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4 <a) Republic of the Philippines
2 DEPARTMENT OF ENERGY

DEPARTMENT CIRCULAR NO. _()C20l4 - 2] - 0003

DESIGNATING THE 650-MW MALAYA THERMAL POWER PLANT AS A
MUST-RUN UNIT IN THE WHOLESALE ELECTRICITY SPOT MARKET

WHEREAS, Republic Act No. 9136 otherwise known as the “Electric Power
Industry Reform Act of 2001” (EPIRA) declares as policy of the State, among others,
to ensure the quality, reliability, security and affordability of the supply of electric
power;

WHEREAS, pursuant to Section 37 of the EPIRA, the Department of Energy (DOE)
is mandated to supervise the restructuring of the electric power industry as well as
among other things, to:

(a) Formulate policies for the planning and implementation of a
comprehensive program for the efficient supply and economical use of
energy consistent with the approved national economic plan and with
the policies on environmental protection and conservation and
maintenance of ecological balance, and provide a mechanism for the
integration, rationalization, and coordination of the various energy
programs of the Government;

(b) Ensure the reliability, quality and security of supply of electric power;
(c) Jointly with the electric power industry participants, establish the

wholesale electricity spot market and formulate the detailed rules
governing the operations thereof; and

(d) Formulate rules and regulations as may be necessary to implement the
objectives of the EPIRA; and

(e) Exercise such other powers, as may be necessary or incidental to attain
the objectives of the EPIRA.

WHEREAS, the 650-MW Malaya Thermal Power Plant (MTPP), located in Pililia,
Rizal, an oil-fired power plant, is government-owned through the Power Sector
Assets and Liabilities Management Corporation (PSALM);

WHEREAS, the MITPP is consisting of two (2) generating units, MTPP1,
commissioned on 20 August 1975 with a capacity of 300-MW and MITPP 2,
commissioned on 21 April 1979 with a capacity of 350 MW;

Energy Center, Merritt Rd., Fort Bonifacio, Taguig, Metro Manila, Philippines
Tel. Nos.: (Trunkline) 840-1401 to 21; Fax 840-1731; 840-2138; 840-2067 ; (632) 840-1731; (632) 840-2138; Telefax (632) 840-2067
Website: www.doe.gov.ph, E-mail: info@doe.gov.ph
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WHEREAS, the MTPP is a base load plant, each unit having a capability to operate
at a minimum stable load (Pmin) of 130 MW each and capable of providing reactive
power support or voltage support to the grid being strategically located in a load
center;

WHEREAS, the MTPP, unlike other oil-based power plant, requires sixteen (16)
hours start up before the generation units can be synchronized to the grid; and each
generating unit having a ramp up and ramp down rate of three (3) MW per minute;

WHEREAS, on 28 June 2002, in consultation with the electric power industry
participants, the WESM Rules was issued, adopted, and promulgated by the DOE;

WHEREAS, the WESM started its commercial operations in Luzon Grid on 26 June
2006, while the Visayas Grid was integrated effective 26 December 2010;

WHEREAS, in ensuring effective and efficient operations of the Philippine
electricity market, WESM Rules and various Manuals were promulgated including
the Dispatch Protocol Manual (DPM);

WHEREAS, Appendix A1, Section 4.3 of the DPM provides that each Trading
Participant classified as a scheduled generation company must submit bids/ offers
corresponding to its maximum available capacity for each trading interval, often
referred to as the Must Offer Rule (MOR);

WHEREAS, the technical limitations of the MTPP makes it difficult to comply with
the MOR and be compelled to run at Pmin level at all times, which exposes MTPP to
operate at a loss since its production cost is above the normal Market Clearing Prices
particularly during off-peak hours of the day;

WHEREAS, historical performance of MTPP shows that it has been utilized as Must
Run Unit (MRU) during significant events such as supply shortfall, in times of
system security and voltage support to the grid;

WHEREAS, on 14 August 2013, PSALM had written the DOE to declare the MTPP
to be operated as a "Must Run Unit" only in times when (a) there is insufficient
power supply offers in the WESM and/or (b) there is a need to provide reactive
power for voltage support to address system security requirement and maintain the
stability of the grid;

WHEREAS, the DOE recognizes that the MTPP was designed and previously
operated as a base load plant and its distinct technical and operational
characteristics make it difficult to comply with the MOR without incurring losses
due to high costs of operations;

WHEREAS, the DOE further recognizes that the MTPP is not a suitable Generator
Trading Participant in the WESM, but clearly manifest its importance during times
of supply shortfall and system security by designating the MTPP as an MRU to
ensure supply security in the grid;
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NOW, THEREFORE, for and in consideration of the foregoing premises, the DOE,
consistent with its mandate under the EPIRA, hereby adopts and promulgates the
following:

Section1. Designation of the 650-MW Malaya Thermal Power Plant (MTPP) as
a Must-Run Unit (MRU). Pursuant to the provisions of the EPIRA, the MTPP shall
be exempted from the Must Offer Rule (MOR) and shall continue to be utilized as
MRU in the WESM. All existing MRU compensation and settlement process shall
remain the same. The System Operator (SO) may utilize the MTPP at its maximum
capability in accordance with the Market Manual on Management of MRUs.

Section 2. Additional Responsibilities of Relevant Agencies. To ensure efficient
implementation of the Circular, the following are hereby directed to undertake the
following:

(a) | The PEMC shall ensure that the MTPP shall be compensated under the
MRU settlement in accordance with the specified schedule of the SO.

(b) |The PSALM shall: (i) ensure efficient operation of MTPP; (ii) ensure the
readiness of MTPP to run as MRU upon instruction of the SO; (iii)
ensure availability of fuel supply at all times by maintaining adequate
daily inventory; and (iv) diligently coordinate with PEMC on the
timely recovery of compensation for the operation of MTPP as MRU.

Section 3. Repealing Clause. Except insofar as may be manifestly inconsistent
herewith, nothing in this Circular shall be construed as to repeal any of the
mechanisms already existing or responsibilities already provided for under existing
rules.

Section 4. Separability Clause. If for any reason, any section or provision of this
Circular is declared unconstitutional or invalid, such parts not affected shall remain
in full force and effect.

Section5. —_ Effectivity. This Circular shall take effect fifteen (15) days following its
publication in at least two (2) newspaper of general circulation and shall remain in
effect until otherwise revoked.

Issued at Energy Center, Bonifacio Global City, Taguig City.

CARL Te L. PETILLA

Secretary

9, (RUN atta

N10

JAN 22 Ing