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Republic of the Philippines
DEPARTMENT OF ENERGY

DEPARTMENT CIRCULAR NO.__0C2022-03- 0008 4

ADOPTING FURTHER AMENDMENTS TO THE WHOLESALE ELECTRICITY
SPOT MARKET (WESM) RULES AND ITS 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
including its Market Manuals shall be undertaken in accordance with the provisions of
Chapter 8 thereof;

WHEREAS, the WESM Rules and WESM Manual on Billing and Settlement provide
for covered and exempted WESM Members from prudential requirements, the
acceptable forms of prudential security, the formula for computing maximum
exposure, and the process for refunding prudential security;

WHEREAS, on 02 June 2020, the DOE issued DC2020-06-0014 amending the
WESM Rules regarding the amount of prudential requirements;

WHEREAS, on 17 July 2020, the Rules Change Committee (RCC) received from the
Independent Electricity Market Corporation of the Philippines (IEMOP) its proposed
general amendments to the WESM Rules and WESM Market Manual on Billing and
Settlement, in particular to the versions for current market and the implementation of
the enhanced WESM design and operations;

WHEREAS, the proposal aims to incorporate the following:

a. Addition of assessment by request of prudential requirements;

b. Inclusion of force majeure events and large reduction in load served as
considerations for replacement month in the computation of maximum
exposure;

c. Revision for the basis of security amount from average price and monthly
quantities to hourly price and hourly quantities;

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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d. Revision for the grounds for exempting a WESM Member from prudential
requirement;

e. Revision on the allowed forms of security; and

f. Clarification on the process of refund.

WHEREAS, on 14 August 2020, the RCC during its 168'"" RCC Meeting discussed the
abovementioned proposals and thereafter approved the publication of the proposed
amendments in the WESM market information website to solicit comments from
market participants and other interested parties;

WHEREAS, on 16 October 2020, the RCC during its 170" RCC Meeting deliberated
on and finalized the proposed amendments giving due course to the comments and
recommendations received from the Governance Arm and AC Energy, and thereafter
approved for endorsement to the PEM Board;

WHEREAS, after due evaluation and deliberation, the PEM Board approved for
endorsement to the DOE the above stated RCC proposal;

WHEREAS, on 01 December 2020, 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 29 September 2021, the DOE posted the Draft Department Circular
on the abovementioned proposed amendments to solicit further comments from the
market participants and other interested parties;

WHEREAS, the DOE to ensure transparency and consistency with the objectives of
the EPIRA and the WES\M, conducted virtual public consultations on the said proposed
amendments on various dates as follows;

‘Date fteg Platform

WHEREAS, the DOE reviewed and finalized the said PEM Board-approved proposal,
made revisions thereto taking into consideration the comments and recommendations
received from the public consultations and subsequent discussions with the Market
Operator;

NOW THEREFORE, after careful review of the PEM Board-approved proposal and
the comments and recommendations received on the same, the DOE, pursuant to its
authority under the EPIRA and the WESM Rules, hereby adopts, issues, and
promulgates the following amendments to the WESM Rules and various Market
Manuals:

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

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a. Clause 3.15.2.4 (Provision of Security) under Prudential Requirements is amended
to read as —

“3.15.2.4 Provision of Security

A WESM Member who is exempt from providing a security deposit under
Clause 3.15.2.2 shall be required to pay in cleared funds the total
negative settlement amount due, if any, on the due date as provided
under Clause 3.14.6.”

b. Clause 3.15.3 (Form of Security) under Prudential Requirements is amended to
read as —

“3.15.3 Form of Security

The security provided by the WESM Member shall be in either of the
following forms of security:

XXX XXX XXX

b) Other forms of security payable upon demand, irrevocable and
unconditional commitment in a form and from a bank or other
financial institutions acceptable to the Market Operator, or

c) Surety bond issued by a surety or insurance company duly
accredited and authorized by the Office of the Insurance
Commissioner of the Philippines;

