The Energy Regulatory Commission (ERC) is reviewing the appeal of generation companies (GenCos) for possible upward adjustment in the secondary price cap (SPC) of the Wholesale Electricity Spot Market (WESM) as existing rate could no longer support warranted return on investments (ROIs) if they will inject fresh capital in the power sector.

According to ERC Chairperson Monalisa C. Dimalanta, the Philippine Independent Power Producers Association (PIPPA) had “submitted a position paper on the secondary price cap – we’re reviewing that.”

The secondary price cap at the spot market is currently at P6.245 per kilowatt hour (kWh) that will be enforced if settlement prices will breach P9.00 per kWh within 3-day rolling average.

The ERC chief emphasized that “the WESM is there to send us price signals, but if we have the cap, the signals are distorted,” hence, that is also deemed as disincentive to any planned injection of fresh capital into the generation segment of the power industry by investors.

“For a couple of months last year, the SPC was triggered for more than 50-percent of the time – so that means, the signals we’re getting are not the right signals,” Dimalanta stressed.

There is no specific figure being discussed yet in the regulatory domain of the ERC, but Dimalanta hinted that the likely trajectory will be to adjust the secondary price cap upwards.

She expounded that every time the secondary price cap is triggered in the WESM, “this has not been allowing them (GenCos) to recover.”

The ERC chief added the SPC is “not showing us the real cost of generation,” qualifying the cost adjustment “is the one that we are reviewing.”

The secondary price cap in the spot market was implemented roughly 10 years ago – primarily to protect consumers from unwarranted spikes on their electric bills, especially at a time when power grids are distressed with tight supply predicaments.

The main trigger to the SPC policy imposition was the ‘perfect storm’ in the power industry in 2013 – when the power plants had to be on simultaneous outages that coincided with the maintenance shutdown of the Malampaya gas platform.

That single event pushed spot market prices to the level of P62 per kWh in many trading intervals – and that precipitated roughly P5.00 per kilowatt hour (kWh) hike in the charges of Manila Electric Company (Meralco) at the time.

Apart from the SPC enforcement, the primary price cap in the WESM had also been reduced then to P32 per kWh from a high of P62 per kWh from its inception in 2006 until the 2013 entanglements at the spot market.