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Republic of the Philippines
DEPARTMENT OF ENERGY

DEPARTMENT CIRCULAR NO. DC 2014- [0-00.24

ADOPTING FURTHER AMENDMENTS TO THE WESM RULES
(Provisions for Must-Run Units)

WHEREAS, Section 37 of the Electric Power Industry Reform Act (EPIRA) provides that the
DOE, jointly with the electric power industry participants, shall establish the Wholesale
Electricity Spot Market (WESM) and formulate the detailed rules governing the operations
thereof;

WHEREAS, on 28 June 2002, the DOE, upon the joint endorsement of the electric power
industry participants, promulgated the WESM Rules through Department Circular No.
2002-06-003;

WHEREAS, any changes, amendments, and modifications to the WESM Rules shall be
undertaken in accordance with the provisions of Chapter § thereof;

WHEREAS, on 14 May 2013, the DOE issued policy directives to the Philippine Electricity
Market Corporation (PEMC) and the Rules Change C ommittee (RCC) in order to address
the various concerns on the proposed amendments to the Manual on the Management of

,. Must Run Units (MRU);

WHEREAS, the RCC during its 74!- 77% Meetings (15 May 2013, 05 June 2013, 03 July 2013,
and_07 August 2013) continuously identified the tasks that needed to be undertaken,
discussed and deliberated on the proposed amendments followmg the DOE directives
relative to the utilization of MRU;

WHEREAS, on 04 September 2013, the RCC during its 78 Meeting once again deliberated
on the proposal, and after determining that several other WESM Market Manuals will be
affected, directed its sub-committee to review and draft proposals on the said Market
Manuals;

WHEREAS, on 02 October 2013, the RCC during its 7% Meeting discussed the Proposed
Amendments to the Philippine Grid Code (PGC) concerning MRU and the Discussion Paper
‘and Overview of the-Proposed Amendments to the WESM Rules and Various Market
Manuals affected by the MRU proposal as crafted by the sub-committee;

WHEREAS, the RCC in its letter to the DOE dated 09 October 2013 endorsed the RCC’s
Proposed Amendment to the PGC relative to MRU, which was endorsed thereafter by the
DOE to the Energy and Regulatory ‘Commission (ERC) and the Grid Management
Committee for their consideration;

WHEREAS, on 06 November 2013, the RCC during its 80 Meeting-discussed and noted the
National Grid Corporation of the Philippines’ (NGCP) letter stating that it poses no
objections to the recommendations of the DOE particularly on the directive to account the
MRU cost under the Ancillary Service of the System Operator, however, it shall await a

Energy Center, Rizal Drive, Bonifacio Global City, Taguig City, Metro Manila, Philippines
Tels: (Trunks) 840.1401 to 40; Fax 840-2067, 640-2236; 840-2067 (Domestic); 632-840-2173; 632-840-2736, 632-840-2067
(International)
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separate DOE directives to NGCP in consideration of the required regulatory processes
before its implementation;

WHEREAS, the RCC during its 81st - 83¢ Meetings (04 December 2013, 08 January 2014 and
05 February 2014) further reviewed and deliberated on the proposals, which include the
affected various Market Manuals:

Management of Must Run Units;

Dispatch Protocol;

Administered Price Determination Methodology;
Management of Procedure for Excess Generation; and
System Security and Reliability Guidelines;

UPON

WHEREAS, on 02 April 2014, the RCC in its 86 Meeting approved the publication of the
proposed amendments to the WESM Rules and the abovementioned various Market
Manuals in the WESM Website to solicit comments from market participants and other
interested parties;

WHEREAS, the RCC gave due course to the comments received and further reviewed and
deliberated on the proposals and recommendations during its 90% - 91 Meetings,
respectively held on 06 August 2014 and 03 September 2014;

WHEREAS, on 10 September 2014, the RCC in its 92% Meeting deliberated further the
proposals, and after giving due course to the matter, finalized and approved the Proposed
Amendments to the WESM Rules and WESM Market Manuals on the Management of Must
Run Units and Dispatch Protocol relative to MRUs for endorsement to the PEM Board;

WHEREAS, on 29 September 2014, after due evaluation and deliberation, the PEM Board
has resolved to approve for endorsement to the DOE the above stated RCC proposed
amendments to the WESM Rules;

WHEREAS, on 10 October 2014, the above stated amendments to the WESM Rules were
submitted to the DOE for final approval, in compliance with Chapter 8 of the WESM Rules;

WHEREAS, the DOE thoroughly reviewed the PEM Board-approved amendments to the
WESM Rules and deemed it consistent with the objectives of the WESM Rules;

NOW THEREFORE, pursuant to its authority under the WESM Rules, the DOE hereby
adopts, issues, and promulgates the following amendment to the WESM Rules:

Section 1. Amendments to the WESM Rules.
(a) Clause 3.5.13.1 under Over-riding Constraints is amended to read ~

“3.5.13.1 Subject to Clause 3.5.13.3, the System Operator may
require the Market Operator to impose constraints on
the power flow, energy generation of a specific facility
in the Grid to address system security threat, to
mitigate the effects of a system emergency, or to
address the need to dispatch generating units to
comply with systems, regulatory and commercial tests
requirements. The Systern Operator may also relax
existing constraints or system requirements on power
flows, energy generation and reserves if the Market

2
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Operator is unable to produce a feasible dispatch
schedule.”

