=== dc2022-03-0012-pages-01.ppm ===
Republic of the Philippines
DEPARTMENT OF ENERGY

DEPARTMENT CIRCULAR NO.__DC2022 -03-O0I2 4

ADOPTING FURTHER AMENDMENTS TO THE WHOLESALE ELECTRICITY
SPOT MARKET (WESM) RULES, RETAIL RULES AND MARKET MANUAL
(Provisions for Audit and Performance Monitoring)

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, on 09 January 2013, the DOE issued Department Circular No. DC2013-
01-0002 promulgating the Retail Rules for the Integration of Retail Competition and
Open Access in the Wholesale Electricity Spot Market, which provides that Chapter 8
of the WESM Rules shall apply with respect to making changes to the Retail Rules
and Market Manuals, to be approved by the DOE;

WHEREAS, on 14 May 2019, in compliance with Chapter 8 of the WESM Rules, the
Philippine Electricity Market Board (PEM Board), after due process, endorsed for the
DOE's approval its proposed amendments to the WESM Rules, Retail Rules, PEM
Audit Manual, and Guidelines Governing the Constitution of the PEM Board
Committees intended to enhance the preparation and implementation of market audits
and the performance monitoring of WESM service providers considering the
recommendations of external auditors:

WHEREAS, the DOE, subjected the proposed amendments to series of virtual public
consultations on the following dates:

Leg Venue / Platform
15 June 2020 Luzon Microsoft Teams
17 June 2020 Visayas ! Microsoft Teams
19 June 2020 Mindanao Microsoft Teams

WHEREAS, on 21 April 2021, after review and consideration of the comments and
recommendations received, the DOE remanded the proposal to the PEM Board
recommending further review of the proposal particularly on the primary responsibility
of the PEM Audit Committee as provided in the WESM Rules and its Market Manuals,

Encrgy Center, Rizal Drive cor. 34th Street, Bonifacio Global City, Taguig City, Philippines 1632
Tel. No. (Trunklfinc) (632) 8479-2900
4 Website: httn://www.doc.gov.ph: E-mail: infoddoc.gov.ph
=== dc2022-03-0012-pages-02.ppm ===
clarity on the conduct of periodic audit and harmonization of the Market Operator’s
function as Central Registration Body, among others:

WHEREAS on 29 November 2021, after due process, the PEM Board submitted for
the DOE’s final approval, the revised proposed amendments to the WESM Rules,
Retail Rules, PEM Audit Manual, and Guidelines Governing the Constitution of the
PEM Board Committees taking into account the DOE’s recommendations;

WHEREAS, after careful review of the proposal and the comments and
recommendations received on the same, the DOE finds the same in line with the
objectives of the EPIRA and the WESM Rules;

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 various Market Manuals:

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

a. Clause 1.4.6 (Formation of Committees) under Governance of the Market is
amended to read as —

“446 Formation of Committees

The PEM Board shall form working groups and appoint qualified personnel
who shall act as the following:

(a) The PEM Audit Committee to conduct audits of the operation of
the spot market, and of the Market Operator, and Metering
Service Providers in accordance with Clause 1.5.2;

”

XXX XXX XXX
b. Additional Clause under 1.4.7.1 is added to read as —

“4.4.7.1 The Governance Arm, through the PEM Board shall establish such unit or
units within the Governance Arm which shall have the following powers
and functions:

XXX XXX XXX
(c) An internal audit unit that will:

(i) Provide check and balance within the company;

(ii) Examine and evaluate adequacy and effectiveness of controls in
existing policies, systems, procedures, standards and practices
of management;

(iii) Verify that policies approved by the PEM Board are implemented
by the Management; and

(iv) Conduct audit/review required in the WESM Rules and Manuals
as may be requested by the Board Audit Committee and the PEM
Audit Committee.

pc — Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail
Rules and Market Manuals (Provisions for Audit and Performance Monitoring)
2/6

=== dc2022-03-0012-pages-03.ppm ===
(

7

¢

c. Clause 1.5 (THE PHILIPPINES ELECTRICITY MARKET AUDITOR) and its sub-
clauses are amended to read as —

“41.5

1.5.1

1.5.1.1

1.5.1.2

1.5.1.3

THE PEM AUDIT COMMITTEE
Appointment to the PEM Audit Committee

The PEM Board shall appoint persons to form a PEM Audit Committee
in such number and with such skills and expertise, and on such terms
and conditions, as the PEM Board reasonably deems to be appropriate,
taking into consideration the nature of the obligations and functions of
the, PEM Audit Committee as set out in Clause 1.5.2 and Clause 5.2.6.

A member of the PEM Audit Committee shall not currently or has not
been employed within one year prior to the nomination date by any
Philippine electric power industry participants.

The members of the PEM Audit Committee must have sufficient relevant
experience in one or more of the following fields:

) Power industry;

) Economics;

) Risk management;

) Information technology and information systems; and/or
)

performance of audits.”

d. Clause 1.5.2 (Responsibilities of the Auditor) is amended to read as —

“4.5.2

Responsibilities of the PEM Audit Committee
The PEM Audit Committee shall:

(a) Conduct audits of the procedures, persons, and systems of the
Market Operator, and the Metering Services Providers as they are
relevant to the spot market;

XXX XXX XXX

(d) Recommend changes to the WESM Rules and relevant Market
Manuals where deficiencies have been identified as a consequence
of an audit, review, test, check or other form of review; and

(e) Publish in the Governance Arm Website the results of any findings
or recommendations under Clause 5.2.6.”

DC

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail

Rules and Market Manuals (Provisions for Audit and Performance Monitoring)

3/6
=== dc2022-03-0012-pages-04.ppm ===
e. Clause 1.5.3 (Review of WESM Rules) is amended to read as —
“1.5.3 Review of WESM Rules

The PEM Audit Committee may engage the services of a qualified team
of auditors to carry out the review of the scheduling and central dispatch
process under the WESM Rules.

yy

XXX XXX XXX
f. Clause 4.5.5.4 under Security of Metering Equipment is amended to read as ~

“4.5.5.4 The PEM Audit Committee, in consultation with the Market Operator and
Metering Services Providers, shall review the security arrangements,
and_ the compliance of metering installations with the requirements of
the WESM Rules, its applicable Market Manuals and other relevant
laws and issuances. The said review shall be conducted periodically.”

g. Clause 5.2.6 (Market Audit) and its sub-clauses are amended to read as —
"5.2.6 Market Audits

5.2.6.1 The PEM Audit Committee shall arrange for the audit of the Market
Operator and the Metering Services Providers, pursuant to Clause 1.5.2
periodically.

5.2.6.2 The spot market audit shall cover and review compliance by the Market
Operator with the WESM Rules, its Market Manuals, and its procedures
and assess the effectiveness and appropriateness of the systems
utilized in the operation of the spot market. The scope of the audit shall,
include, but shall not be limited to a review of:

(a) All new market-related software and modifications to the existing
software implemented by the Market Operator for electricity markets;

XXX XXX XXX

(e) The processes for software management including the Information
and Communications Technology Change Management Process or
“ICMP” instituted by the Market Operator, in accordance to Clause
5.2.6.2 (a) and PEM Audit Market Manual; and

(f) The Market Operator's compliance with the WESM Rules, Market
Manuals and other relevant laws and issuances.

5.2.6.3. The market audit of the Metering Service Providers shall cover the
review of their compliance with their responsibilities under the WESM
Rules, applicable provisions under the Grid Code and other relevant
rules and regulation, including the effectiveness and appropriateness of
systems utilized that are relevant in the operation of the spot market.

