Cost impact to Meralco customers adjusted to
If a lower secondary cap in the Wholesale Electricity Spot Market (WESM) would not exactly be the viable option, the Energy Regulatory Commission (ERC) is proposing pre-emptive measure that could shield consumers from price spikes during “extra-ordinary events” in the power industry, such as the Malampaya shutdown.
ERC Chairman Jose Vicente B. Salazar indicated that they may “formulate a pre-emptive mitigation measure that would apply only to these extraordinary conditions to limit price volatility and excessive levels of prices in the WESM.”
As this developed, the Department of Energy (DOE) indicated that the cost impact of the Malampaya shutdown to customers of Manila Electric Company (Meralco) had been re-adjusted to R1.44 per kilowatt hour (kwh) inclusive of value added tax (VAT) charges.
Meanwhile, the regulatory body, in particular, has been undertaking “net revenue analysis” (NRA) of the costs being incurred by participant-power generators in their trading of capacity in the spot market, to serve as a basis in determining any adjustments in the WESM caps.
The intent of the NRA is “to ensure that all types of generators should have positive remaining revenue after deducting their costs.”
The power generation companies, in particular the oil-fired plants, have been complaining that the caps are not feasible for them to even recover their fuel costs when their plants are called for dispatch.
Primordially, the Department of Energy (DOE) has requested the industry regulator to review and probably lower the secondary cap in the WESM.
The secondary cap is one of the prevailing cost-cushioning measures so inordinate electricity rate spikes can be tempered when prices go volatile in the spot market.
Salazar noted that the regulatory body “already started the process of reviewing the secondary cap for the WESM,” but they are not just limiting efforts on this so they can also weigh the concerns of power generators for viable returns on running the facilities.
The ERC chief still qualified though that as the DOE’s plea is anchored on the scheduled shutdown of the Malampaya gas production facility, “the ERC may facilitate the review and adjust the existing cap, or formulate a pre-emptive mitigation.”
Even the operator of the WESM acknowledged that adjustments in the costs are warranted, primarily factoring in the generators’ fuel costs as well as the changes in other cost variables, such as foreign exchange adjustments.
The scheduled downtime of the Malampaya facility is for 20 days from January 28 to February 16. Historically, events of such type triggered supply tightening that subsequently ignited cost spikes primarily manifesting in settlement prices at the WESM.
The spot market’s prevailing primary cap is at R32 per kilowatt hour (kwh); while the secondary cap was set at R6.245 per kwh – to be reckoned on price outcome breach of the set price threshold of R9.00 per kwh over 168 hours trading interval.
The price caps had been extended until the time that the reviewing tripartite body could come up with a more acceptable and industry-feasible price levels of mitigating measures that could keep both the industry players and the cost-volatile spot market stay afloat.