The reduction of electricity prices in the Wholesale Electricity Spot Market (WESM) looks like a good news in a first glance, but if you are going to look forward in the future, this could be a source of the recurring bad news.

According to WESM officials, the WESM load weighted average price from June 26 to July 25, 2006 stood at an average of Php2.788/kWh. This is 38.5% lower than Napocor’s regulated rate of P4.5303/kWh, which is also the effective Time of Use (TOU) rate, approved by the Energy Regulatory Commission and became effective on Nov. 26, 2005.

It is very much likely that NPC is losing at a rate far below its approved selling price. And since the financial liability of NPC is always guaranteed by the National Government, it is, again, the people who will pay for NPC’s losses later.

But why do NPC allow this? Don’t they have a control on the market price?

Ideally, every generating companies participating in the Electricity Spot Market shouldn’t have a control on the Market Price. This is because the market clearing price is set by competition through competitive bidding. Furthermore, doing so is strictly prohibited in RA 9136 or the EPIRA Law.

However, it is very hard for NPC and PSALM to deny that they don’t have market power to control the prices of electricity in the market. The reason for this is that the combined generating capacity of NPC (traded in WESM by NPC) and NPC-IPP’s (traded in WESM by PSALM) of 9,830 MW, in Luzon alone, is greater than the Luzon’s peak demand of 5,800 MW (August 3, 2006). Their combined capacity is large enough to dictate the price of electricity in the WESM. Besides, there is actually no active compitetion in the market since it is only NPC, for now, who bid their power in the market, since other plants has a bilateral contract with the distribution utilities. Too bad if the price bided by NPC and NPC-IPP’s in the market was dictated by politics.

Refs:
BusinessWorld, August 4, 2006
RA 9136
http://www.napocor.gov.ph