DC ~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail
Rules and Market Manuals (Provisions for Audit and Performance Monitoring)

Pr 4/6
=== dc2022-03-0012-pages-05.ppm ===
5.2.6.4 The PEM Audit Committee may engage the services of a qualified team
of auditors in the conduct of audits as outlined in Clause 1.5.2, Clause
5.2.6.2 and Clause 5.2.6.3.

5.2.6.5 The PEM Audit Committee shall prepare a report on the results of market
audits conducted. The said report shall be made available to the parties
audited, DOE, the ERC, the PEM Board and WESM members.”
h. Clause 6.9.4.1 under the Market Intervention Report is amended to read as —
“6.9.4.1 Upon the concurrence of one or more of the following events:
XXX XXX XXX
the PEM Board shall, within ten days thereof, direct the Market
Surveillance Committee to investigate the circumstances of that event
and prepare a report to assess:
XXX XXX XXX
(d) Any finding of potential, fault of any WESM Participant including a
preliminary recommendation for further evaluation by the PEM Audit
Committee.

i. The term PEM Auditor in the Glossary is amended to read as —

“PEM Audit Committee. The committee appointed by the PEM Board
under Clause 1.4.6 to undertake the functions as set out in Clause 1.5.2”

Section 2. Adoption of the PEM Audit Market Manual. The PEM Audit Market
Manual attached as Annex A to this Circular is hereby adopted.

Section 3. Amendments to the Retail Rules. The following provisions in the Retail
Rules are hereby amended:

a. Section 1.4.3.1 is amended to read as -
“4.4.3.1. The PEM Audit Committee shall:

(a) Conduct the audit of the Central Registration Body and the systems,
processes and procedures and other matters relevant to the
operations of the Central Registration Body and the performance of
its functions as set forth in these Retail Rules; and

(b) Test and check any new items or new versions of market-related
software used by the Central Registration Body or provided by the
Central Registration Body for use by WESM Members.”

b. Clause 1.4.3.2 is amended to read as -

DC — Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail
Rules and Market Manuals (Provisions for Audit and Performance Monitoring)

Pr 5/6

=== dc2022-03-0012-pages-06.ppm ===
“1.4.3.2 The PEM Audit Committee shall perform the functions stated in Clause
1.4.3.1 in accordance with Chapter 1 of the Retail Rules and relevant
Market Manuals.”

c. Clause 4.5.3.10 is amended to read as -

4.5.3.10 The PEM Audit Committee

”

XXX XXX XXX
d. Clause 4.8.1 is amended to read as -

“The PEM Audit Committee shall conduct the review and audit of the metering
arrangements and compliance of Refail Metering Services Providers and Central
Registration Body to the requirements of the Retail Rules, its applicable Manuals
and other relevant laws and issuances. The said review shall be conducted
periodically.”

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

Section 6. Effectivity. This Circular shall take effect fifteen (15) days following its
complete publication in at least two (2) newspapers of general circulation and shall
remain in effect until otherwise revoked.

Issued this 2022 at the DOE, Energy Center, Rizal Drive, Bonifacio Global City,
Taguig City, Metro Manila.

oO OSS. cu I

Secretary

Republic of the Philippines
DEPARTMENT OF ENERGY
IN REPLYING PLS, CITE:

eT OHA

MAR 25 2022

DC — Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail
Rules and Market Manuals (Provisions for Audit and Performance Monitoring)

Pr 6/6
=== dc2022-03-0012-pages-07.ppm ===
Annex A

PEM Audit Market Manual

DC. - Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail
Rules and Market Manuals (Provisions for Audit and Performance Monitoring)

al
=== dc2022-03-0012-pages-08.ppm ===
Table of Contents

SECTION 1. INTRODUCTION 00. eeccc ccc cetteetneseeecssesenseeesentstesecenaeeeees 1
1.1 BACKGROUND 00000. eect cence tt teet tate state ectteeserirttentetteeenns 1
1.2 PURPOSE 0000. cece cnecreenteeeetnteeeenieeeeetisaeeesesssseeceesstttttteseeeennnnes 1
1.3. SCOPE ooo eee ce nee cee erseecteeseteesteeeeneeseteesteeeetistesesttseeentateesees 2

SECTION 2. DEFINITIONS, INTERPRETATION AND CONSTRUCTION ................ 3
2.1 DEFINITIONS ooo ec cecccseeccnererestieeecniseeseentsteessntiiseeeeesenteaeeeeceens 3
2.2 INTERPRETATION AND CONSTRUCTION 0.0.0. eeesrceeeeeeeeentteeeaes 4

SECTION 3. THE PEM AUDIT COMMITTEE .....0000. 0c cecctreeeeerttteaeeeeteetnnaies 5
3.1 RESPONSIBILITIES 000 cee ernereteeestterenreenteeesstseeersiieeesenseaes 5
3.2. SCOPE OF WORK AND FUNCTIONS 000i eececercerttttteeeesenttaeaeeeees 6
3.3. REPORTS... ccc cence ster cennreeesnnerecentteseesiiresessnntaeeeeessrttiiseeeeeeces 8

SECTION 4. ENGAGEMENT OF Qualified Auditors oo... cece eee teeeeetetes 10

SECTION 5. AUDITS ooo. eect cern eerrenseestiieesestteeesseniteeeessstenteeeecetenees 11
5.1. GUIDELINES FOR THE CONDUCT OF AUDITS... ects 11
5.2. AUDIT OF THE SPOT MARKET AND THE MARKET OPERATOR.......... 12
5.3. AUDIT OF THE SOFTWARE OF THE MARKET OPERATOR..............0... 15
5.4 REVIEW OF METERING INSTALLATIONS AND ARRANGEMENTS ...... 17
5.5 AUDIT OF THE CENTRAL REGISTRATION BODY .ou...... eee 18
5.6 AUDIT AS REQUESTED BY THE ENFORCEMENT AND COMPLIANCE
OFFICE 000... cece cneetcccce cee ennnneeeeeecentesseccenseeeeeeeeeneaaeeeceeeeeeeneteeeeeeeeeeeeeeseteneeteetes 20
5.7 AUDIT PROCESS... ccc eee ee eerteeee err eennititneetereeeeeeeteeeeterenee es 22
5.8 AUDIT RESULTS... cnt eerie ee ticitteeeteerenetennintttireteeaes 23
5.9 AUDIT COSTS 000 cece eetneeeeretnteertneereesniesegseriteteeeersnenrenereess 24

SECTION 6. DATA AND INFORMATION ...00.. o.oo ccecceceseceeeeesteeeeeeesettateetererstsereeess 24

SECTION 7. LIMITATION OF LIABILITY AND INDEMNIFICATION .......0.0.... 26

SECTION 8. AMENDMENT AND EFFECTIVITY OF THE MANUAL...............00..00.. 27

DC

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail

Rules and Market Manuals (Provisions for Audit and Performance Monitoring)
=== dc2022-03-0012-pages-09.ppm ===
SECTION 1. INTRODUCTION

1.1

BACKGROUND

1.1.1 The Wholesale Electricity Spot Market Rules (the “WESM Rules’ or the “Rules”),
under Clause 1.4.6 provides for the formation of a PEM Audit Committee to
conduct of audits of the operation of the spot market, the Market Operator and
Metering Service Providers.

