The Proposed Wholesale Electricity Spot Market in Mindanao, Part 3

Feb 13, 2017

by David A. Tauli

David A. Tauli

David A. Tauli

Today, February 13, 2017, the Department of Energy conducted in Cagayan de Oro a “Public Consultation on Wholesale Electricity Spot Market (WESM) in Mindanao”, which was stated to be one of a series of public consultations on the draft Department Circular “Declaring the Launch of the Wholesale Electricity Spot Market (WESM) in Mindanao and Providing for Transition Arrangements”.


Prior to the public consultation, the Mindanao Coalition of Power Consumers sent to the DOE and other government agencies in the electric power sector their questions and comments concerning the proposed WESM in Mindanao.


We expected that during the forum today the people sent by the Energy Family of the government would provide answers to some of the questions raised by MCPC because these were questions on the rationale and purposes for the establishment of the WESM in Mindanao.


None of our questions was answered, and none of the concerns raised by MCPC was substantially addressed at the public consultation today. So we are here repeating the questions that we already asked (and elaborating on them in the hope that it will be made clear to the DOE people what are the problems about the proposed WESM from the viewpoint of consumers), and we are also raising related concerns about a WESM in Mindanao. These will be sent to the DOE team in charge of the public consultations.


No, the questions need not be answered by the DOE people. They have shown no inclination to respond to the questions of Mindanao power consumers. The MCPC is repeating the questions and issues here because we are going to bring these issues to the Supreme Court when we file a petition to stop the DOE from establishing a WESM in Mindanao. The DOE can get its people to prepare the answers that they will submit to the Supreme Court. Or maybe to a congressional investigation.


1. How much reduction in rates paid by power consumers can be expected from the establishment of a WESM in Mindanao compared to a scenario in which there is no WESM but rules and protocols are established to ensure least-cost dispatch by the System Operator of the Mindanao grid?


The MCPC estimates that power consumers will pay an additional rate of twenty centavos per kWh for the establishment and operation of a WESM in Mindanao. The MCPC also predicts that the generating companies will collude in a WESM and bring up the prices for intermediate and peaking power to at least twenty pesos per kWh from the average rate of around 4.00 pesos per kWh that is now being paid for intermediate and peaking power, supplied mainly by the hydroelectric power plants on the Agus River.


2. How can the market operator prevent collusion among generating companies in Mindanao that would be inevitable because there are only five generating companies in Mindanao that supply significant amounts of electric energy, and there are only two generating companies (the Aboitiz Group and the Alcantara Group) that own significant capacities of diesel generating plants, which will be used to supply peaking energy?


Any electricity spot market can result in economic benefits for consumers ONLY if the market is competitive (no single player can determine the price of electricity in the market) and if there is no collusion among the generating companies and no collusion by the generating companies with the distribution utility companies. So it is important to ensure that the proposed WESM in Mindanao will be truly competitive, and that there are effective safeguards or mitigation measures against collusion.


3. The DOE is claiming that the establishment of a WESM in Mindanao will ensure that adequate capacities of power plants will be installed by the private sector in the years to come.


What will prevent adequate capacities of power plants from being installed in Mindanao if there is no WESM? Was there a WESM in the period from 2011 to 2016 when private investors embarked on the construction of coal power plants that resulted in an overcapacity of baseload power plants in Mindanao?


4. If there is no positive economic benefit for power consumers in Mindanao from the establishment of a WESM, and only an increase in the rates that consumers will pay, why is the DOE even thinking about establishing a WESM in Mindanao?


5. What is the legal justification for extending the Philippine WESM to Mindanao, or for integrating the Mindanao grid into the WESM, when it is very clear that the EPIRA mandates the extension of the WESM to Visayas and Mindanao only when the conditions are propitious (meaning that it will result in positive economic benefits for Visayas and Mindanao) for such extension from the Luzon Grid to the Visayas and Mindanao grids?


Two of the necessary conditions for extending the WESM to the Visayas Grid were: (a) the existence of adequate transmission facilities connecting the separated islands of the Visayas, and (b) the existence of an interconnection with adequate capacity between the Luzon and Visayas grid.


The necessary conditions were attained by the Visayas Grid, and the WESM was extended to the Visayas islands in December 2016, four years after the start of operation of the Philippine WESM in June 2006. The same two necessary conditions apply to extending the Philippine WESM to the Mindanao. Are the transmission lines in the Mindanao grid of adequate capacity to prevent serious congestions in any of the critical lines of the grid? Will the HVDC interconnection between Visayas and Mindanao be completed prior to the operation of the WESM in Mindanao?


6. Why is the PEMC being considered to operate an isolated WESM in Mindanao when it has proven itself incompetent in the operation of the existing Philippine WESM, as proven by the fact that the price cap has been reduced far below the initially set level of 62 pesos per kWh, making it absolutely uneconomical for anyone to invest in a merchant peaking power plant?


Prior to its reduction to 32 pesos per kWh, the price cap of 62 p/kWh was already proven to be very low in comparison to the price caps in other electricity spot markets, but, because of lack of confidence in the PEMC operations, the ERC and DOE had to reduce drastically the price cap.


7. Why is the PEMC being considered as market operator for the proposed WESM in Mindanao when the PEMC was supposed to be replaced as market operator of the WESM by the organization of an Independent Market Operator in 2007?


The PEMC has outlived by ten years now its legal existence as market operator, and it has become incompetent in market operations, and here is the DOE still thinking of establishing a WESM in Mindanao to be operated by the PEMC.


8. There are no doubts that the generating companies in Mindanao will be able to get profits from a WESM that will be much more than the large profits that they are already getting without a WESM.


But, to repeat the basic question of Mindanao power consumers, if the WESM will result only in increased rates being paid by consumers and in high prices for intermediate and peaking power that will be passed on to the consumers, why has the DOE launched this initiative to establish a WESM in Mindanao?


(Engr. David A. Tauli is the president of the Mindanao Coalition of Power Consumers)

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