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The Wholesale Electricity Spot Market (WESM) owes its
existence to the Electric Power Industry Reform Act (Epira) of 2001.
According to its proponents, WESM would ensure quality, reliable and
secure supply of electricity throughout the country. Above all, WESM—through
competition among the various power generators in the open
market—would bring electricity prices down.
Under Epira at least 70 percent
of power plants should be privatized before WESM is implemented to
ensure a level playing field for all players and stakeholders. The
law underscores that no single player—which could fix
prices—would be allowed to dominate the market.
Despite opposition from various
sectors in the power industry, WESM was made operational last year.
Contrary to Epira’s stipulations, only a little over 20 percent of
the country’s power plants had been privatized by then. The market
is still controlled by the state-owned National Power Corp. (Napocor).
Months after its launch, consumer
groups began to note that WESM prices were being manipulated.
In June last year, WESM’s first
trading month, biddings resulted in an average price of P2.72 per
kilowatt-hour (kWh). The following month it suddenly rose. By
WESM’s third month, its average price reached as much as P4.853
per kWh.
Industry insiders suspect that
Napocor traded much lower rates in WESM’s first month to give
President Gloria Arroyo a positive impression of the benefits of the
spot market—even if the state power company lost P1 billion in the
process.
At that time Napocor officials
expressed no worries, saying they could recover the losses in due
time. It was actually a hint of a possible price manipulation
because in the succeeding months prices dramatically
increased—presumably to enable Napocor to recover its losses.
A recent ERC resolution showed
that Napocor officials were involved in an attempt to manipulate
WESM prices, using the Power Sector Assets and Liabilities
Management Corp. (Psalm) as its scapegoat.
ERC said that in August last year
Napocor wrote letters to Psalm recommending certain policies that
would have amounted to price manipulation if carried out.
One such policy was that both
Psalm and Napocor would agree in advance on the price they would
offer based on the revenue requirements of their power plants. ERC
said this arrangement amounts to price fixing—in brazen violation
of the spirit of Epira.
Referring to Napocor’s letters
to Psalm, ERC noted that “it is highly inappropriate and irregular
for [Napocor] to write such letters to Psalm. The participants in
the market are expected to act judiciously and be circumspect in
their dealings with each other to thwart any notion of collusion or
any tacit agreement or understanding among them.”
ERC added: “To the mind of the
Commission, [Napocor’s] proposal may in fact be taken as an
invitation to collaborate so as to vary market results, and it is no
secret that the dominant position of Psalm can enable it to
capitalize on such to easily dictate the prices in WESM.”
As it turned out, Psalm declined
Napocor’s enticements.
Still, ERC investigators who
looked into the matter said in their report that while there was no
formal agreement by Psalm to Napocor’s suggestions, the Psalm
trading managers in WESM admitted that the “[Napocor] letters
affected their bidding strategy starting the third billing month.”
That was precisely when the bid prices suddenly went on a spike.
Are electricity prices still
being fixed?
Recently Rep. Teofisto Guingona
3rd of Bukidnon said that consumers had better be ready to see P1 to
P2 more per kWh in their electric bill anytime next month should the
ERC give its go-ahead to WESM’s rate increase.
Industry insiders and consumer
advocates nonetheless welcome ERC’s decision to investigate
Napocor on the suspected price manipulation in the electricity spot
market, which resulted in sudden increases in Luzon power bills.
They are particularly keen on
seeing ERC probe Napocor President Cyril del Callar—whom they say
continues to resist reforms that are designed to encourage more
private investment in the power sector.
WESM will work only if
Napocor’s power-generation monopoly is ended. Del Callar’s
detractors say that is well nigh impossible with him still in
charge.
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