1.2

This Manual is developed in accordance with Clauses 1.5.2, 5.2.6.2 and 5.2.6.3
of the WESM Rules, and Clauses 1.4.3.1 and 4.8.1 of the Retail Rules which
mandate the PEM Audit Committee to be responsible for:

a)

e)

Conduct of audits of the procedures, persons and systems of the Market
Operator and the Metering Services Providers as they relate to the operation
of the spot market;

Test and check any enhancements or updates in the market infrastructure
including any new items or version of software provided by the Market
Operator for use of WESM Members;

Review any procedures and practices which are covered by the WESM Rules
at the direction of the PEM Board;

Recommend changes to the WESM Rules, Retail Rules and relevant Market
Manuals where the PAC identified deficiencies as a consequence of an audit,
review, test, check or other form of review;

Prepare and publish in the Governance Arm website the results of any
findings and recommendations relative to the conduct of market audits.

PURPOSE

1.2.1 The general objectives of this Manual are the following:

DC

a)

b)

Establish the requisites and mechanisms to ensure the independence and
transparency of the market audits and review by the PEM Audit Committee;

Establish the requisites and mechanisms to ensure independent and effective
audits of the spot market and of the Market Operator, and the Metering

-- Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

al
=== dc2022-03-0012-pages-10.ppm ===
£

1.2.2

1.2.3

Services Providers, as well as to ensure compliance and non-discrimination
in applying the WESM Rules, the Retail Rules and its Market Manuals;

c) Establish effective procedures and audit processes when the PEM Audit
Committee is requested to assess compliance or identify problems in the
implementation or application of the WESM Rules regarding generation
scheduling, dispatch, price setting and settlement:

d) Clarify the different types of audits that may be requested from the PEM Audit
Committee, including special audits of a WESM Member, a Metering Services
Provider, the System Operator or the Market Operator when requested by the
PEM Board or in the assessment or investigation of an alleged breach;

e) Clarify the rights and responsibilities of the PEM Audit Committee in
proposing amendments to the WESM Rules, the Retail Rules or its Market
Manuals when identifying, through audit processes, problems in the design or
implementation or application of the WESM Rules, the Retail Rules or its
Market Manuals.

f) Establish the role of the PEM Audit Committee in relation to the review of
metering installations and arrangements; and

g) Establish the rights and mechanisms for the PEM Audit Committee to engage
qualified team of auditors and the mechanisms for field audits.

This Market Manual provides the objectives, scope and the procedures for the
conduct of the audits of the Market Operator and the spot market, and Metering
Services Providers or specific audits of WESM Members requested of the PEM
Audit Committee.

This Market Manual also defines the responsibilities and the functions of the PEM
Audit Committee pursuant to the relevant provisions of the WESM Rules and the
Retail Rules and Market Manuals.

1.3. SCOPE

1.3.1

DC

This Market Manual covers all related activities and procedures in relation to the
PEM Audit Committee audit of the spot market and the Market Operator, the
Metering Services Providers and special audits of WESM Members. This
includes the following:

a) Adescription of the functions, reports and responsibilities of the PEM Audit
Committee;

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

al

=== dc2022-03-0012-pages-11.ppm ===
1.3.2

1.3.3

1.3.4

Access rights to the audit reports, proposed recommendations by auditors
and the final recommendations of the PEM Audit Committee;

Review of implementation and results of audit recommendations;

Procedures, general methodology and scope of an audit and the audit
results;

Interaction between the PEM Audit Committee and the Enforcement and
Compliance Office (ECO) or the PEM Board when requested an
assessment or audit related to an investigation of an alleged breach;

Procedures and criteria for the PEM Audit Committee to assess the
efficiency, validity and justification of new software or modifications to
existing software of the Market Operator;

A description of interactions between the PEM Audit Committee and the
PEM Board, and the Rules Change Committee in relation to the results and
recommendations of the audits, leading to proposals for the amendment of
the WESM Rules, the Retail Rules, or its Market Manuals.

This Market Manual provides for a streamlined process for the audit of the spot
market, the Market Operator and its responsibilities as the Central Registration
Body, and the Metering Services Providers.

This Market Manual also covers the interaction between the PEM Audit
Committee, the ECO and the PEM Board in relation to any request by the ECO
or the PEM Board for the PEM Audit Committee to assist, through its audits, in
the assessment or investigation of an alleged breach.

For the purpose of this Market Manual, any act, omission, conduct or behavior

and the like contrary to or not in compliance with the WESM Rules, Retail Rules
and Market Manuals shall be considered a breach, as defined in the WESM
Penalty Manual.

I SECTION 2. DEFINITIONS, INTERPRETATION AND CONSTRUCTION

2.1

DEFINITIONS

Unless otherwise defined in this Manual, terms and acronyms used in this Manual shall
have the same definition as that in the WESM Rules.

DC.

~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

/

GQ

=== dc2022-03-0012-pages-12.ppm ===
2.2

2.2.1

2.2.2

2.2.5

2.2.6

2.2.7

2.2.8

2.2.9

DC

Audit Report refers to the report of the PEM Audit Committee or the auditors that
presents the audit results and recommendations.

Independent Auditor refers to the third party entity with adequate expertise,
organized to conduct market audits or special audits of the processes and the
systems of the WESM and the Retail Market and review of the Metering Service
Providers (MSPs) and metering installation and arrangement.

Independent means a person that is considered as independent of the Philippine
electric power industry, in accordance with the criteria set forth in the WESM
Rules.

INTERPRETATION AND CONSTRUCTION

Any Annex to this Manual shall be considered an integral part hereof.

Any reference to "this Market Manual" or “this Manual" is a reference to the whole
of this PEM Audit Market Manual, including all its Annexes.

The singular includes the plural and vice versa.

The words “such as”, "include", "including", “for example” and "in particular” shall
be construed as being by way of illustration or emphasis only and shall not limit
or prejudice the generality of any foregoing words.

Headings in this Manual are for convenience only and shall not affect the
construction and interpretation of the provisions of this Manual.

Any reference to any law, regulation made under any law, rules or codes shall be
to that item as amended, modified, revised or replaced from time to time.

Unless otherwise stated or contextually inherent, any reference to a numbered
rule corresponds to that clause in the WESM Rules.

The provisions in this Manual, the WESM Rules, the Retail Rules and other
Market Manuals shall be read, construed and interpreted in such a manner as to
harmonize and reconcile each and every provision thereof. In the event of
inconsistency, the WESM Rules or the Retail Rules, whichever is applicable,
shall prevail.

Should any provision of this Manual be declared invalid or nullified by any court

or authority of competent jurisdiction, the other provisions not affected by the
declaration of invalidity or nullity shall continue to be in full force and effect.

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

ard Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

q

By
=== dc2022-03-0012-pages-13.ppm ===
—m_\

2.2.10 If part of a provision of this Manual should be invalidated or nullified by any court

or authority of competent jurisdiction, but the rest of such provision would remain
valid if part of the wording were deleted, the provision shall apply with such
minimum modification as may be:

a) Necessary to make it valid and effective; and

b) Most closely achieves the result of the original wording but without affecting
the meaning or validity of any other provision of this Manual.

|

SECTION 3. THE PEM AUDIT COMMITTEE

3.1

3.1.1

RESPONSIBILITIES

Pursuant to WESM Rules Clause 1.5.2, the PEM Audit Committee shall conduct
the effective and independent audits of the operation of the spot market and of
the Market Operator and the Metering Services Providers in accordance with the
processes discussed in this Manual and provide recommendations consistent
with the WESM Objectives, in order to reinforce the Trading Participants’
confidence in the transparency and adequacy of the operation of the WESM and
the Retail Market.