XXX XXX XXX

(b) Clause 3.8.2.1 under Responsibilities of the System Operator is amended to
read -

“3.8.2.1 During each trading interval, the System Operator shall use its
reasonable endeavors to:

(a) Implement the dispatch targets determined by the

Market Operator,

(b) Maintain system security consistent with the
requirements of the Grid Code;

(c) Implement load shedding, if necessary, as provided by
Clause 3.9;

(d) Dispatch Constrain-on or Constrain-off generators or
Must-Run Units if all available frequency regulation
and contingency reserves are exhausted during a
trading interval. The System Operator may also dispatch
generators as Must-Run Units in specific grid areas
which have become isolated from the rest of the grid
and in which the Market Operator cannot determine the
generator schedules;

(e) In relation to (d) above, the System Operator shall
incorporate to its Ancillary Service Procurement Plan
Must-Run Units as an additional type of Ancillary
Service. For this purpose, the criteria and procedures
developed under Clause 3.5.13 shall be revised
accordingly; and

(f) Intervene, where necessary, as provided by Clauses 6.3
and 6.5.”

(c) Clause 3.8.2.2 under Responsibilities of the System Operator is ded to
read -

“3.8.2.2 After each Trading Interval, in accordance with the Timefnble,
the System Operator shall advise the Market Operator of:

(a) Situations in which it became necessary for dispatch

instructions to deviate from the dispatch targets pave a

by the Market Operator during the trading interval which

include the dispatch of the Constrain-on or Constrat “of

generators or Must-Run Units;

(b) Load Shedding or other directions issued by the System

Operator during the Trading Interval;

XXX XXX XXX

(f) Operational irregularities arising during the trading
interval including but not limited fo any circumstanc
which there was prima facie evtdence of a failure to follow
dispatch instructions.
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(d)

(e)

(

The System Operator shall likewise provide a dispatch deviation
report to the Market Operator, in accordance with the Timetable,
detailing among others the circumstances and dispatch levels of
units that were Constrained-on or Constrained-off or put on must-run
during a Trading Interval.”

Clause 3.8.6 under Deviations from the Ramp Rate is amended to read -
“3.8.6 Deviations from the Ramp Rate

If Trading Participants in some part of the Power System deviate
in aggregate from the assumed Linear Ramp Rate for any
reason or as a result of any cause including the initiation of
Load Shedding under Clause 3.9.3, these deviations shall be
dealt with by the System Operator, utilizing the Reserves, or
other Ancillary Services scheduled to deal with such
circumstances, in accordance with Clause 3.3.

Trading Participants are required to comply with linear
ramping in any trading interval; otherwise, the Market
Operator or the System Operator shall report the generator to
the Market Surveillance Committee.”

Clause 3.8.8 under Sanction of Trading Participants is amended to read -
3.8.8 Sanction of Trading Participants

Any Trading Participant who consistently fails to use its
reasonable endeavors to act in accordance with Dispatch
instructions issued under Clause 3.8.3, or who breaches the
Dispatch Tolerance standards published under Clause 3.8.7.2,
may be liable of a sanction imposed under Clause 7.2.

Trading Participants that are not compliant to the Dispatch
Schedule or linear ramping assumptions that have been
identified by the System Operator to cause the constraining-oft
of other generating units shall compensate the Displaced
Generator or Generators in accordance with the mechanism to be
developed by the Market Operator under Clause 3.13,14.3.”

Clause 3.98 under Management Procedures for Excess Generation is
amended to read -

“3.9.8 Management Procedures for Excess Generation

3.9.8.1 Should either the Dispatch Optimization, or any Market
Projection, indicate Excess Generation at any Node, the
Market Operator shall advise the System Operator that it
may be necessary to require some Generating Systems to
shut down,

3.9.8.2 Where necessary to shut down Generating Systems
under Clause 3.9.8.1, the System Operator and the
Market Operator shall manage all aspects of Dispatch
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(g)

(h)

(i)

and pricing in accordance with the procedures to be
developed by the System Operator and the Market
Operator, in consultation with WESM Participants, and
subject to approval by the PEM Board. The procedures
Shall also take into account the occurrence of excess
generation during a trading interval when the System
Operator has exhausted its Ancillary Services to address
the excess generation.

3.9.8.3 During a Trading Interval, if Excess Generation is
imimunent or is detected in the Power System by the
System Operator in accordance with the Grid Code and it
is established that the Excess Generation is being caused
by a Generating System that is not following tts dispatch
schedule or observing a linear ramp rate, then the
Generation Company representing the Generating System
in the market may be liable of a sanction imposed
under Clause 7.2. The Generation Company representing
the Generating System that is not following its Dispatch
Schedule or observing linear ramp rate, however, shall
compensate other Generation System that has been
constrained-off by the System Operator. Such conditions
shall also be considered in the procedures to be
developed under Clause 3.9.8.2.”

