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Swieeey Republic of the Philippines

ri DEPARTMENT OF ENERGY

DEPARTMENT CIRCULAR NO.__DC2020- 06 - OO! 4+

ADOPTING FURTHER AMENDMENTS TO THE WHOLESALE ELECTRICITY
SPOT MARKET (WESM) RULES AND MARKET MANUAL ON BILLING AND
SETTLEMENT FOR THE IMPLEMENTATION OF ENHANCEMENTS TO WESM
DESIGN AND OPERATIONS
(Provisions for Prudential Requirements)

WHEREAS, Sections 30 and 37(f) 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, with the endorsement of the electric power
industry participants, promulgated the WESM Rules through Department Circular
No. DC2002-06-003;

WHEREAS, any changes, amendments, and modifications to the WESM Rules,
Retail Rules and their Market Manuals shall be undertaken in accordance with the
provisions of Chapter 8 of the WESM Rules;

WHEREAS, on 10 June 2019, the Market Operator submitted to the Rules Change
Committee (RCC) its proposed general amendments to the WESM Rules and
Market Manual on Billing and Settlement for enhancements to the determination of
initial prudential requirements;

WHEREAS, the abovementioned proposal was based on the urgent amendments
approved by the RCC and PEM Board on 22 February 2019 and 29 May 2019,
respectively;

WHEREAS, the proposal aims to introduce an appropriate formula for the
computation of the initial prudential requirements in line with the target commercial
operation of WESM in Mindanao and implementation of enhancement to the WESM
design and operations;

WHEREAS, 21 June 2019, the RCC during its 153% RCC Meeting discussed with the
Market Operator the abovementioned proposal, and thereafter approved the
publication of the proposed amendments in the Philippine Electricity Market
Corporation's (PEMC) information website to solicit comments from market
participants and other interested parties;

WHEREAS, on 16 August 2019, the RCC deliberated on the proposal giving due
course to the comments received from market participants, and thereafter finalized
and approved for endorsement to the PEM Board;

Energy Center, Rizal Drive, Bonifacio Global City, Taguig City, Metro Manila, Philippines
Tel, No.: 8840-2267 * Trunkline: 8479-2900
Website: www.doe.gov.ph * E-mail: info@doe.gov.ph
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WHEREAS, on 28 August 2019, after due evaluation and deliberation, the PEM
Board during its 15" Regular PEM Board Meeting, approved for endorsement to the
DOE the above stated RCC-approved proposal;

WHEREAS, on 05 September 2019, the PEM Board-approved amendments to the
WESM Rules and Market Manual on Billing and Settlement were submitted to the
DOE for final approval, in compliance with Chapter 8 of the WESM Rules;

WHEREAS, on 06 November 2019, the DOE posted the proposed amendments in
the DOE website to solicit further comments from the market participants and other
interested parties;

WHEREAS, the DOE conducted several meetings with the Market Operator to clarify
and harmonize the said proposal;

WHEREAS, the DOE reviewed the said PEM Board-approved proposal, made minor
revisions on the proposed amendments for consistency with the objectives of the
WESM and the DOE policies on the enhancements of WESM design and operations;

NOW THEREFORE, pursuant to its authority under the EPIRA and the WESM
Rules, the DOE hereby adopts, issues, and promulgates the following amendments
to the WESM Rules and its Market Manuals:

Section 1. Amendments to the WESM Rules. The following provisions in the
WESM Rules are hereby amended:

a. Clause 3.15.4 (Amount of Security) and its Subsections under Prudential
Requirements are amended to read as —

“3.15.4 Amount of Security

Using available historical data in the WESM, the Market Operator shall
determine the initial prudential requirements of a new WESM Member
corresponding to the projected settlement amount in respect of the
portion of its demand that is not covered by bilateral contracts and the
line rental resulting from its bilateral contracts.

3.15.4.1 Subject to Clause 3.15.2.2, prior to the end of each financial year, the
Market Operator shall determine and provide written confirmation to
each WESM Member of its maximum exposure to the Market Operator
with respect of a billing period in the following financial year. The
amount of security to be provided by each WESM Member pursuant to
Clauses 3.15.2.1 and 3.15.2.2 shall be equivalent to the maximum
exposure.

XXX XXX XXX

If there is a change in the bilateral contract of a WESM Member, the
maximum exposure shall be computed based on the settlement

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amounts estimated by the Market Operator using the average actual
market price based on the billing period of 26" March to 25"
September. Average actual market price shall refer to the ratio of the
total spot market payment of a WESM Member, which may include
spot market energy and reserve transactions, to the total metered
quantities net of bilateral contract quantities for each billing month.

XK XK"

Section 2. Amendments to the WESM Market Manual on Billing and
Settlement. The following provisions in the WESM Market Manual on Billing and
Settlement Issue 6.0 are hereby amended:

a. Section 7.4.1 (Initial Assessment of Prudential Requirement) under Procedures is
amended to read as —

“7.4.1 Initial Assessment of Prudential Requirement

(a) The initial prudential requirement of a WESM Member shall be
calculated as the average of the projected settlement amount for
each complete billing period considering the following:

(i) if the WESM Member aims to begin trading in the WESM
before August 26 of the current year, the initial prudential
requirement shall be calculated using the data of complete
billing periods within March 26 to September 25 of the same
year; or

(ii) otherwise the initial prudential requirement shall be
calculated using the data of complete billing periods within
March 26 to September 25 of the succeeding year.

