# DC2019-12-0018 — Adopting a General Framework Governing the Provision and Utilization of Ancillary Services in the Grid **Department Circular No. DC2019-12-0018** Signed: 4 December 2019 | Secretary Alfonso G. Cusi Effectivity: 15 days after publication in two newspapers of general circulation; copies filed with UP Law Center-ONAR **Status:** Operative. Amended by DC2021-03-0009 and DC2021-10-0031. Legal basis: RA 9136 (EPIRA) §§2, 37; DC2015-10-0015 (WESM Design and Operations); DC2015-11-0018 (central scheduling and contracted reserves commercial operation); ERC Resolution No. 22, Series of 2016 (revised Philippine Grid Code) Public consultations: The Royal Mandaya Hotel, Davao City; The Legend Villas, Mandaluyong City --- ## WHEREAS RECITALS 1. RA 9136 (EPIRA) §2 — State policy to: (i) ensure quality, reliability, security, and affordability of electric power supply; (ii) protect public interest as affected by rates and services of electric utilities; (iii) establish a strong and independent regulatory body for consumer protection and competitive electricity market operation. 2. EPIRA §37 — DOE mandated to supervise restructuring of the electricity industry and promulgate rules necessary to implement EPIRA objectives. 3. EPIRA definition — Ancillary Services (AS) are services necessary to support the transmission of capacity and energy from resources to loads while maintaining reliable operation of the transmission system in accordance with good utility practice and the Grid Code. 4. DC2015-10-0015 — provided policies and guiding principles for further enhancements of WESM Design and Operations, including co-optimization of energy and reserves. 5. DC2015-11-0018 — declared commercial operation of central scheduling and dispatch of energy and contracted reserves in WESM; provided further amendments to protocols in preparation for eventual operation of the WESM Reserve Market. 6. ERC Resolution No. 22, Series of 2016 — approved publication of the revised Philippine Grid Code (PGC 2016), which changed AS classification from Contingency/Regulating/Dispatchable Reserve into Primary/Secondary/Tertiary Reserve; however, not implemented due to technical issues. 7. In 2018, DOE laid the groundwork for an equitable cost recovery mechanism for AS through focus group discussions and public consultations on the Causer Pays Mechanism (CPM). 8. Above developments and CPM discussions highlighted various operational and commercial issues on AS and the need to update related guidelines. --- ## SECTION 1. GUIDING PRINCIPLES Any policy or guideline relevant to AS shall adhere to the following principles: 1.1 Safe and reliable operation of the Grid, taking into account emerging technologies and the intermittency of Variable Renewable Energy generating resources; 1.2 Cost-effective planning for the expansion, rehabilitation, repair, and maintenance of Transmission systems and facilities; 1.3 Sufficiency of Ancillary Services to meet power quality and reliability requirements of the grid; 1.4 Harmonization of guidelines, rules, and regulations concerning the operation of the Grid; 1.5 Proper accountability among concerned entities in the efficient and transparent operation of the Grid in accordance with the PGC and other relevant issuances of DOE and ERC; 1.6 Transparent and cost-effective procurement of AS taking into account the appropriate location and capacity requirements of each grid in accordance with the Transmission Development Plan (TDP); 1.7 Transparent and equitable allocation of cost for the utilization of AS, taking into account each grid user's responsibility and contribution in maintaining grid reliability; 1.8 Co-optimization of energy and reserves in the WESM, through central dispatch and the commercial operation of the WESM Reserve Market as declared by DOE; and 1.9 Transparent accreditation process for determining capability of resources capable of providing AS, including (among others) generating units, energy storage systems, and interruptible loads. --- ## SECTION 2. CLASSIFICATION AND REQUIRED LEVELS OF ANCILLARY SERVICES Pending harmonization of AS-related issuances and review of relevant provisions of PGC 2016, the classification and required levels of AS shall be in accordance with the following: ### 2.1 Classification of AS 2.1.1 **Regulating Reserve (RR)** — Readily available and dispatchable generating capacity allocated exclusively to correct deviations from the acceptable nominal frequency caused by unpredicted variations in demand or generation output. 2.1.2 **Contingency Reserve (CR)** — Synchronized generation capacity from Qualified Generating Units and Qualified Interruptible Loads allocated to cover the loss or failure of a synchronized generating unit or a transmission element or the power import from a circuit interconnection. 2.1.3 **Dispatchable Reserve (DR)** — Generating capacity not scheduled for Regular Energy Supply, Regulating Reserve, or Contingency Reserve, or interruptible loads not scheduled for Contingency Reserve, that are readily available for dispatch to replenish the Contingency Reserve Service whenever a generating unit trips or a single transmission interconnection is lost. 2.1.4 **Reactive Power Support (RPS)** — Capability to supply or absorb Reactive Power from the Grid in order to maintain bus voltage within **five percent (5%)** of its nominal voltage. 