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Republic of the Philippines
DEPARTMENT OF ENERGY

DEPARTMENT CIRCULAR NO, DC 2013-12 - 0027

DECLARING THE COMMERCIAL LAUNCH FOR THE TRADING
OF ANCILLARY SERVICES IN LUZON AND VISAYAS UNDER THE
PHILIPPINE WHOLESALE ELECTRICITY SPOT MARKET

WHEREAS, Section 37 of Republic Act No. 9136, otherwise known as the “Electric Power
Industry Reform Act of 2001" or “EPIRA” mandates the Department of Energy (DOE) to
ensure the reliability, quality, and security of supply of electric power, encourage power
sector investments in the electricity sector and promote development of indigenous and
renewable energy sources and develop policies and procedures and, as appropriate, promote a
system of energy development incentives to enable and encourage electric power industry

participants to provide adequate capacity to meet demand including, among others, reserve
requirements:

WHEREAS, the DOE is also mandated under Section 30 of the EPIRA to establish the
Wholesale Electricity Spot Market (WESM) and upon joint endorsement with the electric
power industry participants, formulate and promulgate tie WESM Rules:

WHEREAS, on 28 June 2002, the WESM Rules was issued, adopted, and promulgated by

the DOE: and pursuant to Section 10.3 (Transitory Provision) of the WESM Rules, only
e 'py shall initially be traded;

WHEREAS, Section 3.3.4.1 of the WESM Rules provides that when reasonably feasible, the
Phitippine Electricity Market Corporation (PEMC) as the Market Operator, in coordination

with the System Operator (SO), shall establish and administer a spot market for the purchase
of certain reserve categories;

WHEREAS, on 08 January 2007, the PEMC filed an application before the Energy
Regulatory Commission (ERC) to secure the approval of the Pricing and Cost Recovery
Mechanism (PCRM) for the WESM Reserve Market docketed as ERC Case No. 2007 — 004
RC (WESM Reserve PCRM Case) in compliance with the ERC Decision dated 20 June 2006
in ERC Case No. 2006-007 RC (WESM Price Determination Methodology) which provides

that PEMC in coordination with SO shall establish and administer a spot market for purchase
of certain reserve categories;

WUEREAS, under the Philippine Grid Code (PGC), the National Grid Corporation of the
Philippines (NGCP), as the SO of the nationwide transmission system, is responsible for
determining, acquiring, and dispatching the capacity needed to supply the ancillary services
required to maintain power quality and the reliability and security of the nationwide grid
following the dispatch schedule prepared by the Market Operator:

WHEREAS, the WESM Rules and the Order dated 07 July 2008 by the ERC in WESM
Reserve Market PCRM Case, provided for the operation of the Reserve Market as a gross

Energy Center, Merritt Rd., Fort Bonifacio, Taguig, Metro Manila, Philippines
Tels: (Trunks) 840-1401 to 40; Fax 840-2067; 840-2236: 840-2067 (Domestic); 632-840-2173; 632-840-2236; 632-840-2067 (International)
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and undertake all necessary action to implement the Reserve Market on Commercial Launch
[ate.

PEMC shall, at least thirty (30) days before the Commercial Launch Date, submit to the DOE
a cettification attesting that all systems and procedures, including all interfaces with the
participants and service providers, necessary for the operation of the WESM Reserve Market
are in place. The DOE shall confirm the Commercial Launch Date upon determination that
the certification submitted by PEMC is acceptable. In the event that PEMC fails to certify
readiness or the DOE finds PEMC’s certification deficient, PEMC or any relevant entity as
may he determined by the DOE shall immediately rectify or remedy the deficiency. {n this
ease. the DOE shall, in the exercise of its discretion, declare a new Commercial Launch Date.
subject to receipt of a new certification from PEMC on the readiness of the Reserve Market.

Section 3. Call for Registration. In preparation for the Commercial Launch Date, all
Generation Companies or Customers intending to participate as Ancillary Service Provider in
the WESM Reserve Market are directed to register with the Market Operator on a per
generating unit basis or reserve facility. PEMC is hereby directed to provide the list of

hecessary requirements for the concerned generators or Customers to be able to comply with
this directive.

Section 4, Responsibilities. Pursuant to their respective functions provided under the EPIRA
and its Imptementing Rules and Regulations, the WESM Rules, the Philippine Grid Code,

and all other relevant laws and issuances, the following agencies and entities are hereby
directed to undertake the following:

(a) Philippine Electricity Market Corporation (PEMC),

i. Submit to DOE detailed report and status of the proposed WESM Reserve
Market within fifteen (15) days from the effectivity of this Circular;

ii. Undertake preparatory activities for the Commercial Launch Date including,

but not limited to. the filing of the appropriate pleading/s with the ERC in
order to implement the directives provided herein;

iti, = Conduct the necessary trainings and other information dissemination activities

lo ensure the readiness of participants including Generation Companies and
Customers intending to participate in the WESM Reserve Market;

iv. Regularly publish in the WESM Public Information Website the activities
undertaken or activities to be undertaken relative to the developments for the
commercial operations of the WESM Reserve Market: and

v. Submit to DOE, on a regular basis. reports on the preparations and
development on the WESM Reserve Market which shall be the basis for the
readiness determination to pursue its commercial launch.

