1. Overview of Market Reforms and the WESM
Presented by:
Debora Anastacia T. Layugan
Spot Market Division

2. Reforms in the energy market
Discussion points
Reforms in the energy market
The WESM and its basic concepts
The role of ERC in competitive
markets

3. Industry Structure Prior to Reforms
NPC
IPPs
GENCOs
Private
Generation
Transmission
Distribution
Utilities
End-Users
Customer

4. Reforms under the EPIRA
Privatization of government owned
generation and transmission assets.
(Sections 8 & 47)
Restructuring of the industry into four
(4) major sectors comprising of the
generation, transmission, distribution
and supply. (Section 5)

5. Objectives of reforms Encourage competition and attract more
Restructuring
More efficient
delivery of
electricity to
End-users
Transparent
and reasonable
prices
Freeing up
government
funds through
private sector
participation
Encourage
competition
and attract
more
private sector
Investments.

6. Major Sectors Transmission Distribution Supply Generation Competition
REGULATED
COMPETITIVE
Competition
takes place at the
--Wholesale level
--Retail level

7. The WESM Generation prices comprise almost 64% of retail rate.
Market place for trading
electricity as a commodity
Prices not subject to
regulation but governed
by market forces
Generation portion of the
retail rate is being traded
The heart of the
industry structure
Generation prices
comprise almost
64% of retail rate.

8. How WESM works Basic concepts: Adopts the gross pool concept
Prices are market driven
Uses the least cost economic
dispatch concept
Governed by locational marginal
pricing concept (nodal pricing)
Adopts the ex-ante ex-post pricing
scheme

9. Gross pool concept Pool (WESM)DU
OTHER
BUYERS
GENCOs
Pool
(WESM)
10%
90%
All physical electricity is traded through a
centralized venue known as the gross pool
At least 10% of total requirements of DUs
subject to spot price

10. 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

11. Bilateral Contracts as hedge to spot price volatility

12. 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 = + +

13. LMP

14. LMP

15. Nodes and Zones; LMP A B C
A node is a point where the WESM participants (i.e generation facilities and loads) are connected to the transmission network.
Nodal pricing provides economic
signals in real time B
Gen A = P50
Gen B = P100
Demand = 100 mw
MCP = P100
Prices are calculated hourly at 406 nodes on the HV grid
- Luzon – approx. 214 nodes, 118
generation; 96 customer nodes
- Visayas – approx. 120 nodes, 69
generation; 51 customer nodes
- Mindanao – approx. 72 nodes, 43
generation; 29 customer nodes
Approximately 406 nodal prices for each trading interval C
Zone

16. Price determination flow
Pricing
Mechanism
(MMS)
Basic
Concepts
DUs and
other buyers
Pay
Hourly Nodal
Spot Prices
GENCOs
Paid

17. Regulatory Filings
Price Determination Methodology- provides the principles and formula by which energy and reserves shall be priced in the WESM
Market Fees – charge to be imposed on all WESM participants for the recovery of the cost and expenses of PEMC and MO for administering and operating the WESM.
Administered Price - methodology for determining the administered price that will be used for settlement of energy in the WESM in cases of market intervention and/or market suspension.

18. Dealing with market imperfections
“Regulation has
worked where market
conditions for
competition don’t exist”.
PGDC
WESM RULES
COMPETITION RULES
W E
S M
INVESTIGATES
ANTI-COMPETITIVE BEHAVIOR
IMPOSE FINES
AND PENALTIES

19. How to get things going!
Need for government and players to inform the consuming public about new power industry
Dialogue, cooperation and coordination among players, regulators and government
Gradual and proper sequencing of reforms

20. “ Let us not go over old ground, let us rather prepare for what is to come.”
Marcus Tullius Cicero
( B.C.)

21. Thank you.