Wholesale Electricity Spot Market (WESM) General Overview

Presentation Outline: The WESM Rules Regulatory Filings The Philippine WESM

The WESM Rules EPIRA mandate Section 30 WESM Rules - establishes the basic rules, requirements and procedures that govern the operation of the Philippine electricity market. A consolidated set of rules covering: operation of pool metering and settlement scheduling/dispatch dispute resolution rule change process

Chapter 1 – Introduction Regulatory framework Governance PEM Board Composition of PEM Board Functions Working Committees PEM Board is the highest governing body of the WESM. It is a 15-man board equitably represented by the power industry. Nomination will come from the industry and appointed by the DOE. The chairman shall be an independent person and members represented by: TRANSCO MO Generation Cos. Distribution Utilities Electric Cooperatives IPPs Independent Spot Market Division Market Operations Service

Chapter 2 – Registration of Members and Fees “WESM Members”: Persons who must be authorized by the ERC to operate in the restructured industry - Network Service Provider, Ancillary Service Provider, Suppliers, Generators and Meter Service Providers Others who intend to participate in the industry Chapter 2 stresses out the criteria for adminission as well as termination to the WESM as well as the fees to be imposed to all WESm members. Spot Market Division Market Operations Service

Chapter 2 – Registration of Members and Fees Market Fees Level and structure for ERC approval Components of market fees Registration fees Metering fees Billing and settlement fees Administration fees Other costs incurred by PEM Board and working groups The cost of administering the WESM shall be recovered by the MO through a charge imposed on all WESM participants. The level and structure of the Market fees shall be subject to ERC approval. Upon approval, the MO shall publish the approved structure and level. The market fees shall recover the budgeted revenue requirement of the MO.

Chapter 5 – Market Information and Confidentiality Chapter 3 - The Market Chapter 4 - Metering Chapter 5 – Market Information and Confidentiality Chapter 6 –Intervention and Market Suspension Spot Market Division Market Operations Service

Chapter 7 - Enforcement and Disputes Chapter 8 - Rule Change Chapter 9 - Interpretation Chapter 10 – Transitory Provisions Qualifications of DRA: Detailed understanding and experience of alternative dispute resolution practice and procedures which do not involve litigation; Have the capacity to determine the most appropriate alternative dispute resolution procedures in particular circumstances; Have an understanding of the electricity industry; Has not been employed by any electric power industry participant or a company or body related to or associated with a WESM Participant at least one year before appointment; and Agrees not to be employed by and does not accept employment with any electric power industry participant or a company or body related to or associated with a WESM Member within one year after the person ceases to be a DRA Spot Market Division Market Operations Service

Regulatory Approvals Price Determination Methodology Market Fees Administered Price Determination Methodology

Regulatory Approvals Price Determination Methodology (PDM): The PDM determines the price of electricity not covered by bilateral contracts between sellers and purchasers of electricity users using the Market Dispatch Optimization Model (MDOM).

Regulatory Approvals Administered Price Determination Methodology (APDM): Administered Price - is the price that will be used by the Market Operator of the Philippine WESM in the settlements of energy transactions during periods when ERC suspends the market or in cases when System Operator/Market Operator intervenes in the market.

Regulatory Approvals APDM: The price and schedule for a given price schedule shall be equivalent to the load weighted average ex-post energy price of the corresponding trading interval of the four (4) preceding same days, that have not been administered.

Regulatory Approvals The market fees are categorized into: Market Registration Fees – to cover the expenses for registering WESM members, which are not included in the calculation of the total Market Transaction Fees requirement of PEMC. Market Transaction Fees - the total budgeted revenue requirements of PEMC in operating and governing the market.

How will the WESM be governed? Department of Energy (DOE) – supervises the restructuring of the electricity industry. The Act, mandates DOE, together with industry participants, to formulate the detailed rules for the WESM. Energy Regulatory Commission (ERC) – approves the Price Determination Methodology and the Market Fees. It also sets the criteria for eligibility for membership in the WESM market and performance standards through the Grid Code. Philippine Electricity Market Corporation (PEMC) – the governing body of the WESM, enforcing and modifying rules to safeguard the WESM mechanism and its participants. It manages the system to ensure it meets standards and targets, registers participants and resolves their disputes.

