CANE POINTS: WESM And Its Impact on Power Rates

In Negros Power’s electric bill for January, power rates for residential consumers increased by ₱1.0635 kilowatt-hour (kWh) – from ₱12.0441/kWh last December to ₱13.1076/kWh this month.

Negros Power attributed the increase to “higher power supply costs and other industry-wide charges affecting the Visayas grid”, specifically, higher prices at the Wholesale Electricity Spot Market (WESM).

The distribution utility stated that WESM prices for January billing period spiked to ₱7.5031/kWh, an increase of ₱1.4626/kWh compared to ₱6.0405/kWh last December.

Compounding consumers’ woes were increases from recently implemented orders of the Energy Regulatory Commission: the Green Energy Auction Allowance (GEA-ALL) of ₱0.0371/kWh (which takes effect this month), and the new Feed-in Tariff Allowance (FIT-ALL) of ₱0.2011/kWh (which took effect last November). These two additional ERC-mandated charges amount to ₱0.2382/kWh every month.

Fortunately, the increases in these items were softened by the decrease in Transmission Charges, resulting to an effective increase for January of only ₱1.0635/kWh.

Higher WESM charges amounted for the huge bulk of the power rate hike for this month.

What is this WESM? Why does it affect the consumer’s power rates?

Created by virtue of the Electric Power Industry Reform Act of 2001 (EPIRA), the WESM, as its name states, is a wholesale (bulk) spot market (right here, right now) for electricity.

The WESM is the “mall” or designated market, where power producers supply electricity in bulk (wholesale), and where distribution utilities purchase “right here, right now” bulk electricity which the DUs need “right here, right now”.

If DUs can enter directly into bilateral power supply contracts with power producers, why do DUs need to purchase from the WESM?
The DUs, like all consumers, want a stable, predictable power cost. However, the realities of the power industry’s dynamics make it impossible for a DU to contract with power producers all its power requirements for a fixed price for a long period.

In the 24-hour daily cycle, there is a period when power consumption spikes, a period when power consumption stabilizes, and a period when power consumption dips. The same periodic fluctuation in power consumption happens in the seven-day weekly cycle, and in the 12-month annual cycle.

Bilateral power contracts run for five to ten years to assure the producer of long-term demand stability and to assure the DU of long-term availability of power at a fixed price.

December registers one of the highest monthly consumptions in a year. The DU cannot simply multiply the total December power consumption by 12 months, and then multiply the product by five or ten years to compute the entire power requirement which the DU will contract with the power producers at a fixed price for five or ten years.

If such is the case, the DU will have to pay for the unutilized contracted power during most of the months when actual power consumption is lower than the December power consumption. The DUs cannot afford to take that risk.

What the DU does is compute the average power consumption (which of course is lower than the highest power consumption) for a certain period, and then use that figure as the basis for computing its long-term power supply requirement.

Naturally, there will be times when power requirement is higher than the power supply contracted. This is where the WESM comes in. The DU then goes to the WESM to purchase the required power, so that consumers will be spared power interruptions due to insufficient power supply.

The WESM price forms part of the Generation Charge, which is a pass-through charge to consumers. If the WESM price increases, it will be passed on or charged to consumers. If the WESM price decreases, it will also be passed on or charged to consumers.* (BB)