“WESM:
The electricity market has been in the news lately, with the huge spike in the price of
electricity for the customers of Meralco (70 percent of Luzon). My knowledge of this
market amounting to not much, I decided to bone up on it before adding my voice to the
cacophony of opinions, and recommendations. Here’s what I found:
The Epira (Electric Power Industry Reform Act) of 2001 mandated the Department of
Energy (DOE) to establish the Wholesale Electricity Spot Market (WESM) that would
“facilitate a transparent and reliable market for electricity, and, jointly with the electric
power industry participants, formulate the detailed rules for the WESM.” This the DOE
did, with inputs from the industry participants.
The Epira also entrusted to the Energy Regulatory Commission (ERC) the approval of the
price determination methodology, which it did with the proper consultation.
An “autonomous group market operator,” the Philippine Electricity Market Corp. (PEMC)
composed of industry participants—involved in generation, transmission, and distribution
—was also created, chaired by the DOE. Its role was to “procure necessary infrastructure
and technology, and achieve institutional and participant readiness for the commercial
operation of the WESM.” With the DOE as chair, the board members of PEMC, aside from
the ERC, are representatives of the generators, transmitters and distributors, plus four
independent members (presumably representing consumers).
I bring this out to show that the government was very visible in making the market rules
(WESM).
The first thing the DOE, ERC and PEMC did was to create the WESM Tripartite
Committee (composed of themselves—i.e., the secretary, chair and president); it is
supposedly interim, but it is still alive. Among others, this committee was tasked to
“perform such other functions as may be necessary to PREVENT OR MITIGATE
EXTREME PRICE VOLATILITY OR EXCESSIVE PRICING CONDITIONS THAT
IMPEDE THE DYNAMIC AND PROPER FUNCTIONING OF THE WESM.” (Emphasis
mine)
That was in Joint Resolution No. 1, dated June 2006. Shortly after came Joint Resolution
No. 2, which was just as hot on preventing price spikes. This resolution adopted a bid cap
or offer price ceiling “in order to limit or reduce possible instances of excessive increases
or high market prices.” What was the initial cap? P62,000/mWh, or P62/kWh. This cap,
supposed to be reviewed quarterly, has not been changed since 2006.
Reader, I assure you that I tried to find out the basis of this cap. Why? Because that price
should represent the highest marginal cost or highest extra cost of producing the last
