Power Supply, Monopoly, WESM, and Tide
by David Celestra Tan
an original blog post on Philippine Power Insights
Like stand-up comedian Johnny Carson used to ask in his joke routine, name four things that clean you better than Clorox? Answer for Meralco consumers: Tide, Sweetheart Power supply, power monopoly, and WESM
The electricity consumers in the Meralco area will be taken to the cleaners more by the evolving power supply industry with unbridled monopolies and the unchanged electricity spot market or WESM.
The Department of Energy had launched a task force to come up with ways to reduce electricity prices in the country. Members are Meralco, Electric Coops, Generation industry lobby group PIPPA, Chambers of Commerce, government agencies, consumer groups, and other stakeholders. The first serious deliberation is July 17, 2014 yet.
In his introductory speeches DOE Secretary Jericho Petilla mentioned about requiring distribution utilities to contract 100% of their power requirements through bilateral contracts, an evident attempt to discourage overdependence on the volatile Wholesale Electricity Spot Market, which market failure caused the 74% one month increase in generation charges in December and an abhorrent spike of 100% in January.
In the recent two weeks, there has been a distinct campaign in the media raising the alarm bells that requiring distribution utilities to contract 100% of their power requirements through bilateral contracts will increase the rates to consumers. One columnist went as far as singing the praises of the WESM by saying “a wholesale spot market.. is the only way to go if we want a sane power sector. It is the only mechanism for independently benchmarking prices. Consumers will be more vulnerable to profiteering and monopoly pricing without the spot market”. “The spot market is a better guarantee for fair pricing for a product beset by constantly varying costs” the column continued.
Is this the same WESM that had a P62 per kwh allowable bid price with an average of P33 per kwh in November and December? Is this same PEMC whose supposed elaborate market monitoring and audit team failed to raise a hoot even if the prices skyrocketed to P62 per kwh in certain hours because “it did not violate” the rules? Is this the same PEMC whose patriotic conscience was not even bothered that the generation charge in the Meralco area jumped 100% in January?
WESM is low now because it is temporarily under close scrutiny by the ERC, DOE, and the consuming public. It is subject to a market secondary cap by ERC. Players who exploited the market are apparently trying to strategically behave so that the current rules will not be changed. What will they do when no one is looking again?
Obviously the media campaign is on behalf of someone who does not want to be forced to enter into bilateral contracts with independent power generators. Actually this analyst believes that it is not really entering into bilateral contracts that they fear but the move of the DOE and ERC to mandate that all bilateral contracts for the captive markets should be subjected to open competitive bidding. That will preclude them from negotiating sweetheart deals with their own power generation projects, which they announced to be 3,000mw.
In fairness to Secretary Petilla, what he appear to be espousing is really less dependence on the volatile WESM spot market not the literal 100% bilateral contracting. Obviously the concept needs some refinements in mechanics.
More on WESM.
WESM has been not only Meralco’s favorite pass-on charge but pass-on-blame since its launching in June 26, 2006. Over the years Meralco always blames the WESM for increases in generation charges. That and El Nino and NPC. When its rates skyrocketed by P4.15 per kwh in November and P5.00 per kwh in December 2013, Meralco thought nothing of passing it on to the consumers with the approval of the ERC before Christmas of 2013. When the consumers revolted with the timely Supreme Court petition of Bayan Muna, Meralco belatedly asked the ERC and PEMC to re-run the market. Now it appears they are campaigning to have the WESM rules maintained as is with its mandatory pool and market clearing price system that have so battered the consumers. For the general public, the maintenance of the current rules of WESM offers the Metro Pacific Groups 3,000mw power generation projects under Meralco PowerGen a built in incremental market for excess capacity at market settling prices or revenues in the range of P10 to P33 per kwh.
Open Bidding not negotiated Monopolization
What should be of concern to electric consumers is not really that there will be bilateral power supply contracts because there should be power supply. It is the negotiated sweetheart prices and monopolization by Meralco instead of opening it for open competitive bidding that can overcharge the consumers. Open bidding is the only way the electric consumers can have a chance at lower competitive generation rates.
The 3,000mw of negotiated sweetheart contracts are an in-your-face affront to the clear words and spirit of the Epira Law for a competitive market and its anti-monopoly, anti-market domination, and anti-competitive aspirations. It is up to the DOE and ERC to step in to stop the rampaging monopolization.
As to the cleaning agent Tide, it has been consistently judged in consumer surveys to clean better than Clorox. For you kids, Johnny Carson was the long time host of the Tonight Show before Jay Leno and now Jimmy Fallon.