2.1.5 **Black Start (BS)** — Ability of a generating unit, without assistance from the Grid or other external power supply, to recover from a shutdown condition to an operating condition in order to energize the Grid and assist other generating units to start. ### 2.2 Required Levels of AS 2.2.1 Reserve levels allocated per trading interval per grid: - 2.2.1.1 **Regulating Reserve** — **4%** of total demand; - 2.2.1.2 **Contingency Reserve** — Maximum capacity among: the largest synchronized generating unit, a transmission element, or the power import from a circuit interconnection; - 2.2.1.3 **Dispatchable Reserve** — Maximum capacity among: the second-largest synchronized generating unit, a transmission element, or the power import from a circuit interconnection; 2.2.2 **Reactive Power Support** — System Operator (SO) to determine day-ahead through load flow simulation; 2.2.3 **Black Start** — At least **two (2)** generating units contracted per power restoration highway; one (1) must always be available at any given time. --- ## SECTION 3. MANDATORY AS CAPABILITY TESTING OF ALL GENERATING FACILITIES 3.1 Upon Circular effectivity, all generating facilities (except those with valid and existing AS capability accreditation) shall undergo AS capability testing and be certified according to their respective capabilities. Coverage — all generating units with Pmax equal to or above regional thresholds: - a) **10 MW** for Luzon Grid; - b) **5 MW** for Visayas Grid; and - c) **5 MW** for Mindanao Grid. 3.2 NGCP shall submit initial inventory of existing plants and their AS capability to DOE and ERC **not later than 30 days** from Circular effectivity. 3.3 NGCP shall conduct and complete testing of all plants **not later than 26 March 2020** and submit a report thereof to DOE and ERC. 3.4 Until DOE establishes an accreditation process for third-party AS testing entities, NGCP shall ensure testing of all generating facilities and submit a report on the results to DOE and ERC. --- ## SECTION 4. PROCUREMENT OF AS PRIOR TO COMMERCIAL OPERATION OF THE WESM RESERVE MARKET Prior to Reserve Market commercial operation, the SO shall ensure compliance with its obligation to procure the required level and specifications of AS: 4.1 Regulating, Contingency, and Dispatchable Reserves shall be procured through **firm contracts only**; 4.2 Reactive Power Support and Black Start AS shall be procured through **firm contracts only**; and 4.3 The protocol for central scheduling of energy and contracted reserves in the WESM shall still apply, in accordance with the WESM Rules and relevant Market Manuals. --- ## SECTION 5. PROCUREMENT OF AS DURING COMMERCIAL OPERATION OF THE WESM RESERVE MARKET Upon Reserve Market commercial operation: 5.1 SO shall procure Regulating, Contingency, and Dispatchable Reserves through firm contracts **and** the Reserve Market. Contracted levels per reserve region shall be: - 5.1.1 **Regulating Reserve** — Equivalent to **50%** of the Regulating Reserve requirement; - 5.1.2 **Contingency Reserve** — Equivalent to **50%** of the dependable capacity of the largest generating unit; - 5.1.3 **Dispatchable Reserve** — Equivalent to **50%** of the dependable capacity of the second-largest generating unit; 5.2 Generating units shall submit energy and reserve offers to WESM with respect to their maximum available capacities (contracted and uncontracted); 5.3 All energy and reserve offers shall be co-optimized and subjected to central scheduling, dispatch, spot pricing, and settlement of the Market Operator (MO) and SO; 5.4 Reactive Power Support and Black Start AS shall be procured through **firm contracts only**. --- ## SECTION 6. CRITERIA FOR COMMERCIAL OPERATION OF WESM RESERVE MARKET Co-optimization of energy and reserves in the WESM shall be implemented **not later than 26 March 2020**, subject to compliance with the following six criteria: 6.1 **ERC approval** of the Price Determination Methodology for the enhanced WESM containing the reserve pricing mechanism; 6.2 **Completion of AS capability testing** of all generating facilities and certification thereof as AS Providers (§3); 6.3 **All systems and procedures** including all interfaces between and among the MO, SO, and WESM Participants necessary to implement the Reserve Market are in place; 6.4 **Establishment of mitigating measures** including, but not limited to, reserve offer price cap and floor and secondary price cap; 6.5 **Schedule, dispatch, bill, and settlement procedures** relative to co-optimization of energy and reserves are fully operational and incorporated into the WESM Rules and Market Manuals; and 6.6 **Successful conduct of Trial Operations** to ensure readiness of AS Providers to participate in the Reserve Market. --- ## SECTION 7. CERTIFICATION OF READINESS OF THE WESM RESERVE MARKET PEMC (Philippine Electricity Market Corporation), in consultation with DOE, shall determine the readiness of the WESM Reserve Market based on the criteria in §6 and issue a certification of readiness. DOE shall confirm the commercial launch date upon assessment of the certification submitted by PEMC. --- ## SECTION 8. COST RECOVERY OF ANCILLARY SERVICES The existing cost-recovery mechanism for AS shall continue to be adopted until a new mechanism is recommended by the AS-TWG and adopted by DOE and/or ERC. --- ## SECTION 9. CREATION AND COMPOSITION OF THE ANCILLARY SERVICES — TECHNICAL WORKING GROUP (AS-TWG) 9.1 **AS-TWG