(b) The projected settlement amount for each billing period of a WESM
Member shall be calculated using the following formula:

PSA= ) (PGESQ x PFEDP,) - )) (PBCQ,,xPFEDP,;)
ial

ial ce

Where:

PSA projected settlement amount in PhP

PGESQ, projected gross energy settlement quantity, in MWh, for
dispatch interval i

PFEDP, projected fina/ energy dispatch price, in PhP/MWh, for
dispatch interval i

PBCQ., projected bilateral contract quantity, in MWh, from
counterparty c for dispatch interval i

PFEDP., projected final energy dispatch price, in PhP/MWh,
associated with the bilateral contract with counterparty c
for dispatch interval i

i set of dispatch intervals within the billing period

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C set of counterparties
(c) The WESM Member shall submit the following information to the

Market Operator for each dispatch interval in the period defined in
Section 7.4.1(a):

(i) Projected gross energy settlement quantities; and
(ii) Projected bilateral contract quantities from each trading
participant counterparty.

The projected bilateral contract quantity shall not exceed the
projected gross energy settlement quantity for each dispatch
interval.

(d) The WESM Member shall submit to the Market Operator its
assumptions for determining its projected gross energy settlement
quantities. The Market Operator may require the WESM Member to
submit supporting documents if necessary. The Market Operator
shall assist the WESM Member in determining the projected gross
energy settlement quantities.

(e) To be considered in the determination of the initial prudential
requirement, the bilateral contract quantities submitted under
Section 7.4.1(d)(ii) should have a corresponding contract enrolled
with the Market Operator.

(f) The projected final energy dispatch price of a WESM Member for a
dispatch interval shall be equal to the final energy dispatch price of
the geographically nearest market trading node from the connection
point of the WESM Member at the same dispatch interval and most
recent same date.

(g) The projected final energy dispatch price associated with a bilateral
contract quantity from a counterparty for a dispatch interval shall be
equal to the final energy dispatch price of the market trading node
of the counterparty identified during enrollment of the bilateral
contract at the same dispatch interval and most recent same date.

(h) Subject to 7.2.4 of this Manual, the Market Operator shall set a
trading limit for each WESM Member who participates in market
transactions."

The trading limit fora WESM Member, at any time, shall be equal to
the total value of the security, including Interest Rate, if any,
provided by the WESM member to the Market Operator.*

1 WESM Rules Clause 3.15.9.1
2 WESM Rules Clause 3.15.9.3

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(i) The Market Operator shall notify the WESM Member, of the
required security based on the established Trading Limit as soon as
practicable.

(j) The WESM Member shall provide the required security deposit in
the form acceptable to the Market Operator as part of the
requirements that the WESM Member must comply before
participating in the Spot Market.

(k) The Market Operator shall confirm receipt of the security deposit
provided by the WESM Member as soon as practicable.”

Section 3. Transitory Provision. To facilitate effective implementation of WESM in
Mindanao and market design enhancements, the Market Operator shall immediately
implement these amended WESM Rules and its Market Manuals set forth in this
Circular.

Notwithstanding Section 7.4.1 (f) and (g) of the WESM Market Manual on Billing and
Settlement, the following assumptions shall be used upon the effectivity of this
Circular until one (1) year after the DOE issuance through a Department Circular on
the commencement date for the New Market Management System:

a. For the implementation of WESM in Mindanao, the Market Operator shall
determine the projected final energy dispatch prices based on the following
parameters:

(i) Interval: One set of projected final energy dispatch prices for all dispatch
intervals within an hour based on top-of-the-hour information; all other
assumptions shall be on an hourly basis;

(ii) Regional demand profile: Latest full calendar year regional demand
profile applied with the regional peak demand growth rate published by
the DOE;

(iii) Nodal load profile: Projected regional demand profile distributed based
on load distribution during the dispatch interval with the highest regional
demand from the latest full calendar year;

(iv) Offered capacity: WESM registered capacity applied with the average
derating and outage factor in the WESM or, if available, in the region
from the last full calendar year for each type of plant for each month;

(v) Contracted capacity: Average contracted capacity from the last full
calendar year based on best available data;

(vi) Offer prices: For minimum stable loading, PhP 0 / MWh; for contracted
and uncontracted capacity, average offer price for the second block in
the WESM of similar fuel type from the same month from the last full
calendar year;

(vii) Transmissions constraints: Only for transmission lines with projected
significant congestion based on System Operator information; and

(viii) Transmission losses: Based on transmission loss factors simulated using
the highest projected regional demand and latest representation of the
region’s power system in the Market Network Model.

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b. For Luzon-Visayas WESM, the Market Operator shall determine the projected final
energy dispatch prices in consideration of the following:

(i) projections shall be performed per trading interval instead of per dispatch
interval;

(ii) gross ex-post energy settlement quantities shall be projected instead of
gross energy settlement quantities;

(iii) ex-post energy settlement prices shall be projected instead of final
energy dispatch prices; and

(iv) the market trading node associated with bilateral contract quantities shall
be a market trading node of the trading participant responsible for the
payment of line rental trading amounts specified by the WESM member
during the enrollment of its bilateral contract.

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 effect fifteen (15) days following its
publication in two (2) newspapers of general circulation. Copies thereof shall be filed
with the University of the Philippines Law Center — Office of National Administrative
Register (UPLC-ONAR).

UN O2 2028 al Drive. Bonifac
Issued on £U62020 at the Energy Center, Rizal Drive, Bonifacio Global
City, Taguig City.

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Dowas.06-cof ADOPTING FURTHER AMENDMENTS TO THE WHOLESALE ELECTRICITY SPOT MARKET
(WESM) RULES AND MARKET MANUAL ON BILLING AND SETTLEMENT FOR THE IMPLEMENTATION OF 6/6

ENHANCEMENTS TO WESM DESIGN AND OPERATIONS (Provisions for Prudential Requirements)