Steep price spike on WESM questioned

AFP FILE PHOTO

MANILA, Philippines—It was reported that Therma Marine was contracted by Manila Electric Co. (Meralco) for 238 megawatts of reserve power presumably to assure adequate supply and reduce cost.

If true, under what circumstances in the agreement would Therma Marine’s price reach P62 per kilowatt-hour? The reserve power is also most likely something that Therma Marine bought from the surplus of a generator like Sual Coal Plant to be traded by it as a registered wholesale aggregator, another program of the Energy Regulatory Commission.

Of serious concern was the report that Meralco had allowed Therma Marine to deliver only 90 MW to Meralco instead of 238 MW and supply the rest to the Wholesale Electricity Spot Market (WESM) at P62 per kWh, which then Meralco is trying to bill its customers.

It is a legitimate market move of Therma to have bought the 200-MW excess capacity of Sual at a reported P6 per kWh and to turnaround and contract it to Meralco for P8.65. While the maneuver may be allowed by the rules, market participants and Meralco should have the restraint not to take advantage of the consumers.

1. Meralco’s lawyers at the Supreme Court hearings were quoted as saying that Meralco had allowed Therma to offer the 148 MW to the WESM at P62 “to assure that it will not be dispatched and therefore reserve the power for the use of Meralco. And that they were surprised that it was dispatched when several of the other power plants unexpectedly went on maintenance.”

Meralco’s claimed contract with Therma Marine (as an aggregator) for 238 MW took the form of a bilateral contract and hence under WESM rules should have been a must dispatch capacity. Would not Meralco have assured that its additional power from Therma Marine can be dispatched as it claimed it wanted by pricing it at the true bilateral price of P8.65 and not P62 per kWh?

2. Meralco’s lawyers also warned that there would be rotating blackouts with dire consequences to the economy this summer if the temporary restraining order on its rate increase of 4.15 per kWh is not lifted.

They claimed that their power generator suppliers, as a consequence of deferral of payment, could not pay for their fuel and hence would stop delivery of power.

Is this likely? First of all what is not being paid is the excessive price of P62 per kWh. Fuel for coal plants is only P2.50 per kWh, for diesel it’s P8.50 per kWh. At the average generation price of Meralco of P5.67 per kWh for the period while the temporary restraining order is in place, the generators’ fuel costs are fully covered.

Besides, these generating companies’ (gencos) need to deliver on their bilateral contracts for which they are being paid. They will not stop delivering power. After all what is being held are their undue profits.  Unless, there is a conspiracy to make the country and the Supreme Court buckle down.  David Celestra Tan, Contributor