The Energy Regulatory Commission (ERC), in an Order dated 03 March 2014 voided the WESM (Wholesale Electricity Spot Market) prices during the period from 26 October 2013 to 25 December 2013 and ordered the imposition of regulated prices in lieu thereof. The ERC found basis to intervene in the market after determining that the WESM prices during this period could not qualify as reasonable, rational, and competitive due to the confluence of factors accompanying the tight supply situation in the market.
In the same Order, the ERC directed the Philippine Electricity Market Corporation (PEMC) to calculate and implement the regulated prices in the revised WESM bills of the affected distribution utilities in Luzon for their immediate settlement, except for MERALCO (Manila Electric Company) whose November 2013 WESM bill will be maintained in compliance with the Temporary Restraining Order (TRO) issued by the Supreme Court in G.R. Nos. 210245 and 210255.
The regulated prices shall be calculated based on the load weighted average of the ex-post nodal energy prices and meter quantity of the same day same trading interval that have not been administered covering the period December 26, 2012 to September 25, 2013, subject to the payment to the oil-based plants of additional compensation to cover their full Fuel and Variable O&M costs, if warranted, following the manner and procedure for computing additional compensation under the WESM’s Administered Price Determination Methodology. These regulated prices are expected to be at least 70% lower on the average than the voided WESM prices, which stood on average at PhP22.13/kWh for November 2013 and PhP25.67/kWh for December 2013.
The ERC noted that there was widespread withholding of capacity through the non-observance or breach of the “Must Offer Rule” (MOR) under the WESM Rules amidst all the plant outages that occurred covering the period from 26 October 2013 to 25 December 2013. The MOR requires generators to offer all of their available capacity in the market. It seeks to prevent artificial shortage of supply by capacity withholding, which may drive prices to higher levels.
As found by the ERC, “ the dispatch schedule and the prices during the November and December 2013 supply months reflected an inefficient allocation of resources contrary to the aspirations of WESM.” “This was brought about by the tight supply condition arising x x x from the participants/failure to abide with the MOR.” “Under the circumstances obtaining when the Malampaya was on shutdown, this created an environment wherein higher offers were practically assured of clearing in the market to the detriment of the consuming public. This was fairly evident from the way the market participants behaved and the market prices moved during the period in question.” “The contrived supply shortage impaired the market and this resulted to market failure.”
“The lack or failure of competition necessitates government intervention to protect the consumers from unreasonably high market prices. Government intervention in this case is a valid exercise of the State’s police power and can be done by the regulatory body to which the said power has been delegated and to intervene when the common good so demands, such as the ERC,” the Order dated 03 March 2014 said.
The ERC further directed the PEMC to conduct an investigation on the possible breach of the MOR within a period of no less than 90 days from receipt of the ERC 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.
“The ERC’s action is a product of its judicious review of the circumstances surrounding the Malampaya shutdown. It demonstrates that while the market will generally be left alone, the ERC will not hesitate to exercise its regulatory authority to ensure rational pricing of electricity and to protect the interests of electricity consumers,” ERC Chairperson Zenaida G.Cruz-Ducut stressed.