composition:** | Role | Member | |------|--------| | Co-Chair | Department of Energy | | Co-Chair | Energy Regulatory Commission | | Member (1 rep each) | Energy Regulatory Commission | | Member (1 rep each) | Department of Energy | | Member (1 rep each) | National Electrification Administration | | Member (1 rep each) | National Grid Corporation of the Philippines | | Member (1 rep each) | Philippine Electricity Market Corporation | | Member (1 rep each) | Independent Electricity Market Operator of the Philippines | | Member (1 rep each) | Private Electric Power Operators Association | | Member (1 rep each) | Manila Electric Company | | Member (3 reps) | Philippine Independent Power Producers Association | | Secretariat | DOE Electric Power Industry Management Bureau (EPIMB) | 9.2 AS-TWG may invite other entities as resource persons; 9.3 Each organization shall nominate a permanent and alternate representative; 9.4 **AS-TWG functions:** - 9.4.1 Assist DOE in implementing the provisions of this Circular; - 9.4.2 Render technical assistance and advice to DOE in developing further AS policies; - 9.4.3 Review the PGC 2016 to address issues on implementation of new AS categories and Primary Response requirement; - 9.4.4 Review existing methodology for determining required levels for each AS category; recommend revisions taking into account emerging factors such as influx of Variable RE and reduction of WESM trading interval; - 9.4.5 Recommend technical specifications and testing procedures for accreditation of AS providers; - 9.4.6 Recommend procedure for selection of third-party entity to conduct AS capability testing; - 9.4.7 Recommend guidelines for the Competitive Selection Process for procurement of AS to be promulgated by DOE; and - 9.4.8 Participate in other activities relevant to AS (fora, IECs, consultations). 9.5 AS-TWG shall convene within **30 days** from Circular effectivity and shall provide recommendations per §9.4 within **180 days** thereon; reviewed annually or as necessary. --- ## SECTION 10. RESPONSIBILITIES OF GENERATION COMPANIES 10.1 Undergo mandatory testing for AS capability during application for COC; conduct re-testing as necessary. Results shall not affect issuance of the COC; 10.2 Comply with responsibilities in maintaining grid reliability per PGC, WESM Rules and Manuals, and other relevant issuances, including: - 10.2.1 Conformance with schedule and dispatch instructions for energy and reserves issued by MO and SO; and - 10.2.2 Adherence to dispatch instructions issued by SO when the Grid is operating under Emergency or Extreme State as described in the PGC. 10.3 Participate in Trial Operations for Reserve Market. --- ## SECTION 11. RESPONSIBILITIES OF THE MARKET OPERATOR 11.1 Ensure completion of software certification of the New Market Management System; 11.2 Coordinate with SO and other WESM Participants for preparation and completion of procedures for efficient Reserve Market operation; 11.3 Ensure readiness and availability of necessary interfaces with SO and WESM Participants; 11.4 Secure ERC approval of the pricing mechanism for reserves traded in the Reserve Market (incorporated in WESM Price Determination Methodology); 11.5 Review and/or propose amendments to WESM Rules and Manuals, including mitigating measures for reserve pricing (offer or price cap and floor); and 11.6 Assist in all activities relating to preparation and implementation of the Reserve Market, as may be necessary or as directed by DOE. --- ## SECTION 12. RESPONSIBILITIES OF THE SYSTEM OPERATOR 12.1 Maintain grid reliability through central dispatch of energy and AS, in accordance with PGC, PDC, WESM Dispatch Protocol, and other relevant issuances; 12.2 Incorporate AS procurement plan in the TDP; 12.3 Submit regular reports to DOE on: - 12.3.1 Compliance of AS providers with reserve schedules and dispatch instructions; and - 12.3.2 Compliance of the SO in ensuring adequate AS are scheduled for each trading interval per Grid; 12.4 Ensure prudent and least-cost contracting of AS, considering optimal mix of contracts, Reserve Market sourcing, and solicitation from various AS providers; 12.5 Re-negotiate existing contracts with AS providers as necessary, in accordance with §§4 and 5; 12.6 Procure future AS requirements through contracting with prospective generators; 12.7 Coordinate with MO and other WESM Participants for preparation and completion of procedures for efficient Reserve Market operation; and 12.8 Assist in all activities relating to preparation and implementation of the Reserve Market, as may be necessary or as directed by DOE. --- ## SECTION 13. REGULATORY SUPPORT ERC is hereby directed to issue the relevant Rules and Regulations necessary to implement the recommendations from the AS-TWG within **sixty (60) calendar days** from its submission. ERC shall review and harmonize all guidelines, rules, and regulations concerning the operations of the Grid in accordance with this Circular. --- ## SECTION 14. SEPARABILITY CLAUSE --- ## SECTION 15. REPEALING CLAUSE All issuances inconsistent with the provisions of this Circular are hereby repealed or amended accordingly. --- ## SECTION 16. EFFECTIVITY Takes effect 15 days following publication in two (2) newspapers of general circulation. Copies filed with UP Law Center-ONAR. Issued on 4 December 2019 at the Energy Center, Rizal Drive, Bonifacio Global City, Taguig City. Secretary Alfonso G. Cusi