XXX XXX XXX
XXX XXX XXX
XXX XXX XXX

All forms of security must be payable to the Market Operator. Its validity
must be in accordance with the requirements as stated in the relevant
rules and manuals.”

c. Clause 3.15.4.1 (Amount of Security) under Prudential Requirements is amended
to read as —

“3.15.4.1 XXX XXX XXX

DC — Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules and Its
Market Manual on Billing and Settlement for the Implementation of Enhancements to WESM Design and
Operations (Provisions for Prudential Requirements)

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The Market Operator shall consider a replacement month in the
computation of Maximum Exposure within the 26" March to 25"
September billing periods, having the same number of calendar days if:

XXX XXX XXX
XXX XXX XXX; Or

c) There is a force majeure event that affected at least 50% of the
settlement intervals within a billing period.

If there is a change or expected change in the settlement quantities of a
WESM Member due to a change in bilateral contract, reduction in load
served, or occurrence of force majeure events, the WESM Member may,
at any time, request the Market Operator to determine its maximum
exposure corresponding to its 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.

XXX XXX: oO

d. Clause 3.15.7 (Refund of Security) under Prudential Requirements is amended to
read as —

“XXX = XXX XXX

a) if the Market Operator has exempted the WESM Member under
Clause 3.15.12.2 or lifted the cancellation of exemption after the
WESM member complied with its obligations under Clause 3.15.2.5;
or

b) XXX XXX = XXX} OF

c) if the calculated Maximum Exposure of the WESM Member under
Section 3.15.4.1 is lower than the amount of security it has provided
to the Market Operator.

XXX XXX XXX

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

a. Section 7.2.2 (Provisions of Security) under Prudential Requirements is amended
to read as —

"Th ee In reference to WESM Rules Clause 3.15.2.2, the Market Operator may
exempt a WESM Member from the requirement to provide a security, if:

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Operations (Provisions for Prudential Requirements)

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a) the WESM Member is registered or registering as a Generation
Company under commercial operations; and

b) for a registering Generation Company, its projected volume sales to
the WESM is greater than its projected contracted quantities and, if
any, the projected volume purchases of its /ndirect WESM Members;
or, for a registered Generation Company, its WESM settlement
amount is positive for the past three (3) billing periods.

The Market Operator shall not exempt Generation Companies that are
not yet in commercial operations and Customers from the prudential
requirements even if their calculated amount of security is zero.”

b. Section 7.2.3 (Provisions of Security) under Prudential Requirements is amended
to read as —

"T.200

If the WESM Member has been deemed exempted by the Market
Operator under Section 7.2.2 and WESM Rules Clause 3.15.2.2, the
Market Operator shall send a written notice to the WESM Member. The
Market Operator may vary or cancel the exemption given pursuant to
Sections 7.2.1 and 7.2.2 of this Manual, at any time, by giving written
notice of the variation or cancellation of the exemption to the WESM
member.

c. Section 7.2.5 (Provisions of Security) under Prudential Requirements is amended
to read as —

"£2.09.

A WESM Member who is exempt from providing a security deposit shall
be required to pay in cleared funds the total negative settlement amount
due, if any, on the due date as provided under Section 5.3.1 of this
Manual.”

d) Section 7.3.1 (Provisions of Security) under Prudential Requirements is amended
to read as —

“7.3.1

The security provided by a WESM Member shall be in either of the
following forms of security:

a) XXX XXX = XXX

b) Other forms of security payable upon demand, irrevocable and
unconditional commitment in a form and from a bank or other
financial institutions acceptable to the Market Operator, or

c) Surety bond issued by a surety or insurance company duly
accredited and authorized by the Office of the Insurance
Commissioner of the Philippines.

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Market Manual on Billing and Settlement for the Implementation of Enhancements to WESM Design and
Operations (Provisions for Prudential Requirements)

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For items b and c, the instrument must indicate that it is payable upon
demand, irrevocable, and unconditional.

