Meralco backs permanent secondary price cap at WESM

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THE country’s largest distribution utility supports the permanent imposition of a secondary price cap on power supply traded on the Wholesale Electricity Spot Market (WESM) to better protect consumers from price spikes.

In a position paper submitted to the Energy Regulatory Commission (ERC), Ivanna dela Peña, first vice president and head of Manila Electric Co.’s (Meralco) regulatory management office, said imposing a secondary price cap is a “more reasonable measure” than requiring distribution utilities (DU) to source all of their energy requirements through bilateral contracts.

Meralco issued its position after Energy Secretary Carlos Jericho Petilla proposed that distribution utilities contract 100 percent of their power requirements through bilateral deals if they wanted to avoid volatile prices at WESM.

But Meralco said that 100-percent contracting, if applied to the previous years of 2012 and 2013, reflected a significant increase in the cost of power to consumers.


Based on Meralco’s simulations, if 100-percent contracting is applied, the increase in the cost of power to consumers would range from P1.84 per kilowatt hour (kWh) to P2.16 per kWh.

Earlier this year, the ERC set a secondary price cap of P6.245 per kWh for the May and June power supply months to mitigate the anticipated higher prices at the WESM under Resolution 8 series of 2014 dated May 5, 2014.

While this regulation is in place, sellers may not quote a price higher than the secondary price cap when they sell their electricity to the market.

The secondary price cap was extended by the ERC by 120 days from August 10 or until a permanent mitigating measure is in place to shield consumers from excessive price volatility.

“To require the DUs to contract 100 percent of their power supply requirement will necessarily include contracting both for the peak and off-peak power requirements of the DUs. This will result in the unnecessary payment by consumers of capacity and/or energy that is not being used or is not needed during off-peak hours,” said Meralco.

It added that full contracting at this time fails to consider the very tight availability of reliable and economical power capacity.

In justifying its position, Meralco said the secondary cap helped shield consumers from high market prices due to multiple and sustained power plant outages, and it would continue to shield them from sustained high market prices due to the expected tight supply situation and frequent plant outages.

“Clearly, the consumers should not be prejudiced in the form of high WESM prices as a result of these outages that are beyond their control,” Meralco said.

The distribution utility, however, admitted that a mechanism for proper compensation of the peaking plants must be established.

“The provision for additional compensation for specific power plants appears reasonable given that the secondary cap may not sufficiently cover the fuel cost and variable O&M [operation and maintenance]of the oil-based peaking plants,” it said.

The Philippine Independent Power Producers Association Inc., meanwhile, has a pending case at the Regional Trial Court of Pasig asking the court to declare as void Resolution 8 imposing the secondary price cap.

It said the ERC issued the resolution without notice and public hearing and went beyond its mandated powers under the Electric Power Industry Reform Act of 2001.

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