By Victor V. Saulon, October 28 2019; Business World

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THE ENERGY REGULATORY COMMISSION (ERC) is looking at a lower secondary price cap at the Wholesale Electricity Spot Market (WESM) — which accounts for about a tenth of the Manila Electric Co’s monthly supply — in a move to better minimize price spikes.

The regulator is now looking at P4,502 per megawatt-hour (MWh) from P6,245/MWh in order to reflect current market conditions.

In a draft resolution, which the ERC posted for industry feedback, the secondary price cap (SPC) will be imposed once the threshold 72-hour rolling generator weighted average price is breached.

The regulator noted that the country continues to have tight power supply, which is worsened by plant outages, thus leaving consumers vulnerable to high WESM prices. The price cap limits price spikes in the market.

“WHEREAS, the thresholds of the current SPC mechanism were determined and set based on market data during the peak months of April-June 2010-2014, and as such, the premises upon which the subject threshold were set are no longer reflective of a relevant current conditions,” the ERC explained.

It said recent developments in the electricity market “impelled the ERC” to review existing threshold levels of the secondary price cap schemes and recalculate the same based on market data using the period 2016-2018.

Sought for comment, Victorio Mario A. Dimagiba, president of Laban Konsyumer Inc., said the group supports “the least cost to the consumers.”

“That put the generation plant to behave in the market at times of forced outages,” he said in an online message.

But he said the ERC should explain how it arrived at the new secondary price cap.

Mr. Dimagiba also said that the Philippine Electricity Market Corp. (PEMC) and the Department of Energy (DoE) should support the reduced price cap.

Under the draft resolution, the commission recalculated the cumulative price threshold level to P6,919/MWh equivalent to the generator weighted average price over a rolling three-day period or 72-hour trading interval in the WESM. The previous threshold was P8,186/MWh.

The ERC first imposed the secondary price cap through a resolution issued on May 5, 2014 as an urgent, interim mitigating measure in the WESM to counter spikes in electricity prices there.

On June 16, 2014 and Aug. 5, 2014, the regulator extended the effectivity of the preemptive measure for a specified period or until the establishment of a permanent one, whichever comes first.

On Dec. 15, 2014, it made the measure permanent, thus putting a limit to the impact of extreme price volatilities and excessive levels of prices in the WESM.

The ERC said it had been directed by the Joint Congressional Power Commission after a hearing earlier this year “to review and revisit” the SPC mechanism to determine the reasonableness of the existing price cap. The hearing was called after the recurring alert warnings on thinning reserve power from March to June 2019.

Market participants are given until Nov. 4 to submit their written comments on the draft resolution. — Victor V. Saulon