All forms of security must be payable to the Market Operator. Its validity
must be in accordance to the requirements of relevant rules and
manuals.”

e) Section 7.4.3(h) (Assessment of Maximum Exposure) under Prudential
Requirements is amended to read as —

“7.4.3(M) XXX XXX XXX
i. XXX XXX XXX
ii. XXX XXX XXX! or

iii. There is a force majeure event that affected at least 50% of the
settlement intervals within a billing period.

f) Section 7.4.3(i) (Assessment of Maximum Exposure) under Prudential
Requirements is amended to read as —

“7.4.3(i) If there is a change or expected change in the settlement quantities of a
WESM Member due to a change in bilateral contract, reduction in load
served, or occurrence of force majeure events, the WESM Member may,
at any time, request the Market Operator to determine its Maximum
Exposure based on its average estimated settlement amount.

The estimated settlement amount for each billing period of a WESM
Member shall be calculated using the following formula:

ESA = » (EGESQ; x EFEDP;) -> x (EBCQ.; x EFEDP,,)

iel ie] cec

Where:
ESA estimated settlement amount in PhP

EGESQ; estimated gross energy settlement quantity, in MWh, for
dispatch interval i

EFEDP; estimated final energy dispatch price, in PhP/MWh, for
dispatch interval i

EBCQ.; estimated bilateral contract quantity, in MWh, from
counterparty c for dispatch interval i

EFEDPc,i estimated final energy dispatch price, in PhP/MWh,
associated with the bilateral contract with counterparty c for
dispatch interval i

Oa eee
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| set of dispatch intervals within the billing period

C set of counterparties

if the request is due to a change in bilateral contract, the WESM
Member shall submit to the Market Operator its estimated bilateral
contract quantities from each Trading Participant counterparty for
each dispatch interval in the immediate complete 26 March to 25
September period; the estimated gross energy settlement quantity
and estimated final energy dispatch prices of the WESM Member for
a dispatch interval shall be equal to its gross energy settlement
quantity and final energy dispatch prices, respectively, at the same
dispatch interval and most recent same date.

i. if the request is due to a reduction in load served, the WESM Member

shall submit to the Market Operator its estimated gross energy
settlement quantities and estimated bilateral contract quantities from
each trading participant counterparty for each dispatch interval in the
immediate complete 26 March to 25 September period; the estimated
final energy dispatch prices of the WESM Member for a dispatch
interval shall be equal to its final energy dispatch prices at the same
dispatch interval and most recent same date.

if the request is due to a force majeure, the WESM Member shall
submit to the Market Operator its estimated gross energy settlement
quantities and estimated bilateral contract quantities from each
trading participant counterparty for each dispatch interval in the
immediate complete 26 March to 25 September period; the estimated
final energy dispatch prices of the WESM Member for a dispatch
interval shall be equal to its final energy dispatch prices at the same
dispatch interval and most recent same date, or from the
replacement date in accordance with Section 4.7.3(h).

. The estimated bilateral contract quantity shall not exceed the

estimated gross energy settlement quantity for each dispatch
interval.

g) Section 7.4.6(a) (Refund of Security) under Prudential Requirements is amended

to read as —

“7.4.6(a) XXX XXX XXX

ss

If the Market Operator has exempted the WESM Member under
Section 7.2.2 or lifted the cancellation of exemption after the WESM
Member complied with its obligations under Section 7.2.6 of this
Manual; or

XXX XXX XXX; OF

ee
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Market Manual on Billing and Settlement for the Implementation of Enhancements to WESM Design and
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iii. if the calculated Maximum Exposure of the WESM Member under
Section 7.4.3 is lower than the amount of security it has provided to
the Market Operator.

Section 3. 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 4. Effectivity. This Circular shall take effect immediately 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).

Issuedon_MARU 1 2022 __ atthe Energy Center, Rizal Drive, Bonifacio Global City,

Taguig City.

FONSO\G. CUSI

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Republle of the Philippines
or ‘a Ae, DEPARTMENT OF ENERGY
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Market Manual on Billing and Settlement for the Implementation of Enhancements to WESM Design and
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