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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.

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Visayas electricity sells for P25/kwh on spot market

Just three days after the Wholesale Electricity Spot Market (WESM) in the Visayas got underway, the “spot rate” of power reached an astronomical P25 per kilowatt hour (kwh) during mid-day trading as demand peaked, quickly drawing a sharp reaction from a party-list congressman representing the rural energy sector that his “worst fears are happening.”

Rep. Salvador “Kiting” Cabaluna III of the 1-CARE party list said it didn’t take long for the “spot market” to manifest the “structural defects” he had warned about when he sought the deferment of the WESM implementation three months ago.

“We saw this coming, but the Department of Energy brushed aside our objections,” Cabaluna said. “The situation is not ripe for the spot market scheme because key elements such as excess power supply and firm supply contracts for distribution utilities are not in place.”

The WESM was established as part of the reforms for the power industry under RA 9136. It seeks to create a “spot market” for excess, or uncontracted generated electricity, to give distribution utilities a choice in buying their power supply and bring about a more efficient power industry.

The law mandates electricity distributors to buy at least 10% of their requirements from the spot market during the first 5 years of the scheme.

Cabaluna said Visayas power utilities are not ready to take part in a WESM scheme because many have not firmed up their bilateral supply contracts with independent power producers (IPPs).

“This leaves these distribution utilities, particularly electric cooperatives, highly vulnerable to the volatile nature of the market,” he said.

The scheme works on the law on supply and demand, he pointed out. When demand is high, and supply is short, then the tendency of prices is to go up, he said.

This is what happened on Dec. 29, he added. At 3 o’ clock of the same day, the spot market rate slid to P15.04 per kwh, which, he said, is still “precipitously high” as far as ordinary consumers are concerned.

Cabaluna said he will monitor the spot market closely to validate his observations.

When Congress resumes session next month, he will reiterate a resolution he had filed three months ago seeking a legislative inquiry into the implementation of the WESM for the Visayas.