=== dc2006-06-0008-pages-1.ppm ===
Republic of the Philippines
DEPARTMENT OF ENERGY

Department Circular ___2006-06-0008 _

DECLARING THE LAUNCHING OF THE WHOLESALE ELECTRICITY SPOT
MARKET (WES) IN THE LUZON GRID AND THE TERMS AND CONDITIONS
FOR THE COMMENCEMENT OF THE FULL COMMERCIAL OPERATIONS OF

THE WESM

WHEREAS, the Department of Energy (the “DOE”) is mandated under Section 30 of
Republic Act No. 9136, otherwise known as the “Electric Power Industry Reform Act
of 2001” or “EPIRA”, to establish the Wholesale Electricity Spot Market (the “WESM”)
that would facilitate a transparent, competitive and reliable market for electricity;

WHEREAS, pursuant to its mandate, the DOE, jointly with the electric power industry
participants, is tasked to formulate the detailed rules for the WESM, and to organize
- the autonomous market group operator (the “AGMO"); ;

_ WHEREAS, on 28 June 2002, the DOE, upon the joint endorsement of the electric
industry participants, promulgated the Wholesale Electricity Spot Market Rules (the
“WESM Rules’ through Department Circular No. 2002-06-003;

WHEREAS, on 18 November 2003, on the initiative of the DOE, the Philippine
Electricity Market Corporation (the “PEMC”), was incorporated as a non-profit, non-
stock corporation with membership comprising of an equitable representation of
electricity industry participants and chaired by the DOE, to be the AGMO as well as
governing arm of the WESM; .

WHEREAS, the PEMC, as the AGMO, has been tasked to undertake the preparatory
work for the establishment of the WESM, pursuant to Section 30 of the EPIRA and in
accordance with the WESM Rules; ;

WHEREAS, as part of the preparations for the implementation of the WESM, the
DOE, the Energy Regulatory Commission (the “ERC”) and PEMC created a WESM
Tripartite Committee that will act as an interim body for the coordination of efforts for
the monitoring of price volatilities and setting of market mitigation measures during
the initial year of WESM implementation

_ WHEREAS, PEMC has made significant progress in its preparation for the
commencement of the operations of the WESM and is now in the process of
registering eligible WESM members in preparation for the launch of the WESM;

WHEREAS, the WESM will initially operate in both the Luzon and Visayas grids, and
that, in view of the varying levels of preparedness of the industry participants, the
WESM live dispatch will be launched in two phases, starting with the Luzon grid and,
thereafter, in the Visayas grid.

Energy Canter, Merritt Rd., Fort Bonifacio, Taguig, Metro Manila, Phieppines
Tala. Crrunks) 840-1401 to 40, Fax 840-1731; 840-2236, 840-2067 (Domestic); 832 840-1731; 632 840-2236, 632 840-2087 (Intemational)

=== dc2006-06-0008-pages-2.ppm ===
WHEREAS, the DOE shall declare the date of the commencement of the WESM,
and for this purpose, there is, likewise, a need for the DOE to define the criteria that
will serve as bases for its declaration of the commencement of the full commercial
operations of the WESM;

NOW, THEREFORE, premises considered, the DOE hereby declares as follows -

- Section 1. Declaration of commencement of full commercial operations. The
- DOE shall declare the date of commencement of full commercial operations of the

WESM (the “Spot Market Commencement Date”) upon fulfillment of the criteria set
forth in this Circular. ;

Section 1.1. Criteria for commencement of full commercial operations.
The WESM will have commenced full commercial operations on the date
declared by the DOE that the following criteria have been complied with —

a) The forecasting, scheduling, dispatch, ‘pricing, metering and settlement
processes of the WESM are fully operational in the Luzon and the Visayas
grids.

b) The price determination methodology, the administered price determination
methodology and the proposed structure and level of the market fees for the
WESM have been approved by the ERC, and have been duly published as
approved, in accordance with the publication requirements of the WESM
Rules.

c) The Market Dispatch Optimization Model (the “MDOM”) has been certified as.
compliant with the WESM Rules by an independent auditor and approved by
the Philippine Electricity Market Board (the “PEM Board”).

d) The relevant requirements set forth in WESM Rules Section 10.4 have been
substantially complied with.