The PEM Audit Committee shail support and facilitate the assessment or
investigation of an alleged breach of the WESM Rules, the Retail Rules or its
Market Manuals, whenever requested by the ECO, Compliance Committee or
the PEM Board. In this regard, the PEM Audit Committee may initiate the conduct
of specific audits of WESM Members, Metering Services Providers, the System
Operator, or the Market Operator pursuant to the standards, systems and
procedures established in the WESM Rules, the Retail Rules or its Market
Manuals. The PEM Audit Committee shall coordinate and supervise the required
audits, inform the PEM Board and/or the Compliance Committee, and/or the ECO
of its audit findings and give its opinion in relation to the alleged breach.

In the performance of its responsibilities, the PEM Audit Committee shall
endeavor to conduct audits and provide its recommendations consistent with -

a) The development of the WESM and the Retail Market in a manner that is
sustainable, competitive, efficient, transparent and reliable;

b) Consistency and transparency; and

c) Efficient and effective systems, software and working processes.

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

DC
and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

al

=== dc2022-03-0012-pages-14.ppm ===
—~

3.1.5

3.1.6

3.1.8

The PEM Audit Committee shall observe all provisions of the WESM Rules, the
Retail Rules and Market Manuals that are applicable to its functions and
responsibilities, as well as any standard of conduct or conflict of interest
guidelines prescribed by the PEM Board.

The PEM Audit Committee shall implement effective data management of its
audit processes and organize, maintain and review audit results, findings and the
implementation of audit recommendations.

The PEM Audit Committee shall ensure adequate follow up of all audit
recommendations, and verify, in relation to problems and issues identified in an
audit, whether the action plans to address the audit findings and
recommendations were implemented. Likewise, the PEM Audit Committee shall
assess if the action plans addressed the audit findings and achieved the desired
outcomes and solved the identified problems.

The PEM Audit Committee shall implement a mechanism to track the status of
action plans committed to address deficiencies identified in the audits.

The PEM Audit Committee shail implement for each audit conducted a post-
implementation review to ensure that appropriate attention is given to the audit
findings and that the concerned parties are implementing the action plans
committed to address the audit findings. In particular, the PEM Audit Committee
shall include the following as part of the scope of work of each audit, viz.:

a) The review of the measures implemented and actions taken in view of the
recommendations made for the same type of audit conducted previously;

b) Comments on the adequacy of the measures implemented and actions taken
in view of the findings and recommendations of the previous audit; and

c) Further recommendations, if problems found in the previous audit continue to
be unsolved or if the party was unable to put in place the enhancements
recommended in the previous audit.

The PEM Audit Committee shall review this Manual annually to identify any need
for updates and amendments.

3.2 SCOPE OF WORK AND FUNCTIONS

3.2.1

DC

The PEM Audit Committee has the following scope of work and specific functions:

a) Administer and ensure the effective implementation and operation of the
audit provisions of this Manual:

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

ard Market Manuals (Provisions for Audit and Performance Monitoring) —- Annex A

¢

)

PI

=== dc2022-03-0012-pages-15.ppm ===
DC

Review the adequacy and test any new, upgraded or modified software of
the Market Operator for the WESM or provided to WESM Members for their
own use;

Conduct effective and independent market audits, particularly but not limited
to:

i. The audit of the generation scheduling and dispatch process, price
calculation, market settlement; and

ii. The audit of any other procedures, processes, persons, systems or other
matters relevant to the WESM and the implementation of the WESM
Rules;

Conduct an audit of the Market Operator's systems, processes, procedures,
related facilities including market-related software used and other matters
relevant to the operations of the Retail market and the performance of the
Market Operator as the Central Registration Body;

Review or audit specific procedures, standards, facilities or systems related
to generation scheduling, dispatch, prices and settlement at the request of
the PEM Board, either to assess adequacy of such matters, procedures or
processes, or to audit compliance:

During an investigation of an alleged breach, and upon the request of the
ECO or the PEM Board, assess or audit compliance by a WESM Member,
Metering Services Provider/s, the System Operator or the Market Operator
on systems or procedures in relation to generation scheduling, dispatch and
settlement, or other systems and procedures established in the WESM Rules
or Retail Rules;

Submit written proposals for changes to the WESM Rules, the Retail Rules
and applicable Market Manuals concerning generation scheduling, central
dispatch, settlement and other matters covered in its auditing activities, if the
PEM Audit Committee identifies deficiencies as a result of an audit or review
process, or other tests or checks performed in the course of its duties;

Participate in the process for the selection of Independent Auditors to be
contracted for specific and specialized audits;

Prepare audit reports containing the main audit findings and the

recommendations to be implemented, and ensure that the reports are
published in the Governance Arm Website;

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) - Annex A

cal

a

=== dc2022-03-0012-pages-16.ppm ===
3.2.2

j) Maintain data, reports and other information related to the development and
results of the audit processes; and,

k) Conduct an audit of the market assessment system to determine if the
system is producing outcomes consistent with the WESM Rules and the
WESM objectives.

In performing its audit work, the PEM Audit Committee may engage the services
of qualified team of auditors.

3.3. REPORTS

3.3.1

3.3.2

3.3.3

3.3.4

DC

The PEM Audit Committee shall submit an Audit Report to the PEM Board within
thirty (30) calendar days after an audit is finalized.

The Audit Report to be submitted to the PEM Board shall contain the following:

a) An executive summary that provides a concise description of the audit
process, its results and recommendations;

b) A description of the scope and nature of the audit, and the parties audited;

c) If auditors were used, the name of the auditors or e team of auditors,, the
description of its relevant expertise and the report prepared by the auditors;

d) The description of the audit process and outcomes; and
e) The main findings and recommendations.

All information or data included in the Audit Report will take into consideration
the confidentiality practices established in this Manual and the WESM Rules.

The PEM Audit Committee shall submit the results of the audit conducted to the
PEM Board for its information. A copy of said report shall be provided to the
following:

a) WESM Governance Committees;
b) Department of Energy; and
c) Energy Regulatory Commission.

Within fifteen (15) working days after its presentation to the PEM Board, the PEM
Audit Committee shall prepare a public version of the Audit Report and publish
the same in the Governance Arm Website. The Audit Report to be published shall

include:

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

\

#)

=== dc2022-03-0012-pages-17.ppm ===
3.3.6

3.3.7

3.3.8

3.3.9

a) Adescription of the scope and nature of the audit, indicating parties audited
and auditors engaged, if any;

b) Asummarized description of the audit process and main findings; and
c) The audit results and recommendations to be implemented.

No information or data that qualifies as confidential shall be included in the Audit
Report for publication.

Any WESM Member, the Market Operator, the DOE or the ERC may request for
copies of the complete Audit Report, provided that the version given as a copy
shall not include information that qualifies as confidential in accordance with this
Manual, with the exemptions to confidentiality provisions established in the
WESM Rules.

After finalizing an audit requested by the ECO in the course of an assessment or
investigation of an alleged breach, the PEM Audit Committee shall prepare and
send to the ECO its Compliance Assessment Report. A copy of the report shall
also be furnished to the PEM Board for its information.

The PEM Audit Committee shall prepare and submit to the PEM Board Quarterly
Audit Assessment Reports, which shall contain:

a) A\list of the audits in progress and the corresponding status of the same;

b) Asummarized description of the scope, main finding and recommendations
of the audits, assessment and reviews finalized during the month;

c) An update on the implementation of the audit recommendations and
committed action plans; and

d) Any recommendation that may arise from the experiences in the audits
conducted.

