The price of electricity varies depending on whether the power producers and distributors enter

into a power purchase agreement (PPA) or whether it is trading under the Wholesale Electricity Spot
Market (WESM).
Under the PPA, the generation companies and the power distributors are free to set the cost of
electricity depending on their agreement. The bilateral contract they have entered into shall be the
governing law between them.
On the other hand, the law provided for the establishment of the Wholesale Electricity Spot
Market (WESM) composed of the electric power industry participants, namely: generation companies,
distribution utilities, suppliers, IPP administrators, end-users and other similar persons authorized by the
ERC eligible to become members of the WESM. It is in line with its mandate to foster competition among
power producers in order to lower the price of electricity. It provides for the mechanism of determining
the price of electricity not covered by the bilateral contracts between the sellers and purchasers of
electricity users. It is where power producers supply the demands of electric users. WESM provides an
avenue for open, competitive market for all electric power participants. The WESM shall provide rules
applying the general principles of economics in price determination methodology. It shall afford a level
of playing field for all the electric power participants.
However, as shown in the illustration below, WESM is continuously been providing high cost of
power for those who opt to purchase electricity in the spot market thereby affecting the price of
electricity that the four sectors of the power industry shifts to the end-users.
Figure 1. Generation Cost for MERALCO and NPC

Applying the law of demand and supply in a purely competitive market, the price of electricity
increases when the supply is low and the demand is high, however when the supply is high and the
demand is low, the price drops.
In the present situation of electric power producers and consumers of electricity, there are
definitely more consumers of electricity than power generators, hence referring to the above stated
principle, being the supply of electricity in scarcity and the demand for it is high, therefore its price is
high.



In line with the mandate of the law to, it It is where the generating companies trade volts of
electricity to power distributors and end-users.
The law adopts the accepted economic principles in order price determination methodology that shall
reflect and afford a level playing field to all electric power industry participants.
Hence, subjecting the power industry to cardinal rule of demand and supply that when the supply is high
and the demand is low, the price will drop. However, when the supply is low and the demand is high,
the price will eventually rise.