Clause 3.13.14 under Settlement Amounts for Trading Participants is
amended to read -

“3.13.14 Settlement Amounts for Trading Participants
XXX XXX -XXX

3.13.14.3 The Market Operator shall develop and implement,
subject to approval by the ERC, the appropriate pricing
and settlement methodology for compensation of trading
participants whose generating units are designated as
Must-Run Units or identified as Displaced Generators, and
the corresponding recovery mechanism for the same.”

Clause 6.2.1.2 under Preparation and Responses 1s amended to read -
“6.2.1.2 Where Intervention is warranted when a grid or portion of
the grid is in extreme state condition emergency as
established in the Grid Code arising from:
(a) An emergency;
(b) A threat to system security; or
(c) An event of force majeure;”

Clause 6.7.2 under Force majeure event is amended to read -

“6.7.2 Force majeure event
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()

Events of force majeure shall include:

(1) Major network trouble that caused partial or system-
wide blackout;

(2) Market system hardware or software failure that
makes it impossible to receive or process market
offer/bid information or produce market schedules
due to erroneous real-time status input data or
dispatch the system in accordance with the WESM
Rules; and

(3) Any other event, circumstance or occurrence in nature
of, or similar in effect to any of the foregoing.”

Glossary Chapter 11 is amended to read -
XXX XXX XXX

“Constrain-off. In respect of a generating unit the output of that
generating unit is re-dispatched by the System Operator below its Real-
Time Dispatch schedule in accordance with the WESM Merit Order
Table.

Constrain-on. In respect of a generating unit, the output of that
generating unit is re-dispatched by the System Operator above its Real-
Time Dispatch schedule in accordance with the WESM Merit Order
Table.

XXX XXX XXX

Displaced Generator. A generating unit identified and instructed by
the System Operator in an Out of Merit Dispatch to reduce the provision
of energy specified in its Real Time Dispatch instruction exclusively
caused by excess generation due to non-compliance of generators to
dispatch instructions and use of reactive support reserve,

XXX XXX XXX

Must-Run Unit (MRU). A generating unit identified and instructed,
on real time or scheduled basis, by the System Operator to either a)
come on-line, or b) provide additional energy on a particular Trading
Interval but the dispatch of which is said to be Out of Merit, to address
System Security requirements. For clarity, MRU shall be utilized only
after the System Operator has exhausted all available Ancillary Services.
MRUs are classified as follows:

a. Scheduled MRU - MRU designated by the System Operator
before the trading interval and included in the Real Time
Dispatch schedule through the imposition of Security Limit as
defined in the WESM Dispatch Protocol Manual.

b. Real Time MRU - MRU designated by the System Operator
within a trading interval.
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Must-Stop Unit (MSU). A generating unit identified and instructed by
the System Operator to reduce the provision of energy due to its non-
compliance of the Dispatch Schedule to address or prevent possible
threat to the System Security requirements of the Grid.

XXX XXX XXX

Out of Merit Dispatch- Dispatch instructions issued by the System
Operator that is not in accordance with the WESM Merit Order Table to
address System Security.

XXX XXX XXX

WESM Merit Order Table (WMOT) - for purposes of dispatch
protocol under the WESM, defined based on the Grid Code with an
addition of unscheduled generating units arranged based on price
offers; the WMOT is based on a single market.

XXX XXX XXX”

Section 2 Pricing and Settlement Methodology. In relation to WESM Rules Clause
3.13.14.3, the Philippine Electricity Market Corporation (PEMC) is hereby directed to file a
petition before the Energy Regulatory Commission (ERC) for approval of the pricing and
settlement methodology and the corresponding recovery mechanism for the utilization of
MRU based on the PEM Board approval.

Section 3. Review of Ancillary Service Procurement Plan. The National Gnd Corporation
of the Philippines (NGCP) pursuant to WESM Rules Clause 3.8.2.1(e) shall expedite the
review of its Ancillary Service Procurement Plan (ASPP) and the corresponding recovery
mechanism to account the MRU cost under the Ancillary Service of the System Operator.
The changes in the accounting and charging of the MRU cost from the market transaction to
the Ancillary Charges of NGCP properly reflect the true cost of electricity in the WESM.
Thereafter, NGCP shall file an application with the ERC for consideration.

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 valid and
subsisting.

Section 5. Effectivity. This Circular shall take into effect fifteen (15) days from its
publication in at least two (2) newspapers of general circulation and shall remain in effect
until otherwise revoked.

Issued this ___ October 2014 at the DOE, Energy Center, Rizal Drive, Bonifacio Global City,
Taguig City, Metro Manila.

_

CARLOS JERICHO L, PETILLA

Secretary
Sy AINEIPOP hee

wa
“OCT24 2014