No later than three (3) months after the end of the calendar year, the PEM Audit
Committee shall submit to the PEM Board its Annual Report, which sets out the
accomplishments of the Committee during the subject year and the proposed
Work Plan for the coming year.

The PEM Audit Committee shall publish its Annual Report in the Governance
Arm Website.

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

y

PI
=== dc2022-03-0012-pages-18.ppm ===
SECTION 4. ENGAGEMENT OF QUALIFIED AUDITORS

4.1

4.2

DC

Pursuant to WESM Rules Clause 5.2.6.3, and Clause 1.4.3 of the Retail Rules,
the PEM Audit Committee may engage the services of qualified team of auditors
in the following:

a)

9)

audit of Metering Service Providers, metering equipment, installations and
processes;

audit and/or certification of the Market Operator software;

audit of the WESM and the market processes and systems in relation to
generation scheduling, dispatch and settlement of the Market Operator to
assess adequacy and verify compliance with the WESM Rules.

audit of the Central Registration Body and the systems, processes and
procedures and other matters relevant to the operation of the Central
Registration Body and the performance of its functions as set forth in these
Retail Rules;

testing and checking any new items or new versions of market-related
software used by the Central Registration Body or provided by the Central
Registration Body for use by WESM members;

audit as may be requested by the Enforcement and Compliance Office, the
Compliance Committee, or the PEM Board to assess the finding of breach;

and

other audits as may be requested by the PEM Board.

The PEM Audit Committee may engage the services of Independent Auditors or
the internal audit unit of the Governance Arm. The internal audit unit of the
Governance Arm must have the sufficient and adequate expertise, certifications,
and resources for the conduct of applicable audits and have completed the
required capacity building and training.

The PEM Audit Committee shall define the guidelines in engaging the services of
the Independent Auditors and the internal audit unit of the Governance Arm for the
conduct of applicable audits.

The PEM Audit Committee shall endeavor to maximize the use of the members of
Technical Committee as technical experts or resource persons in relevant audit

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

J

#5

=== dc2022-03-0012-pages-19.ppm ===
activities that the PEM Audit Committee oversees, subject to compliance with the
independence provisions and qualifications established by the WESM Rules.

4.3 The engagement of an /ndependent Auditor by the PEM Audit Committee shall be
approved according to the established guidelines of the Governance Arm. In each
instance where the PEM Audit Committee requires external and independent
experts for its audits, the PEM Audit Committee shall prepare the terms of
reference for the audit work, describing the scope of work, timeframe and
deliverables. The terms of reference shall also describe the mechanism to
evaluate proposals and determine the winner that will be contracted as
independent external auditor.

SECTION 5. AUDITS |

5.1 GUIDELINES FOR THE CONDUCT OF AUDITS

5.1.1. All audits as enumerated under Section 5 of this Manual shall be conducted or
supervised and coordinated by the PEM Audit Committee.

5.1.2 Each audit shall include the following:

a) Terms of reference with a list of tasks, covering the processes, information
and systems to be audited:

b) An audit process within a specified timeframe;
c) An audit report, describing:

i. The audit process;

ii. Main findings, highlighting areas where there are non-compliances
with the WESM Rules, Retail Rules or Market Manuals; and

iii. Conclusions and recommendations.

5.1.3 The PEM Audit Committee, in consultation with the Auditee, shall prepare the
terms of reference for the audit to be conducted.

5.1.4 The terms of reference for all audits shall be published in the Governance Arm
Website for comments of WESM Participants and interested parties. The PEM
Audit Committee shall take into consideration the comments and observations
received and revise the terms of reference accordingly, as applicable.

DBC. -— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules
and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

PI

=== dc2022-03-0012-pages-20.ppm ===
5.1.5 In order to streamline the audit process and avoid unnecessary duplications,
where possible, the PEM Audit Committee shall coordinate with the Auditee on
the scope of the audit to be conducted.

5.2. AUDIT OF THE SPOT MARKET AND THE MARKET OPERATOR

5.2.1 The PEM Audit Committee shall conduct periodic audits at least once at interval
not exceeding three years from the last audit considering the results of past audits
that indicate that the Market Operator has demonstrated an acceptable level of
maturity in its compliance with the WESM rules and related standards.

After the first three (3) audits of a particular system or process, the PAC may
consider reducing the frequency of the periodic audits based on the Market
Operator's compliance maturity level. The PAC deems a system or process to be
mature when it has consistently exhibit no or minimal audit findings for the past
three (3) audits and whose impact do not pose significant operational, legal or
market risks.

5.2.2 The general objectives of the audit of the spot market and the Market Operator
are to:

a) Assess the procedures and working processes of the Market Operator;

b) Assess the usefulness and appropriateness of the settlement system, data
management and other procedures and working processes of the Market
Operator to administer the WESM, in order to:

i. Identify appropriate steps and measures to help the Market Operator
effectively and efficiently perform its responsibilities in time and form in
accordance with the WESM Rules, Retail Rules and Market Manuals;

ii. Review that the Market Operator's practices and work processes to
ensure the necessary transparency, independence, predictability and
non-discrimination, and compliance with the WESM Rules and best
international practices; and

iii. Assess if the systems, calculations, information flows and data
management protect accuracy and quality of the data and results in
non-discriminatory generation scheduling, dispatch, prices and
settlement, as well as evaluate if internal controls exist and are sufficient
to guarantee security and confidentiality where appropriate.

DC — Adopting Further Amendments to the Whoiesale Electricity Spot Market (WESM) Rules, Retail Rules
and Market Manuals (Provisions for Audit and Performance Monitoring) - Annex A

‘
y

=== dc2022-03-0012-pages-21.ppm ===
"

5.2.3

5.2.4

5.2.5

DC

Assess the usefulness and appropriateness of the interfaces and exchange
of information between the System Operator and the Market Operator in
relation to generation scheduling, constraints and dispatch;

Review compliance by the Market Operator with the WESM Rules, its Market
Manuals, and among other things, the Market Operator's compliance with the
scheduling and central dispatch procedures under the WESM Rules and
applicable Market Manuals and the feasibility and adequacy of the
scheduling and central dispatch procedures; and

Recommend improvements in the spot market and the operation of the
Market Operator where necessary.

The following criteria shall be used to assess the spot market and the Market
Operator:

a)

9)

Clear accountability in the performance of Market Operator functions and
responsibilities;

Adequacy of trained staff to perform the assigned tasks and use the systems:
Efficiency of processes (e.g. time response):

Accuracy of tasks (e.g. number of errors in settlement statements);
Compliance with the WESM Rules and its Market Manuals;

Alignment of processes with the WESM Rules and its Market Manuals; and

Quality of the service measured in terms of frequency and level of complaints.

In order to streamline the audit process and avoid unnecessary duplications,
where possible, the PEM Audit Committee shall coordinate with the Market
Operator on the scope of the audit of the spot market.

