PEMC ranks these from lowest to highest until there are enough bids to meet the demand. The highest offer becomes the electricity price for that particular hour. – Rappler.com