Suspension of WESM for Visayas operations sought

The skyrocketing of spot market rates for electricity to as high as P32 per kilowatt hour (kwh) in the Visayas during the first few days of trading is proof that the region is not ready for the scheme mandated by the power industry reform law, Rep. Salvador “Kiting” Cabaluna III of the 1-CARE party list said.

And before its continued operations could cause in “irreparable damage” to ordinary consumers, Cabaluna asked the Philippine Electricity Market Corp. (PEMC) to suspend the commercial operations of the wholesale electricity spot market (WESM) for six months to allow stakeholders, notably electric cooperatives, enough time to secure bilateral contracts for their power supply.

“Time and again, our sector has cautioned the government the situation in the Visayas is not ripe for the operation of WESM, and this opposition is not without factual basis,” Cabaluna said in a letter to PEMC president Melinda C. Ocampo dated Jan. 3, 2011.

Cabaluna said that “even the Department of Energy (DoE) had postponed its implementation several times because conditions then, as they are now, are bound to result in failure.”

The WESM began operations in the Visayas region on Dec. 26, and as feared, the spot rates had gone as high as P32 per kwh during peak demand, Cabaluna said.

At the same time, Cabaluna questioned the legality of the WESM implementation, which he said began operating without the sanction of the Energy Regulatory Commission (ERC).

Cabaluna said that two years ago, the ERC had ordered the PEMC to submit a package of mitigating measures to protect the market from volatile price fluctuations. On Dec. 10, 2010, the ERC issued a second order on the subject, but the PEMC has failed to comply with it, he added.

“Without such ERC authority, distribution utilities would be violating the law if they pass on to consumers the cost of electricity drawn from the spot market,” Cabaluna wrote.

Cabaluna explained that the rural energy sector that he represents is not against the implementation of WESM. However, he insisted that “structural defects” must first be addressed before it goes into operation.

He said a basic “structural defect” in the WESM operations is the tight energy supply situation in the Visayas. Three new coal-fired power plants — two in Cebu and one in Iloilo — are set to go into full operations on March 26 this year yet, he added.

Cabaluna said the situation is bound to “go haywire” because many electric cooperatives have not yet secured bilateral supply contracts to ensure that they get the bulk of their requirements at a fixed price.

“We have repeatedly argued that we need extra time as most ECs had expiring bilateral contracts with the National Power Corp. on Dec. 31, 2010,” he said.

Because of this, the ECs were not able to complete their negotiations for new bilateral contracts when the WESM was put into operation, he added.

The implementation of WESM on Dec. 26 placed the ECs in a vulnerable situation because they are now forced to draw a big portion of their supply needs from the spot market, he said.

Cabaluna said that in the end, the impact of the spiked rates would fall upon the shoulders of ordinary consumers, as the distribution utilities and transmission firm would simply pass on the cost to their customers.

Cabaluna said that in the end, the impact of the spiked rates would fall upon the shoulders of ordinary consumers, as the distribution utilities and transmission firm would simply pass on the cost to their customers.

Electricity spot market kicks off despite worries

The wholesale electricity spot market (WESM) in the Visayas began operating two days after Christmas even as a party-list congressman representing the power cooperatives sector reiterated his call for adequate safeguards to protect ordinary consumers from possible increases in their electricity bills.

The “spot market” is a mechanism provided by law that allows power utilities to buy a portion of their supply requirements from independent power producers at rates that are supposed to be competitively low. The “spot market” is based in Cebu City.

But 1-CARE party list congressman Salvador “Kiting” Cabaluna III said the concept will work only if there is adequate supply of power and the power utilities have already secured supply contracts to cover their minimum requirements.

As it is, Cabaluna said the situation is just the opposite: supply is short, and many cooperatives have expired, or expiring, power supply agreements.

“Under the circumstances, the electric cooperatives are vulnerable, because they would be forced to buy a substantial portion of their requirements from the spot market,” he said.

He said IPPs usiing diesel fuel will likely play the market to fill the supply requirements of many cooperatives. “We all know that diesel plants sell at higher rates than, say, geothermal or coal,” he said.

Cabaluna said in Panay island, only Panay Electric Co. and Iloilo Electric Cooperative I (Ileco I) have secured power supply agreements to ensure stable rates. The other cooperatives risk having to pay the current price of the spot market, no matter how high, as there is no other source of power, he added.