Wholesale Electricity Spot Market (WESM)

Section 2. Scope of Application.

This Rule shall apply to the Market Operator and all WESM Participants.

Section 3. Organization

Within one (1) year from the effectivity , the DOE shall establish a WESM composed of the WESM Participants. For this purpose, the DOE shall, jointly with Electric Power Industry Participants, promulgate the WESM Rules, and undertake actions including but not limited to the following: (a) Organize and establish the appropriate market design and governance structure of the WESM; (b) As per Section 30 , constitute the AGMO, which shall undertake the preparatory work and initial operation of the WESM; (c) Oversee the development of the WESM organization and necessary supporting infrastructure, including the funding requirements. Section 4. Membership. Subject to compliance with the membership criteria specified in the WESM Rules, the following Persons shall be eligible to become members of the WESM: (a) Generation Companies; (b) DUs; (c) Suppliers; (d) IPP Administrators; (e) End-users; and (f) Other similar Persons authorized by the ERC eligible to become members of the WESM. Section 5. (a) The WESM Rules. The WESM Rules shall provide the mechanism for identifying and setting the price of actual variations from the quantities transacted under contracts between sellers and purchasers of electricity. The Page 35 of 100WESM Rules shall include rules governing the central scheduling and dispatch, and settlement of quantities sold and purchased under bilateral contracts in order to identify variations therefrom. The WESM Rules shall also reflect accepted economic principles and provide an open, competitive market for all WESM Participants. (b) Jointly with the Electric Power Industry Participants, the DOE shall formulate the detailed rules for the WESM, in accordance with the following principles: (i) Provide an efficient, competitive, transparent and reliable spot market; (ii) Ensure efficient operation of the WESM by the Market Operator in coordination with the system operator in a way which: (1) (2) (3) (c) Minimizes adverse impacts on system security; Encourages market participation; and Enables access to the market. (iii) Subject to the provisions of Section 43(u) , provide a cost-effective framework for resolution of disputes among WESM Participants, and between WESM Participants and the Market Operator; (iv) Provide for adequate sanctions in cases of breaches of the WESM Rules; and (v) Provide efficient, transparent and fair processes for amending the WESM Rules. The WESM Rules shall provide, among others, procedures for: (i) Establishing the Merit Order Dispatch Instructions for each time period for Central Dispatch; (ii) Determining the market-clearing price for each time period; (iii) Administering the market, including criteria for admission to and termination from the market which includes security or performance bond requirements, voting rights of the participants, surveillance and assurance of compliance of the participants with the rules and the formation of the WESM governing body; (iv) Prescribing guidelines for the market operation in system emergencies; (v) Amending the WESM Rules; and (vi) Establishing the transition to full implementation of the WESM. Page 36 of 100(d) Methodology for Price Determination. The WESM Rules shall provide the mechanism for determining the price of electricity not covered by bilateral contracts between sellers and purchasers of electricity. The price determination methodology contained in the WESM Rules shall be subject to the approval of the ERC. Section 6. The Market Operator. (a) A Market Operator in accordance with the WESM Rules shall implement the WESM. Not later than one (1) year after the implementation of the WESM, an independent entity, the IMO, shall be formed and the functions, assets and liabilities of the AGMO shall be transferred to such entity with the joint endorsement of the DOE and the Electric Power Industry Participants: Provided, That the IMO shall be financially and technically capable, with proven experience and expertise of not less than two (2) years as a leading independent market operator of similar or larger size electricity market. (b) Subject to Technical Constraints, the grid operator of the TRANSCO or its Buyer or Concessionaire shall provide Central Dispatch of all Generation Facilities connected, directly or indirectly, to the transmission system in accordance with the dispatch schedule submitted by the Market Operator, which schedule shall take into account outstanding bilateral contracts. (c) The Market Operator shall have the following functions and responsibilities: (i) Operate and administer the WESM and allocate resources to enable it to operate and administer the market, in accordance with the WESM Rules; (ii) Determine the dispatch schedule of all facilities in accordance with the WESM Rules. Such schedule shall be submitted to the grid operator of the TRANSCO or its Buyer or Concessionaire; (iii) Monitor daily trading activities in the market; (iv) Oversee transaction billing and settlement procedures; and (v) Maintain and publish a register of all WESM Participants and must update and publish the register whenever a Person becomes or ceases to be a WESM Participant. Section 7. Constitution of the AGMO. The DOE shall, within one (1) year from the effectivity , constitute the AGMO which shall undertake the preparatory work and initial operation of the WESM. Page 37 of 100(a) AGMO Governing Board. The AGMO shall be governed, and its powers and functions exercised, by a governing body with equitable representation from Electric Power Industry Participants. The representatives of the AGMO governing body shall be selected, in accordance with the WESM Rules. The DOE Secretary shall chair the AGMO. (b) Composition. Any sectoral representation on the AGMO governing body should as far as possible meet the following criteria: (d) (i) Representatives of each sector of the Philippine electric power industry on the governing body should be reflective of that sector’s size in relation to the electric industry as a whole; (ii) The number of representatives of each sector of the Philippine electric power industry should be such that no one sector of the industry can dominate proceedings or decision-making by the governing body; and be selected in such a way that deadlocks in decision making will be avoided; and (iii) There should be independent members on the governing body. Powers and Duties. The following are the powers and duties of the AGMO governing body: (e) (i) Govern the operation of the WESM until the formation or the selection of an IMO; (ii) Develop and adopt guidelines for the efficient, competitive, transparent and reliable management and operation of the market in accordance with WESM Rules; (iii) Adopt and set internal procedures for the conduct of meetings and determination of a quorum; and (iv) Perform the preparatory work (information technology system development, testing, and trial operation) and initial operation of the WESM with support from the DOE. Not later than one (1) year after the implementation of the WESM, the AGMO shall transfer its functions, assets and liabilities to the IMO. Section 8. Functions and Responsibilities of TRANSCO with respect to the WESM. The TRANSCO shall provide administrative supervision to AGMO. Page 38 of 100Section 9. Market Fees. (a) The cost of administering and operating the WESM shall be recovered by the IMO through a charge imposed on all WESM Participants or WESM transactions, provided such charge shall be filed with and approved by the ERC, consistent with the WESM Rules. (b) The structure of Market Fees should be transparent and should not discriminate against a category or categories of WESM Participants. (c) Upon the approval of ERC, the Market Operator shall publish the structure of Market Fees, the methods used in determining the structure and an assessment of the extent to which the structure complies with the principles specified above, at least three (3) months prior to the implementation of WESM.

Section 10. Market Suspension.

In cases of national or international security emergencies or natural calamities, the ERC is empowered to suspend the operation of the WESM or declare a temporary WESM failure in accordance with the procedures set out in the WESM Rules.