Towards this end, all electric power industry participants and customers
connected to the establishment of the WESM Reserve Market are directed to
comply with the requirements of PEMC on the submission of information or

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t

data necessary for the purpose of conducting simulations, assessing WESM
Reserve Market readiness, or for such other purpose relevant to the
commercial launch of the WESM Reserve Market.

(b) National Grid Corporation of the Philippines (NGCP).

i. Undertake activities to ensure that the performance of its functions and
obligations on the provision of ancillary services are in compliance with the
EPIRA and its Implementing Rules and Regulations, the WESM Rules, the
Philippine Grid Code, the Open Access Transinission Services (OATS) Rules,
and other relevant rules and regulatory issuances.

ii. Collaborate with PEMC for the timely completion of the necessary
enhancements to the WESM Dispatch Protocol and Ancillary Services
Monitoring Manual. ensure the reliability of the Energy Management System
(EMS) in the transmission of data to the Market Management System (MMS),
implement necessary enhancements to the EMS-MMS Interface, and
participate in the trainings and public dissemination organized by DOE and
PEMC for the purpose of explaining matters relevant to the requirements of
the SO for the various reserve categories, monitoring and compliance of
reserve facilities, and such other matters within the competence of the SO;

lit. Ensure that the testing and certification of all generating units capable of
providing ancillary services. including customers intending to participate in
the WESM Reserve Market, will be completed in accordance with the timeline
set for the Cominercial Launch Date of the WESM Reserve Market. NGCP is
hereby directed to provide the list of necessary requirements for the concerned

ancillary services providers and customers to be able to comply with this
directive: and

iv. Regularly submit to DOF status report of its Ancillary Services contracts.

(c) National Electrification Administration (NEA).

As provided for in Section 3.3 of DOE Department Circular No. DC2010-06-007 and
pursuant to its mandate under Republic Act No. 10531 or the NEA Reform Act, the
NEA shall render appropriate assistance to Electric Cooperatives in ensuring their
readiness for the commencement of the WESM Reserve Market.

(d) All] WESM Members and Electric Power Industry Participants.

Consistent with Section 3.4 of DOE Department Circular No. DC2010-06-007, all
WESM members, as well as Generation Companies and customers intending to
participate as Ancillary Service Provider in the WESM Reserve Market, are hereby
directed to undertake all necessary preparations for the commencement of the WESM
Reserve Market. including but not limited to compliance with applicable rules and
regulations, and the requirements of the Market Operator and the SO.

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a
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Pursuant to Section 4(b)(iii) of this Circular, all Generation Companies and/or plant
operators are hereby directed to comply with the list of requirements issued by the
NGCP to facilitate the timely testing and certifications of the generating units, in

accordance with the timeline of the Commercial Launch of the WESM Reserve
Market.

Section 5. Must Offer of Capacities in Energy and Reserve. Upon the Commercial
launch of the WESM Reserve Market and consistent with the WESM Rules 3.5.7.2 and
3.5.8.2. all Trading Participants are directed to submit offers for energy based on their
Maximum Available Capacity and reserve based on their Maximum Capability for each
trading interval. Por avoidance of doubt, “Maximum Available Capacity" shall have the same
meaning as provided in Section 2.1 of DOE Department Circular No. DC2010-03-0003 while
"Maximum Capability" shall refer to WESM Rule 3.5.7.3 (a).

Section 6. Conduct of Trial Operations. Similar to the commencement of the commercial
operations of the Luzon and Visayas energy only market, PEMC shall conduct trial
operations of the WESM Reserve Market consistent with the existing protocols on the
Reserve Market without any settlement. This is to adequately prepare the market participants

in the trading of WESM reserve and allow final refinements when necessary prior to
Commercial Launch Date.

Section 7. Supervision by the DOE. The DOE. shall continue to oversee the WESM,
including the Reserve Market. and to undertake such actions as may be necessary to achieve
the objectives of the EPIRA and the WESM.

Section 8. Regulatory Support. Consistent with its mandate to ensure competition in the
generation and supply sectors, and in support of the provision of adequate, reliable and
secured electricity services, the ERC shall render timely action on applications filed in
relation to the operationalization of the WESM Reserve Market, particularly on the PCRM.

Section 9. Reportorial Requirements. For purposes of monitoring compliance with the
directives under this Circular, PEMC, NGCP, and NEA shall submit to the DOE monthly
reports and issues register on the process and status of their preparations and readiness.

Section 10. Interpretation. Words and meanings stated in this Circular shall have the same
meaning in the WESM Rules.

Section 11. Separability Clause. If for any reason, any section or provision of this Circular

is declared unconstitutional ot invalid, such parts that are not affected shall remain in full
force and effect.

Section 12. Effectivity. This Circular shall take effect immediately following its publication
in Wo (2) newspapers of general circulation and shall remain in effect unless otherwise
revoked. PEMC is directed to publish this Circular in the market information website.

Dove this day of November. 2013 at Taguig City, Metro Manila, Philippines.

—_—

CARLOY JERICHO L. PETILLA

Secretary
‘DEPARTMENT OF ENERGY

WA !N REPLYING PLS CITE:

SOE-JLP-13006689

| er Ml
DEC 02 2013