WHEREAS,  Sections  37 and 30 of the Electric  Power  industry  Reform  Act of 2001 (EPIRA) mandates the Department of Energy (DOE) to supervise the restructuring  of the electricity industry and to establish the Wholesale Electricity Spot Market (WESM), respectively;

WHEREAS,  Section   3(a),  Rule  9  of  the  EPIRA   Implementing   Rules   and Regulations  (EPIRA IRR), further mandates  the DOE to organize and establish the appropriate market design and governance structure of the WESM;

WHEREAS,   the  DOE,  jointly  with  the  electric   power  industry   participants, formulated the detailed rules governing the operations of the WESM and subsequently, the DOE promulgated the WESM Rules on 28 June 2002 through Department Circular No. 2002-06-003;

WHEREAS,  on  18  November  2003,  through  the  initiative  of  the  DOE,  the Philippine Electricity Market Corporation (PEMC) was incorporated to manage, govern, and administer an efficient, competitive, transparent and reliable market for  the  wholesale  and  purchase  of  electricity  and  ancillary  services  in  the Philippines, in accordance with the EPIRA;

WHEREAS, in March 2008, the DOE created the Special WESM Rules Review Committee, tasked to review the WESM Rules and identify the weaknesses and operational  concerns  of the WESM  that require  enhancements  in the areas of market design and systems upgrading to include removal of Pmin constraints, immediate conduct of market re-runs, minimize workflow stoppages in the Market Management  System  (MMS)  or  software  failures,  and  rationalize  dispatch  of must-run units among others;

WHEREAS, in accordance with the WESM Rules, the reports of the Independent Market Operations Audit undertaken in 2010, 2011 and 2012 identified several market  design  and  implementation  issues,  undermining  the  efficiency  of  the WESM;

WHEREAS, the PEMC, to address the issues identified in the said Audits, commissioned  an independent  consultant  in April 2013 to undertake  a WESM Design  Study  with  reports  submitted  to the DOE  comprising  of three  phases, namely: Phase 1 WESM issues and recommendations:  Phase 2 Specific issues on  the  trading  and  dispatch  interval;  and  Phase  3 Advise  on  the  Day-Ahead Market;

WHEREAS, on 18 November 2013, the results of the WESM Design Study were subjected to public consultation with the electric power industry participants and other concerned stakeholders to discuss the recommendations  and to solicit the suggestions and comments;

WHEREAS, the  WESM  Design  Study  was  finalized  in  January  2014, incorporating the comments of the various stakeholders and was submitted to the DOE for consideration:

WHEREAS, the Technical Working Group (TWG) on the MMS Migration and Enhancement Project that was created by the DOE on 15 January 2010, recommended  the procurement  of a new  MMS  to ensure  the reliability  of the WESM  operations  and  to  implement  the  recommendations   specified  in  the WESM Design Study:

WHEREAS, the DOE, after thorough review of the WESM Design Study and the recommendations and proposed changes to market operations, deemed that appropriate   and   reasonable   changes   be   implemented   consistent   with   the objectives of the WESM Rules as well as to incorporate the said changes to the new MMS;

NOW,  THEREFORE,  for  and  in  consideration  of  the  foregoing  premises,  the DOE,  consistent   with  its  mandate   under  the  EPIRA,  hereby  declares   the following:

Section   1.  Guiding   Principles.   Any  changes   in  the  WESM   design   and operations shall be in accordance with the following principles:

a)   Gross pool market, where generator trading participants offer their maximum available  capacity  for  central  scheduling  and  dispatch,  ensures  system security and a level-playing field among generators;

b)   Net  settlement,  where  bilateral  contract  quantities  are  settled  outside  the WESM;

c)    Co-optimized   energy  and  reserves,  where  the  provision  of  energy  and reserves are jointly optimized in the Market Dispatch Optimization Model (MDOM);

d)  Self-commitment,  where  trading  participants  are  responsible  for  the management  of their  technical  operations,  unit commitment  decisions  and other market risks through submission of offers to the WESM;

e)   Prices are governed, as far as practicable, by commercial and market forces, and pricing errors and extremely high and low prices are mitigated;

f)     Trading  participants  are  provided  with  regularly  updated  information  on projected  prices,  dispatch  and other  market  outcomes  to ensure  they can make informed commercial and technical decisions; and

g)  Other guiding principles that may be issued by the DOE insofar as these principles are consistent with the objectives of the EPlRA.

