WESM restarts; bill spikes likely

Market-driven electricity pricing is set to return as the Wholesale Electricity Spot Market (WESM) resumes nationwide operations starting in May, following weeks of intervention, to enable more transparent and efficient price formation.

The Energy Regulatory Commission (ERC) said Friday that lifting the suspension would allow electricity prices to reflect actual supply and demand conditions better and prevent the distortions that were seen under temporary pricing controls.

When it reopens, competitive bidding and real-time spot market clearing will resume, allowing the prices to better reflect actual supply, demand, and costs.

This could lead to higher spot prices if fuel volatility persists, or lower ones if conditions improve, like more renewables coming online or fuel prices easing.

Consumers and distribution utilities may see the spot-market components of bills adjust in response to prevailing conditions.

Past suspensions or interventions had sometimes led to staggered billing or transitional mechanisms to smoothen impacts.

Its reopening will restore the WESM’s role as a price signal for scarcity, investment, and efficiency, as critics argued that repeated suspensions could undermine long-term market confidence and delay needed investments in generation and reserves.

The suspension was a short-term intervention to avert a sharp price shock amid a global energy crunch. It provided stability through administered pricing and fuel conservation priorities, but did not eliminate the underlying cost pressures.

Consumer protection is priority

“After a thorough review, the commission has concluded that resuming normal WESM operations is the most suitable course of action at this juncture. This will allow electricity prices to mirror current market conditions while maintaining consumer protection safeguards more accurately,” ERC chairperson and CEO Francis Saturnino Juan said.

The WESM, the country’s trading floor for electricity, where generators sell power and utilities, and suppliers procure supply, will once again operate under competitive market forces. Prices are expected to move in line with generator offers, transmission constraints, and real-time demand.

Trading was halted on 26 March as global fuel prices surged and supply uncertainties intensified due to the conflict in the Middle East.

In response, authorities imposed the Department of Energy’s Special Operating Guidelines, prioritizing generating units to conserve fuel and cushion price shocks.

With WESM back online, such global cost movements may again feed more directly into domestic electricity prices, particularly during periods of tight supply.

The ERC cautioned against prolonged reliance on intervention measures, noting their potential unintended effects.

“We observed that although the temporary pricing mechanism was effective in addressing the emergency, prolonging its use could lead to unintended charges in market settlements,”Juan said.

Under its mandate in the Electric Power Industry Reform Act of 2001, the ERC said the resumption would strengthen transparency and ensure non-discriminatory pricing in the power sector.

Emergency response

The WESM was suspended on 26 March following the declaration of a state of national energy emergency by President Ferdinand Marcos Jr.

The primary trigger was the escalating geopolitical conflict in the Middle East, which caused sharp spikes in fuel prices, supply disruptions, and volatility in imported fuel costs.

Without the intervention, WESM spot prices were projected to surge by P2 to P4 per kilowatt-hour (kWh) or more, with some simulations showing clearing prices approaching or exceeding P9 per kWh amid the summer peak demand.

The goal was to shield consumers from sudden surges while maintaining grid stability.

Normal competitive bidding and market-clearing prices in the WESM were halted. The ERC implemented a Modified Administered Pricing Mechanism, finalized in early April.

This included fixed or capped rates for certain generators, such as a P6 per kWh fixed price for coal-fired power, with natural gas plants potentially based on contracted prices.