The PEM Audit Committee with the assistance of the Market Operator, shall
prepare the standard terms of reference for the audit of the spot market and the
Market Operator covering the general scope described in Section 5.2.2. The
standard terms of reference shall include the following tasks:

a)

Verification that all market-related software that have been modified or newly-
deployed by the Market Operator for the WESM comply with the WESM
Rules and Market Manuals;

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

V)

=== dc2022-03-0012-pages-22.ppm ===
Review of the calculations and allocations performed to determine energy for
the settlement calculations in each trading point and for each Trading
Participant, and the adequacy of the metering systems;

Review of the calculations and allocations performed in the settlement
process, and the adequacy and usefulness of the settlement systems;

Review and assessment of the billing and settlement system;

Review and assessment of the procedures, processes and systems for
generation scheduling and dispatch, including management of submission
and validation of bids and offers as well as the adequacy and usefulness of
the coordination arrangements and systems of the System Operator;

Review and assessment of the processes for software management and data
protection;

Review of the Market Operator's compliance with the WESM Rules and
Market Manuals and as necessary, recommendations for enhancements in
processes to achieve best international! practices;

Review of the market assessment system administered by the Market
Assessment Group, and any procedures used by the Market Assessment
Group in the collection, validation and processing of market monitoring data,
and calculation of monitoring indices; and

Except for the first audit, review of the measures and actions taken by the
Market Operator in view of the findings and recommendations of the previous
audit, and assessment of the adequacy and effective results of such
measures and actions.

5.3. AUDIT OF THE SOFTWARE OF THE MARKET OPERATOR

5.3.1. The Market Operator shall not implement a new software or associated system,
or modify an existing software or its associated system for generation scheduling,
dispatch or settlement or price calculation relevant to the WESM without —

a)

DC

Prior notice to all WESM Members, PEM Audit Committee, the PEM Board,
the DOE and the ERC; and

Undergoing the ICT Change Management Process instituted by the Market
Operator in accordance with WESM Rules Clause 5.2.6.2.

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

, Bp
=== dc2022-03-0012-pages-23.ppm ===
5.3.2 All new software or modifications to existing software shall be implemented
through the ICT Change Management Process and shall be subject to post audit
and/or certification to ensure proper and timely review, approval, and monitoring
of all activities on all stages of the change management process.

5.3.3 If the Market Operator wants to implement a new software for generation
scheduling, dispatch, price calculation or settlement, or modify or replace an
existing one, the Market Operator shall send a report to the PEM Audit Committee
describing —

a) The software to be implemented (a new software) or the software to be
modified;

b) Ifan existing software is going to be modified or replaced, a description of —

i. The reasons that justify the change, including any problem or shortfall
identified in the existing software, if any;

ii. Expected improvements, particularly in relation to transparency,
efficiency, data processing and response time; and

iii. | The scope of the proposed modification or, if the existing software is
going to be replaced, the description of the new software and main
differences with the existing one.

c) If anew software is going to be implemented, a description of -

i. The reasons that justify the new software, particularly the expected
improvements in efficiency, data processing and response time;

ii, | The description of the new software;

iii. | The description of the tests performed and results that prove that the
software has been sufficiently and adequately tested in trial mode,
produces accurate results and is ready for implementation; and

iv. Findings and details thereof, proving that the modified or new software
will be in full compliance with the WESM Rules.

5.3.4 As part of the software review, the following information shall be submitted to the
PEM Audit Committee:

a) list of all software that have been implemented and modified within the
covered audit period; and

~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules
and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

‘ @
=== dc2022-03-0012-pages-24.ppm ===
9.3.5

5.3.6

5.3.7

5.3.8

5.3.9

DC

b) documentation of all the tests performed and results that prove that the
software has been sufficiently and adequately tested in trial mode, produces
accurate results and is ready for implementation.

The PEM Audit Committee shall review the report of the Market Operator and
may request clarifications and further information. In particular, the PEM Audit
Committee may organize a meeting with the relevant staff of the Market Operator
to discuss the characteristics, any limitation or potential problem, and other
conditions of the software that may impact predictability, transparency or
compliance with the WESM Rules.

The review of the software of the Marker Operator shall encompass the testing
of the software to verify accuracy of results and compliance with all the
requirements and procedures established in the WESM Rules. The PEM Audit
Committee shall request a series of test runs of the software to verify that it works
properly, even in special conditions.

After finalizing the review and tests, as applicable, and based on the information
gathered, the PEM Audit Committee shall prepare and submit to the Market
Operator and the PEM Board a Software Review Report. The outcome of the
review and recommendation shall indicate —

a) Ifthe software is ready for implementation and in compliance with the WESM
Rules and the WESM objectives; or

b) Recommendations on measures or changes prior to implementing the
software, to ensure full compliance with the WESM Rules and the WESM
objectives.

Once the PEM Audit Committee determines that the software is accurate and
ready for use, the PEM Audit Committee will prepare and submit to the Market
Operator a Software Review Report approving the software, with copy thereof
furnished to the PEM Board. For software ready for use by WESM Members, the
Market Operator shall publish the approval of the new software or the change to
the existing software in the Governance Arm Website for the information of the
WESM Members.

The certification issued by the auditor that the settlement software is consistent
with the WESM Rules shall serve as evidence that the charges or payments
shown in a settlement statement have been calculated by a method consistent
with the WESM Rules.

-— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A
=== dc2022-03-0012-pages-25.ppm ===
5.4

5.4.4

5.4.2

5.4.4

5.4.5

DC

REVIEW OF METERING INSTALLATIONS AND ARRANGEMENTS

In accordance with the Philippine Grid Code and the Philippine Distribution Code,
Metering Services Providers, both in the WESM and in the Retail Market, have
the responsibility to supply, install, connect, own, test, calibrate, place in service,
operate, check, and maintain the metering system for settlement, ensuring the
accuracy and traceability of calibration and test results. Additionally, each
Metering Services Provider shall take all reasonable steps to prevent
unauthorized interference with the metering equipment.

As established in both the Philippine Grid Code and the Philippine Distribution
Code, a User shall have the right to request an audit of the settlement data related
to its account and the right to choose an independent third party qualified to
perform the audit. In such cases, the System Operator, Metering Services
Providers and Market Operator shall cooperate in the auditing process.

The general objective of the Review of Metering Installations and Arrangements
is to assess the adequacy of the metering standards and security systems and
processes in the WESM and in the Retail Market.

The PEM Audit Committee in consultation with the Market Operator and Metering
Service Providers (MSP) shall review the security arrangements and
requirements of metering installations.

The PEM Audit Committee shall conduct periodic audits at least once at interval
not exceeding three years from the last audit considering the results of past audits
that indicate that the Metering Service Providers have demonstrated an
acceptable level of maturity in its compliance with the WESM rules and related
standards.

After the first three (3) audits of a particular system or process, the PAC may
consider reducing the frequency of the periodic audits based on the Metering
Service Providers’ compliance maturity level. The PAC deems a system or
process to be mature when it has consistently exhibit no or minimal audit findings
for the past three (3) audits and whose impact do not pose significant operational,
legal or market risks.

The PEM Audit Committee, supported by the Technical Committee, shall conduct
an audit regarding the following:

a) Compliance with the requirements of metering installations;

b) Compliance with the security arrangements associated to metering systems
and processes; and

-~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

P)

=== dc2022-03-0012-pages-26.ppm ===
5.4.6

c) Adequacy of security arrangements by the Market Operator and work
procedures by Metering Services Providers.

The PEM Audit Committee, in consultation with the Technical Committee, shall
select a sample of metering sites where at least thirty percent (30%) of which
shall correspond to the metering points with largest volume within the WESM,
where metering errors or inadequacy can create the biggest impact and volume
error in the WESM.

5.5 AUDIT OF THE CENTRAL REGISTRATION BODY

5.5.1

5.5.2

DC

The PEM Audit Committee shall conduct an audit of the Central Registration
Body (CRB) and its systems, processes and procedures and other matters
relevant to the operation of the Centra! Registration Body.

