PSALM not milking WESM

22 Aug 2010

The Power Sector Assets and Liabilities Management (PSALM) Corporation did not make a profit from its operations in the Wholesale Electricity Spot Market (WESM) to the detriment of Filipino consumers, contrary to claims in recent articles published in various newspapers.

PSALM rebutted that in the past three years that the Corporation had been trading in the WESM, the tariff it collected for its independent power producers (IPPs) was insufficient to cover the contract costs of those power facilities.

For instance, while PSALM earned PhP14.017 billion in 2007, this was wiped out by a refund required by the Energy Regulatory Commission (ERC) as a result of required adjustments for the Purchased Power Costs, fuel cost and peso appreciation covering 2006 and 2007. National Power Corporation failed to apply for the required refund. As such PSALM is now refunding deferred accounting adjustments (DAA) amounting to PhP17 billion to date as per the latest ERC-approved DAA.

In 2008, despite generating IPP revenues amounting to PhP65.167 billion, PSALM registered a PhP18.92-billion loss since it had to settle PhP84.187 billion in contract costs.

In 2009, PSALM recorded PhP12.23 billion losses despite revenues of PhP61.66 billion because it had to pay for PhP73.98 billion contract costs.

PSALM's average rates fell short of the cost necessary to break even. In 2008 and 2009, PSALM's losses per kilowatt-hour (kWh) were at PhP1.0681/kWh and PhP0.8441/kWh, respectively. Clearly, PSALM incurred losses - not revenues - from its participation in the WESM.

Also erroneous is the claim that PSALM recovered IPP costs twice, once through the basic generation charge approved by the ERC and again through revenues in the WESM. But the basic charge can cover only a part of IPP costs, and even together with WESM revenues, the collections cannot cover the full amount of IPP costs.

The incorrect claims that PSALM made a killing from the WESM were tied into statements that the Corporation should not be filing for universal charge considering its earnings.

The numbers clearly show, however, that total revenues from electricity sales have been insufficient to cover IPP costs. These numbers have been reported by PSALM in all its relevant filings with the ERC.

PSALM's naysayers with regard to its revenues were thus badly misinformed about the nature of power rates and electricity trading as well as PSALM's finances, despite publicly available documents about these details.