Key Players in the WESM Market Operator (MO) Network Service Provider Dispatch Scheduler Operates the WESM Network Service Provider System Operator Customers Metering Service Provider Ancillary Service Provider Generators Trading Participants

GOVERNANCE AND REGULATORY STRUCTURE FOR THE WESM DOE Policy making Planning ERC Enforcement Pricing Market Monitoring Governance PEM Auditor PEM Board Rule Change Committee Disputes Resolution Administrator Governance – is how decisions get made, implemented and enforced within the spot market Regulation – how the government reviews and change the decisions of the spot market. Governance is internal to the pool while regulation is external. DOE – government agency responsible in formulating policies for the planning and implementation of energy programs. ERC – pursuant to sec. 43 of RA 9136, enforce the WESM rules for the purpose of ensuring a greater supply and rational pricing of electricity. ERC shall promote free market competition ensuring customer choice and penalizing abuse of market power in the electric industry. Different Committees are formed by the PEM Board: Market Surveillance Committee – to monitor and report the activities of the WESM PEM Auditor – to conduct audits of the operation of the Spot Market and of the MO Technical Mgt. Committee – to monitor and review technical matters under and in relation to the WESM Rules, Grid Code and Dist. Code Rule Change Committee – to assist the DOE in relation to the revision and amendment of the WESM Rules DRA – to facilitate the mediation of the dispute between the parties to reach a resolution within a specified period of time in accordance with the dispute resolution process Upon the full operation of the WESM, the MO shall be an independent entity and shall be responsible in administering the operation of the WESM in accordance with the WESM Rules. The SO, in consultation with the MO shall issue dispatch instructions to all WESM participants and shall ensure the reliability and security of the power systems. Functions of the PEM Board: Oversee and monitor the activities of the MO and SO to ensure that they fulfill their responsibilities Form working committees Oversee and monitor the activities of their working groups Oversee and monitor activities of WESM Members to ascertain compliance to the WESM Rules Oversee the process by which changes to the WESM rules are proposed and made TRANSCO (SO) Market Operator Market Surveillance Committee Market Participants Technical Management Committee Generators Distributors Suppliers/ Aggregators End-Users

What is the role of the Market Operator? Administers the operation of the WESM in accordance with the WESM Rules Operate the WESM on a non- profit basis Determines the dispatch schedule of all facilities Monitor daily the trading activities in the market

What is the role of System Operator? Operate the power system in accordance with the WESM Rules, Grid Code or any instruction from the MO or the ERC to ensure security and reliability of the power system. Provide central dispatch to all generating facilities and loads in accordance with the dispatch schedule submitted by the Market Operator.

The Philippine WESM A centralized venue for sellers and buyers to trade electricity as a commodity. Wholesale market - it is open to generators, distribution utilities, directly connected customers, large customers and eventually supply aggregators with at least one (1) Mega-Watt (MW) of electricity requirement. Spot market - electricity is traded in real time because it cannot be stored for future use. Electricity is difficult to store.

WESM As envisioned, the WESM will provide an efficient and transparent venue for trade and investment in the power industry The WESM is aimed to: Provide cost-efficient dispatch of power plants through an economic merit order; Create reliable price signals to assist participants in weighing investment options; Provide a fair and level playing field for sellers and buyers of electricity as prices are driven by market forces.

The WESM and its Basic Concepts Market place for trading electricity as a commodity that reflects the market based value of electricity Prices not subject to regulation but governed by market forces. Uses the concept of a “gross pool” where all electricity output including those not covered by bilateral contracts, are centrally coordinated while allowing generators/consumers to compete to be scheduled and dispatched to meet the electricity demand in real time. The heart of the industry structure

Locational Marginal Pricing Cost of supplying next MW of load at a specific location, considers generation marginal cost, cost of losses and transmission congestion cost. LMP Generation Losses Congestion = + +

LMP

LMP

In sum, Unconstrained system – the market price is set by one marginal plant. The price is adjusted for each node to consider transmission losses, and the resulting value is the LMP. Where the system is constrained – the relevant flows of electricity are affected as the line limitations arising from the constraint may impede the supply of cheaper electricity from one area to another.

Economic Dispatch; Supply & Demand Supply Side Offer of Genco A Q = 100 MW P = P500/MWh Demand Side Industry Demand: 400 MW P/MWh Offer of Genco B Q = 250 MW P = P 800/MWh 400 Offer of Genco C Q = 500 MW P = P 1,500/MWh 1,500 G e n c o C Market Clearing Price is set at P 1,500/MWH. Offer of Genco D Q = 500 MW P = P 1,800/MWh 500 Genco C Genco B Genco A Offer of Genco E Q = 300 MW P = P 9,500/MWh MW 100 250 50

Ex ante and Ex post Pricing Dispatch Target 150 100 EX-ANTE QTY (MW) EX-ANTE PRICE (P/MWh) EX-POST QTY. (MW) EX-POST PRICE (P/MWh) 100 50.00 150 60.00 SETTLEMENT EAETA = 100 X 50 = 5,000 EPETA = (150-100) X 60 = 3,000 TOTAL SETTLEMENT EAETA + EPETA = 5,000.00 + 3,000.00 = 8,000.00 MW → Hourly Demand Forecast 1 HOUR Trading Interval → 1 EX-ANTE – Initial loading level at the beginning of the hour EX-POST – Actual Metered Dispatch EAETA = Ex-Ante Energy Trading Amount EPETA = Ex-Post Energy Trading Amount

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