ERC order on power spot market seeks to avert spike in billings

ERC chair Monalisa Dimalanta ERC FACEBOOK PHOTO

MANILA, Philippines — Calling the “extraordinary” power supply situation brought about by El Niño something akin to a “natural calamity,” the Energy Regulatory Commission (ERC) has ordered the suspension of the operation of the power spot market in Luzon and the Visayas whenever these grids are placed on red alert.

This is to prevent spikes in electricity prices, ERC Chair Monalisa Dimalanta said on Tuesday.

The Wholesale Electricity Spot Market (WESM) will still process transactions related to the sale of electricity by the power generators to the power grid, but the selling price will be capped or fixed, Dimalanta said.

READ: Nationwide red, yellow alerts raised as power supply further thins

The WESM is the central marketplace for trading electricity as a commodity, where power generators can sell excess capacity and distributors, such as rural electric cooperatives, can buy additional power if needed.

WESM rates are among the components of the monthly electricity bill.

Under normal conditions, generators are free to set their offer price and a secondary price cap is enforced to smooth out any unusual price movements.

However, a concern arises when a red alert is declared: generators may charge a much higher price than they ordinarily would because of the high demand, eventually translating to spikes in electricity billings.

Preventing excesses

The National Grid Corp. of the Philippines raises a red alert when the system has insufficient power to meet demand while keeping the grid stable.

To prevent any excesses during an extraordinary demand-and-supply situation, the WESM will set an administrative price or the average price over the four weeks before the day or period when the market is suspended.

The administrative price is usually lower than the secondary price cap, but the lower price will apply if it goes over the secondary price cap.

Dimalanta explained that if the administrative price is not enough to cover the production cost of the generating companies that supplied power during a red-alert period, they can ask for additional compensation from the Independent Electricity Market Operator of the Philippines—which operates the WESM—upon submission of proof of costs.

The suspension will be lifted when the capacity exceeds demand for at least 24 hours.

In a statement on Wednesday, President Marcos welcomed the ERC order, saying that it was “aimed at preventing the increase in electricity [prices] amid the calamity caused by El Niño.”

“Because of the insufferable heat, electricity consumption goes up, which also results in the increase in prices. Yesterday, the Energy Regulatory Commission temporarily suspended the operations of WESM if there is a red alert declared by the system operator or the National Grid Corp. of the Philippines,” he said.

Up to 53-percent increase

WESM prices usually rise during the summer due to increased power consumption for cooling appliances. However, power generation capacity also dips during this period due to low or zero output from hydroelectric plants. The dry spell brought about by the El Niño phenomenon aggravates the situation.

The ERC noted that based on data from the WESM, the average price per day increases by 11 percent in Luzon and as high as 53 percent in the Visayas during periods marked by red or yellow alerts or a high heat index.

Dimalanta assured the public that the ERC was “working doubly hard to alleviate the impact of El Niño on our power system and … finding ways to mitigate the impact of the extremely high demand resulting from the high heat index as these ultimately affect our consumers.”

The NGCP has regularly issued red or yellow alerts since April 16 as several power plants either conked out or reduced their output.

Yellow alert

It again placed the Luzon grid under yellow alert for the third straight day on Wednesday, from 8 p.m. to 10 p.m.

A yellow alert is raised when the operating margin is insufficient but will not necessarily lead to power service interruptions.

Dimalanta said the last time the ERC ordered a suspension was right after Typhoon “Odette” (international name: Rai) devastated parts of the Visayas and Mindanao in December 2021 and left millions of households without electricity.