The PEM Audit Committee shall conduct periodic audits at least once at interval
not exceeding three years from the last audit considering the results of past audits
that indicate that the Central Registration Body has demonstrated an acceptable
level of maturity in its compliance with the WESM rules and related standards.

After the first three (3) audits of a particular system or process, the PAC may
consider reducing the frequency of the periodic audits based on the Central
Registration Body's compliance maturity level. The PAC deems a system or
process to be mature when it has consistently exhibit no or minimal audit findings
for the past three (3) audits and whose impact do not pose significant operational,
legal or market risks.

The general objectives of the audit of the Central Registration Body are to:

a) Assess the procedures and working processes of the Central Registration
Body;

b) Assess the usefulness and appropriateness of the systems, data
management and other procedures and working processes of the Central
Registration Body to administer the Retail Market in order to:

i. Identify appropriate steps and measures to help the Central
Registration Body effectively and efficiently perform its responsibilities
in time and form in accordance with the Retail Rules and its Market
Manuals;

ii. Review that the Central Registration Body’s practices and work
processes to ensure the necessary transparency, independence,

-~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

P)
=== dc2022-03-0012-pages-27.ppm ===
5.5.3

5.5.4

5.5.5

DC.

d)

predictability and non-discrimination, and compliance with the Retail
Rules and best international practices; and

iii. Assess if the systems, calculations, information flows and data
management protect accuracy and quality of the data and results are
non-discriminatory, as well as evaluate if internal controls exist and are
sufficient to guarantee security and confidentiality where appropriate.

Review compliance by the Central Registration Body with the Retail Rules
and its Market Manuals; and

Recommend improvements in the retail market and the operation of the
Central Registration Body, where necessary.

The following criteria shall be used to assess the Central Registration Body:

a)

b)

g)

Clear accountability in the performance of the Central Registration Body’s
functions and responsibilities;

Adequacy of trained staff to perform the assigned tasks and use the systems;
Efficiency of processes (e.g. time response);

Accuracy of tasks (e.g. numbers of errors in settlement statements);
Compliance with the Retail Rules and its Market Manuals;

Alignment of processes with the Retail Rules and its Market Manuals; and

Quality of the service measured in terms of frequency and level of complaints.

In order to streamline the audit process and avoid unnecessary duplications,
where possible, the PEM Audit Committee shall coordinate with the Central
Registration Body on the scope of the audit of the market.

The PEM Audit Committee with the assistance of the Central Registration Body,
shall prepare the standard terms of reference for the audit of the Central
Registration Body covering the general scope described in the previous
paragraph. The standard terms of reference shall include the following tasks:

a)

Review of the systems, processes and procedures of the Central Registration
Body and other matters relevant to the operation of the Central Registration
Body and the performance of its functions as set out in the Retail Rules;

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

=== dc2022-03-0012-pages-28.ppm ===
5.6

5.6.1

5.6.2

5.6.3

DC

b) Test and check any new items or new versions of market-related software
used by the Central Registration Body or provided by the Central Registration
Body for use by WESM Members;

c) Review of the calculations and allocations performed to determine energy for
the settlement calculations in each trading point and for each Trading
Participant;

d) Review and assessment of the processes for software management and data
protection; and

e) Review of the Central Registration Body's compliance with the WESM Rules,
Retail Rules and relevant Market Manuals and as_ necessary,
recommendations for enhancements in processes to achieve best
international practices.

AUDIT AS REQUESTED BY THE ENFORCEMENT AND COMPLIANCE
OFFICE

lf requested by the Enforcement and Compliance Office or the Compliance
Committee, the PEM Audit Committee may audit a WESM Member, a Metering
Services Provider, the System Operator or the Market Operator in relation to
compliance with specific rules or standards or procedures in relation to
generation scheduling, dispatch, bidding, prices and settlement, as established
by the WESM Rules. The Enforcement and Compliance Office shall inform the
party or parties to be audited on the conduct of an audit, the specific type of audit
to be conducted, and the facilities, processes, systems or information to be
audited.

The PEM Audit Committee may conduct specific audits of:

a) WESM Members’ facilities, processes and/or information provided to the
Market Operator/Central Registration Body; or

b) Specific systems and processes of the System Operator/Central Registration
Body; or

c) Specific systems and processes of the Market Operator/Central Registration
Body in relation to generation scheduling, constraints, bids and offers,
dispatch, price calculation and settlement.

The Enforcement and Compliance Office shall request and coordinate with the
PEM Audit Committee on the required audit, as established in the previous
paragraph.

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WES) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) ~ Annex A
=== dc2022-03-0012-pages-29.ppm ===
5.6.4

5.6.5

5.6.6

5.6.7

Under confidentiality obligation, the Enforcement and Compliance Office shail
provide the PEM Audit Committee all the required information and data to assess
the alleged breach or to identify the details to be audited.

The party in alleged breach has the obligation to cooperate with the PEM Audit
Committee in the audit process, providing all the relevant data and other
information requested by the PEM Audit Committee and allowing the necessary
tests and audits.

In case the party being audited objects to submitting the data or information
requested by the PEM Audit Committee, the PEM Audit Committee shall ask the
Compliance Committee to request such data and information, and the
Compliance Committee shall then provide it to the PEM Audit Committee within
the established confidentiality provisions. If the party does not provide the data
and information requested by the Compliance Committee, it shall be considered
a breach of the WESM Rules.

In all cases, the party being audited is obliged to allow and facilitate the tests and
audits requested by the PEM Audit Committee, provided that the PEM Audit
Committee shall give an advance notice of not less than fifteen (15) business
days for any test or audit required, including a description of the scope and details
of the test and audit. Not allowing the test or audits requested by the PEM Audit
Committee shall be considered a breach.

5.7 AUDIT PROCESS

5.7.4

5.7.2

The PEM Audit Committee shall inform the party to be audited at least fifteen (15)
business days ahead of the proposed date of the audit. In this notification, the
following information will also be included;

a) The criteria, standards, rules or requirements that will be assessed during
the audit;

b) The length of time that the PEM Audit Committee reasonably believes will be
required for the audit;

c) The information and data required, together with the format and deadlines for
its submission; and

d) The names of the auditors who shall be conducting the audit.

The PEM Audit Committee, or through its designated auditors, shall carry out the
tests, collection of data and other information, review of documents, processes

~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) ~ Annex A

?)
=== dc2022-03-0012-pages-30.ppm ===
9.7.5

5.7.6

DC

and other adequate arrangements to assess and verify the standards,
requirements and compliance with the WESM Rules, Retail Rules and its Market
Manuals as applicable.

As necessary, field audits of facilities or systems shall be undertaken, which may
include technical tests and verifications and review of working processes and
compliance of such processes by relevant staff.

The field audit shall comply with the following steps:

a)

g)

The PEM Audit Committee shall advise the auditor of the facilities to be
audited, the scope of the audit, the details of the tests to be conducted and
results to be obtained:

The PEM Audit Committee shall inform the party to be audited (the one who
is responsible for the facilities to be audited) of the audit and the name of the
auditor at least fifteen (15) days prior to the schedule of the audit;

The auditor shall contact the party to be audited and inform both the party to
be audited and the PEM Audit Committee of the proposed timetable and work
plan. The party to be audited may request changes to the timetable for valid
reasons, but in no case cause a delay greater than five (5) business days to
the audit;

The auditor shall visit the site and perform the planned tests on facilities
and/or collect the required data. Staff of the party may be audited;

The auditor may ask the PEM Audit Committee to request data and other
information from the System Operator and the Market Operator as
applicable, to compare the data obtained in the tests or audits from the data
submitted to the System Operator or the Market Operator by the party
audited;

The auditor shall conduct an end of audit meeting with the party audited to
explain the first preliminary findings; and

The auditor shall submit his report to the PEM Audit Committee.

