# DC2010-05-0006 — Terminating the Default Wholesale Supplier Arrangement for WESM and Declaring a Disconnection Policy ## Department Circular No. DC2010-05-0006 Signed by: DOE Acting Secretary Jose C. Ibazeta Effectivity: 15 days from publication in a newspaper of general circulation; remains in effect until otherwise revoked --- ## WHEREAS RECITALS 1. DOE is mandated under EPIRA Section 30 to establish the WESM to facilitate a transparent, competitive, and reliable electricity market. 2. On 21 June 2006, DOE issued DC2006-06-008 declaring the launch of WESM in the Luzon Grid and terms for commencement of full commercial operations. 3. At WESM commercial operations commencement, not all electric industry participants — particularly Distribution Utilities — were able to meet the technical and commercial requirements to directly trade in WESM. 4. On 22 June 2006, DOE issued DC2006-06-0009 designating NPC and PSALM as the **Default Wholesale Suppliers (DWS)** to supply electricity imbalances of customers in the WESM. 5. DC2006-06-0009 Section 3 states the DWS arrangement shall be implemented for not longer than **one (1) year** from the start of WESM commercial operations in Luzon. 6. DC2006-06-0009 Section 4 states the DWS designation is an interim measure to ensure smooth transition from current supply arrangements to WESM. 7. WESM commercial operations commenced on **26 June 2006**. 8. As of 28 April 2010: - PSALM has bid out an aggregate rated capacity of **3,318.23 MW** — **87.82%** of the total 3,778.23 MW of PSALM/NPC owned generating assets in Luzon and Visayas grids. - PSALM has bid out **68.22%** (3,345.75 MW) of the total 4,904.55 MW capacity of NPC-IPP contracts in Luzon and Visayas grids. 9. The privatization of NPC generating plants and other PSALM power assets has significantly affected the ability of PSALM and NPC to supply the energy requirements of their customers. 10. There is a need to terminate the DWS since NPC and PSALM can no longer economically and effectively perform their duties as default wholesale supplier. 11. Terminating the DWS arrangement will leave DUs without a default electricity supplier for their contract imbalances and without any supplier if they fail to enter into a supply contract with a generator or other service provider. 12. DUs are encouraged to enter bilateral contracts with a generator or other service provider in a least cost manner. 13. DUs can withdraw electricity from the grid only as WESM Members (Direct or Indirect) pursuant to WESM Rules Section 2.2.4.2: "no person or entity shall be allowed to inject or withdraw electricity from the grid unless that person or entity is a registered member of the WESM." 14. DUs who are not WESM members do not have the right to withdraw electricity from the grid and should therefore be disconnected. 15. The OATS Rules provide that the Transmission Provider shall not be held liable for failure to deliver services if the Transmission Customer fails to comply with its obligations under the OATS Rules, Grid Code, and WESM Rules. --- ## OPERATIVE PROVISIONS **Section 1. Termination of the DWS Arrangement.** Given the inability of NPC and PSALM to economically and effectively perform their DWS duties due to current privatization levels, the DWS arrangement under DC2006-06-009 is hereby **terminated**. NPC and PSALM are relieved of their DWS designation. All other rules, resolutions, or circulars issued in relation to the DWS are hereby repealed. Termination applies to the grid where WESM is operational. **Section 2. Disconnection Policy.** 2.1 **Disconnection of Non-WESM Members.** Pursuant to WESM Rules Section 2.2.4.2, all persons or entities who fail to register with the WESM within **ninety (90) days** from the effectivity of this Circular shall be disconnected from the grid. Initially applies to the Luzon grid. 2.2 **Other grounds for disconnection.** DOE shall provide additional grounds for disconnection in guidelines to be formulated pursuant to Section 4.1. **Section 3. Transition Period.** Sections 1 and 2 are subjected to a **90-day transition period** from the circular's effectivity: 3.1 All DUs (privately-owned utilities and electric cooperatives), generation companies, and other entities connected to the grid are directed to register with the WESM. Failure to comply results in disconnection under Section 2. 3.2 Any DU with arrearages with NPC and PSALM at the time of the circular's effectivity shall be allowed to register in the WESM, provided the DU settles arrearages or enters into a restructuring agreement with NPC and PSALM within 90 days. Failure to comply constitutes a violation; subsequent settlement or restructuring is a condition for reconnection. 3.3 For private entities (generation companies, DUs, transmission service providers, other service providers), settlement of outstanding obligations is governed by their existing bilateral contracts. **Section 4. Responsibilities of Entities.** 4.1 DOE, in coordination with NGCP, TRANSCO, NPC, PSALM, NEA, and PEMC, shall provide disconnection guidelines within 90 days. 4.2 DOE, together with PEMC and NEA, shall provide necessary support — including liaison with financial institutions — to DUs needing assistance in complying with this Circular and registering with WESM. 4.3 NGCP is given authority to disconnect from the grid persons or entities failing to comply with their obligations under the OATS Rules, Grid Code, WESM Rules, and this Circular, in accordance with DOE guidelines under Section 4.1. 4.4 PEMC shall continuously monitor and submit regular reports to the DOE on the status of WESM registration. 4.5 PSALM and NPC shall provide DOE all information on DWS arrangements and assist in implementing the DWS termination. PSALM and NPC shall submit regular monthly reports to DOE on restructuring of outstanding obligations of their customers. 4.6 NEA is directed to assist all electric cooperatives in WESM registration, including compliance with settling or restructuring outstanding NPC/PSALM obligations. NEA, together with DOE, shall conduct an IEC campaign on DWS termination and disconnection policy. 4.7 All electric power industry participants are directed to register in the WESM pursuant to WESM Rules 2.2.4.2. **Section 5. Creation of Implementation Review Committee (IRC).** An IRC composed of representatives from DOE, PEMC, PSALM, NPC, TRANSCO, NEA, and NGCP is hereby created. DOE shall chair the IRC. 5.1 The IRC shall ensure the smooth termination of the DWS arrangement and implementation of the disconnection policy. 5.2 The IRC shall formulate the implementing rules and regulations of this Circular. **Section 6. Separability Clause.** **Section 7. Effectivity and Publication.** Effective 15 days from publication in a newspaper of general circulation. PEMC is directed to publish this Circular on the market information website. Remains in effect until otherwise revoked.