Section 1.2. Certificate of Compliance. The PEMC shall certify to the DOE
its compliance with the above-stated criteria. The DOE may require PEMC to
submit, from time to time, reports on the status of its compliance with these
criteria.

‘Section 2. Launching of Commercial Operations. Given the different levels of
preparedness of the electric industry participants to participate in the WESM, the
start of commercial operations will be in two phases.

Section 2.1 Launching of WESM in Luzon. The commercial operations in
the energy market for the entire Luzon grid is hereby declared to starton 23 —
June 2006. ‘For purposes of testing ail market systems for scheduling,
dispatch, pricing metering and settlements, including the interfaces between
PEMC and the National Transmission Corporation Systems Operations and
Metering Services Group, PEMC shall conduct live dispatch runs prior to 23
June 2006. PEMC shall issue the appropriate guidelines and conduct the
preparatory activities to inform the participants of the holding of the live

dispatch.

=== dc2006-06-0008-pages-3.ppm ===
Section 2.2 Launching of WESM in the Visayas. The commercial .
operations in the Visayas Grid will be declared upon completion of the
Visayas Trial Operations Program as certified by PEMC. The Department will
issue a separate Circular to this effect. . ;

Section 3. Registration of All Electric industry Participants. All electric industry

participants, identified in Section 3.2 of this Circular, are enjoined to register to

participate in the WESM. Upon establishment of the WESM, no person or entity may

inject or withdraw energy from the grid without being registered as a WESM member, .
pursuant to WESM Rules clause 2.2.4.2.

Section 3.1. Eligible WESM Members. Pursuant to Section 30 of R.A. No.
9136, the following entities are eligible to participate in the WESM —-

i) Generation companies
b) Distribution companies
c) Suppliers
d} Bulk consumers

e) Other similar entities authorized by the ERC.

Section 3.2. Categories of WESM members. In accordance with WESM
Rules clause 2.2.2, the following are required to register with the Market

Operator —

a) trading participants, namely, generators and customers;
b) network services providers;

Cc) ancillary service providers; and

d)- metering service providers.

Section 3.3. Directly-connected end-users (non-utility). All end-users,
other than generation companies or distribution utilities, which are directly —
connected to the national grid, shall register as WESM members. It is
provided, however, that said entities need not trade directly in the WESM but
they shall ensure that their total electricity requirements are fully covered by
bilateral power supply contracts.

Section 3.4. Applications for registration. Applications for registration are
to be submitted to the PEMC at its offices at the 9" Floor Robinsons Equitable
Tower, ADB Avenue, Ortigas Center, Pasig City. Application forms and
relevant information may be obtained from PEMC or downloaded from the
Market Information Website at www.wesm.ph.

Section 4. Supervision by the DOE. The DOE shall continue to oversee the
development of the WESM and to undertake such actions as provided in the
implementing rules of the EPIRA in connection with the establishment of the WESM..

Section 5. No amendment or repeal of existing laws. Nothing in this Circular shall
be construed as to amend, supplant, or repeal any of the mechanisms or institutions
already existing or responsibilities already allocated and provided for under any
existing law, rule or contract. ,

Section 6. Effectivity and Publication. This Circular shall be effective immediately

upon its publication in two (2) newspapers of general circulation. The PEMC is
hereby directed to publish this Circular in the Market Information website. .

Ti

=== dc2006-06-0008-pages-4.ppm ===
This Circular shall remain in effect until otherwise revoked.

Taguig, Metro Manila, Al June 2006.

RAP L P.M. LOTILLA
Secretary
Department of Energy