The PEM Audit Committee shall review the report and recommendations
submitted by the auditor and send the same to the Auditees for comment.

The Auditees shall review the draft final report, and provide comments or
request clarifications, as necessary. The PEM Audit Committee shall review the

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) - Annex A

5

=== dc2022-03-0012-pages-31.ppm ===
5.8

5.8.1

5.8.3

comments and observations received from the Auditees and facilitate revisions
on the draft final report, as applicable.

AUDIT RESULTS

The PEM Audit Committee or its designated auditor(s), as applicable, shall
prepare an Audit Report with the audit results, identifying and describing the
following:

a) Main findings;

b) Conditions that correspond to non- compliance;

c) Practices or processes or systems that should be enhanced, describing the
recommended enhancements;

d) Recommendations for rules change if necessary; and

e) Other recommendations to solve or address problems or non-compliance, or
other issues such as quality control, best practices and staff adequacy.

The auditor shall submit all deliverables and at the end of an audit, send its Audit
Report to the PEM Audit Committee for review and acceptance.

At the end of the audit, as applicable, the PEM Audit Committee shall send to the
entity that requested the audit the Audit Report, with the audit findings,
recommendations and proposed actions. The PEM Audit Committee shall also
send copy of the report to the party audited.

5.9 AUDIT COSTS

5.9.1

5.9.2

PEMC shall shoulder the cost of the audits conducted by the PEM Audit
Committee.

The cost of a special audit shall be paid by the party that requested the audit,
unless the audit was requested to verify compliance and the audit findings show
non-compliance, in which case the party or parties in non-compliance shall pay
the cost of the audit.

-

SECTION 6. DATA AND INFORMATION

6.1

DC

The System Operator shall ensure an audit trail of documentation that is fully
adequate to substantiate and reconstruct all relevant actions performed. For data

~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) ~ Annex A

=== dc2022-03-0012-pages-32.ppm ===
6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

DC

and documents related to the WESM Rules and this Manua!, such audit trail shall
be maintained for a period of at least seven (7) years, unless specified otherwise
in the WESM Rules or other Applicable Law, Rules and Regulations.

The System Operator shall provide the PEM Audit Committee or auditors
designated by the PEM Audit Committee, all the information required for auditing
purposes, within the timeframe and format required.

The System Operator shall retain the information provided by WESM Members
and the Market Operator, and the data calculated and reports prepared in the
planning and operation of the system, for the period and in accordance to the
conditions established in the WESM Rules and the Grid Code. The storing of such
information shall be appropriate for reasonable access as may be required for
auditing purposes.

The Market Operator shall ensure an adequate audit trail of documentation to
substantiate and reconstruct all relevant actions performed. For data and
documents related to the WESM Rules and this Manual, such audit trail shall be
maintained for a period of at least seven (7) years, unless specified otherwise in
the WESM Rules or other Applicable Law, Rules and Regulations.

The Market Operator shall provide the PEM Audit Committee or auditors
designated by the PEM Audit Committee all the information required for auditing
purposes, within the timeframe and format required.

The Market Operator shall retain information provided by the System Operator and
other WESM Members, and the data calculated and reports prepared in
generation scheduling, dispatch and administration of the WESM and its
settlement system, in accordance with the WESM Rules. The storing of such
information shall be appropriate for reasonable access as may be required for
auditing purposes of the WESM and the Market Operator.

A party audited shall submit in a timely manner the complete data, documents and
other information requested by the PEM Audit Committee or its designated auditor.

When a party is notified that an audit will be conducted, the party shall cooperate
with the audit and shall provide the PEMC staff or designated auditors, access to
the facilities, systems and information to be audited.

The PEM Audit Committee shall not disclose any information obtained in carrying
out its functions and responsibilities, or any finding and recommendations resulting
from an audit process, except as provided in this Manual and in the WESM Rules
and the Retail Rules.

- Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

=== dc2022-03-0012-pages-33.ppm ===
6.10 The PEM Audit Committee shall not use any information, be it confidential or not,

6.11

6.12

6.13

obtained in carrying out its functions and responsibilities for other purposes than
those established in this Manual and in the WESM Rules and in the Retail Rules.

When applicable in accordance with the confidentiality provision in the WESM
Rules, the Retail Rules and this Manual, information submitted to the PEM Audit
Committee will be designated and marked as "Confidential" and will be
administered with measures considered by the PEM Audit Committee as
necessary and reasonable to protect the confidentiality of the information.

A party providing any document or other information in the course of an audit may
request that the document or information be designated as confidential, if such
document or information qualifies as confidential according to the confidentiality
provisions in the WESM Rules. The PEM Audit Committee shall assess the
confidentiality claim and, at its own discretion, determine the validity of the request.
If the PEM Audit Committee agrees that the document or information qualifies as
confidential, the document or information will be designated and marked as
“Confidential”.

The PEM Audit Committee, Technical Committee and other auditors, as
applicable, shall enter into a confidentiality agreement with the entity providing the
information, as necessary.

SECTION 7. LIMITATION OF LIABILITY AND INDEMNIFICATION

7.1

7.2

DC

In performing its audit and review functions and responsibilities as contained in
this Manual, the members of the PEM Audit Committee and the Technical
Committee shall not be personally liable for any loss or damage suffered or
incurred by a WESM Member, the System Operator, the Metering Services

‘Providers, Market Operator or any other person as a consequence of any act or

omission of those persons in the performance of their functions unless the member
of the PEM Audit Committee or the Technical Committee member, as the case
may be, acted with malice, manifest partiality, bad faith, gross incompetence or
gross negligence.

Except for liability arising out of conduct involving malice, manifest partiality, bad
faith, gross incompetence or gross negligence, if any member of the PEM Audit
Committee or the Technical Committee is made liable to pay any amount for loss
or damage suffered or incurred by any person or entity as a consequence of any
of its acts or omissions in the performance of its duties, the PEMC shall indemnify

— Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules

and Market Manuals (Provisions for Audit and Performance Monitoring) ~ Annex A

P)
=== dc2022-03-0012-pages-34.ppm ===
said persons through an indemnification process to be developed by the PEM
Board. Said indemnification shall cover:

a) The full amount adjudged; and
b) The costs and expenses incurred by the PEM Audit Committee or the

Technical Committee, as applicable, in defending itself in the related
proceeding(s).

[ SECTION 8. AMENDMENT AND EFFECTIVITY OF THE MANUAL |

8.1 Any amendment to this Manual shall be approved by the DOE, following the
procedures for changes to Market Manuals set out in the WESM Rules and in the
relevant Market Manual.

8.2 This Market Manual, as it may be amended from time to time, shall be published
in the Governance Arm website.

This Market Manual or any amendment thereto shall become effective upon

approval of the DOE in accordance with WESM Rules Clause 8.6.4. The date of
the effectivity shall be indicated in this document.

~ Adopting Further Amendments to the Wholesale Electricity Spot Market (WESM) Rules, Retail Rules
and Market Manuals (Provisions for Audit and Performance Monitoring) — Annex A

Pp