Section 2. Adoption of the Enhancements to WESM Design and Operations. Consistent with the Guiding Principles in Section 1 herein, the following enhancements in WESM design and operations are hereby adopted:

a)   Removal of Pmin constraint in the MDOM;

b)   Shorter trading and dispatch interval of five (5)-minute;

c)    Ex-ante pricing only for every five (5)-minute trading and dispatch interval;

d)   One (1)-hour settlement interval for settlement purposes based on weighted average of the five (5)-minute ex-ante prices;

e)   Automated pricing corrections:

f)     Mandatory   integration   of  Distribution   Utilities ™  sub-transmission   network, which materially affect dispatch schedules and prices in the WESM, into the Market Network Model (MNM);

g)   Changing  the  values  and  priorities  of  some  of  the  Constraint  Violation Coefficients (CVCs), including the corresponding values thereof taking into consideration the imminent implementation of the WESM Reserve Market;

h)   Imposition   of  WESM   offer   cap   and   floor   for  energy   and   reserve   as determined through joint study by the DOE, Energy Regulatory Commission (ERC) and PEMC;

i)     Implementation  of hourly Day-Ahead Projection (DAP) with sensitivities  and
Hour-Ahead Dispatch (HAD);

j)     Implementation of nodal-based short-term demand forecasting;

k)    Enhanced training of WESM participants; and

l)     Any other enhancements  as may be deemed necessary  and issued by the
DOE.

Section 3. Responsibilities  of the Philippine Electricity Market Corporation (PEMC). To  ensure  the  timely  completion  of  the  directives  set  forth  in  this Circular, PEMC is directed to:

a)   Submit to the Rules Change Committee (RCC), copy furnished the DOE, the proposed changes to the WESM Rules and Market Manuals, which are necessary for the implementation of the enhancements to WESM design and operations;

b)  Secure the ERC ™s approval of any changes to the Price Determination Methodology, as may be necessary and consistent with the amended WESM Rules;

c)     Ensure  upgrading  of the MMS and other systems  necessary  to implement the enhancements of the WESM design and operations as stated herein;

d)  Develop  dispatch  conformance  standard  jointly  with  National  Grid Corporation of the Philippines (NGCP) for consideration in the amendment of the WESM Rules and Market Manuals;

e)   Conduct information,  education and communication  campaign and trainings for the benefit of WESM members and relevant agencies; and

f)     Perform  such  other  initiatives  as may be directed  by the DOE,  which  are deemed necessary for the needed improvement of WESM operations.

Section 4. Responsibilities  of National Grid Corporation  of the Philippines
(NGCP). As the System Operator, NGCP is hereby directed to:

a)   Enhance   associated   interface   necessary   between   PEMC   and   NGCP including but not limited to the Energy Management System (EMS) and Supervisory Control and Data Acquisition (SCADA);

b)   Develop dispatch conformance standards jointly with PEMC for consideration in the amendment of the WESM Rules and Market Manuals;

c)     Enhance testing procedures and certification process for ancillary services to be traded in the WESM;

d)   Entrance   procedures   for  dispatch   of  energy   and  ancillary   services   to implement the MO dispatch schedules based on the amended WESM Rules; and

e)   Perform  such other initiatives  as may be directed  toy the DOE, which are deemed necessary for the needed improvement of WESM operations.

Section 5. Responsibilities of WESM Members. To ensure the smooth implementation of the directives set forth in this Circular, all WESM Members are hereby directed to:

a)   Ensure  readiness,  full  compliance  and  to  be  accountable  to  the  required internal   systems   and   procedures,   as  applicable,   to  accommodate   the changes in WESM design and operations;

b)   Comply with the submission of necessary information and data as may be required by the DOE, ERC, PEMC and NGCP in order to effectively carry out the provisions of this Circular; and

c)  Participate in the rules change proceedings, information campaigns, and trainings.

Section 6. Regulatory  Support.  For the proper implementation  of the policies set herein, the ERC is hereby enjoined to promulgate guidelines and undertake such necessary action to support the parties affected herein and enhance and implement   the  necessary   technical   and  operation   standards,   to  ensure   a competitive market.

Section 7. Interpretation of Terms. For the avoidance of doubt or confusion, all other terms used in this Circular  will have the same definition  as provided  for under the WESM Rules and its Market Manuals.

Section  8. 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 9. Repealing Clause. Except insofar as may be manifestly inconsistent herewith, nothing in this Circular shall be construed as to repeal any of the mechanisms   already  existing  or  responsibilities   already  provided   for  under existing rules.

Section  10. Penalty  Clause.  Failure  of any mandated  entities  to comply  with their obligations set forth under this Circular shall be subject to the imposition of fines and penalties by the ERC and, as so required to protect the public interest, may result in deregistration,  suspension,  or revocation  of licenses  and authorizations.

Section 11. Effectivity. This Circular shall take into effect fifteen (15) days from its publication and shall remain in effect until otherwise revoked.

Issued at Energy Center, Rizal Drive, Bonifacio Global City, Taguig City.

(SGD) ZENAIDA Y. MONSADA
Secretary