THE Energy Regulatory Commission (ERC) on Friday released a resolution that further extends the imposition of a price cap at the Wholesale Electricity Spot Market (WESM) to shield consumers from sustained high-market prices due to the expected tight power-supply situation and frequent plant outages.
“Pending the determination of a new WESM offer-price cap, which considers the permanent mitigating measures to be issued by the ERC, the interim WESM offer price cap of P32 per kilowatt-hour [kWh] is hereby further extended for a period of 120 days from October 24, 2014,” the ERC said.
In June 2006 the WESM tripartite committee, composed of the ERC, the Department of Energy and the Philippine Electricity Market Corp. (PEMC), adopted the implementation of a bid cap of P62 per kWh. This was reduced to P32 per kWh in December of 2013 due to the unreasonable higher market prices during the Malampaya shutdown in November and December.
The price cap stood at P32 per kWh since then. “The new level of WESM offer-price cap shall be set in a manner that considers sustainable economic growth in the generation sector, which promotes long-term efficiency and security of the supply of electric power,” the ERC added.
Apart from this cap, the ERC also implemented a secondary price cap of P6.245 per kWh meant to prevent market power abuse and other anticompetitive practices, which affects prices in WESM to the detriment of the consumers.
This cap takes effect whenever there is a breach of the average threshold of P8.1855 per kWh over a 72-hour period. In effect, this cap cuts average spot market prices by about 18.4 percent, the ERC said.
The secondary cap remains in place until the establishment of a permanent preemptive mitigating measure in the WESM is established.
“The WESM tripartite committee further recognizes that the appropriate level of the WESM offer-price cap should complement and be consistent with the permanent preemptive measure in the WESM to be issued by the ERC,” the regulator said.
Industry stakeholders, particularly power producers, are divided on the issue on whether to lift the secondary price cap.
Some are opposed to it, saying the cap is disadvantageous to certain power plants. They said that the secondary price cap should be applicable only to the base-load and mid-merit plants but not for peaking plants, which generally run when there is high demand.
Peaking plants operate only during the times of peak demand, while base load plants operate at maximum output. Base-load plants usually run on coal and fuel oil, while peaking plants include hydro and gas turbine which can be fueled with natural gas or diesel.
A mid-merit plant is a power plant that adjusts its power output as demand for electricity fluctuates throughout the day. It is typically in-between base load and peaking power plants in efficiency, speed of start-up and shutdown, construction cost, cost of electricity and capacity factor.
Energy Secretary Carlos Jericho L. Petilla strongly urged the ERC to come up with fair rules on imposing a secondary price cap.
Petilla said that in the case of merchant-plants owners, the ERC should allow them to recover their costs.
“Merchant plants should be allowed to recover their capex [capital expenditure]. The parameters of the price cap should not be biased on diesel plants,” said the energy chief.
With the secondary cap, oil-based plants are entitled to recover additional compensation if the cap is not enough to cover the fuel and operations and maintenance cost of the facility.