A Transition Year: The road to WESM run by an independent market operator

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Year in review

The past year saw some significant strides and historic shifts in the governance and operation of the Wholesale Electricity Spot Market (WESM).

In July 2017, the Department of Energy (DoE) designated the PEMC (Philippine Electricity Market Corporation) Transition Committee (PTC) to spearhead the transition of WESM operations from PEMC to an Independent Market Operator (IMO). The PTC, led by former Energy Regulatory Board (ERB) Member Atty. Oscar E. Ala and four others, namely, Atty. Francis Saturnino C. Juan, Rauf A. Tan, Engr. Jose Mari T. Bigornia, and Atty. Jose M. Layug, Jr., took over the PEMC management, the sole electricity spot market operator of the Philippines.

Under the PTC leadership, PEMC worked to strengthen its stakeholder communication and engagement initiatives. It conducted several WESM Stakeholder Engagement meetings with WESM Members, service providers, and other parties to discuss and address their specific needs, issues and concerns in relation to market policies and processes.

Moreover, in line with the mandate to establish the Renewable Energy (RE) Market, PEMC participated in the Development for Renewable Energy Applications Mainstreaming and Market Sustainability (DREAMS) Project Steering Committee Meetings. It formulated and presented the Terms of Reference for the RE System to procure the Philippine Renewable Energy Market System (PREMS), the IT platform that will be used in the RE Market.

PEMC organized a workshop with the System Operator, the National Grid Corporation of the Philippines (NGCP), to identify shared aspirations for a strong partnership between the two companies. Strengthening the coordination between the two is key to a more efficient WESM. The workshop is only the first of a series of concerted activities to be undertaken by the Market Operator and the System Operator. These activities are intended to provide a venue to discuss and address concerns and challenges related to efficiencies of the end-to-end business processes covering both organizations, and to ensure policy and quality standards alignment between them.

As the designated Central Registration Body (CRB), PEMC plays a pivotal role in the implementation of the retail market. Under the existing legal framework for Retail Competition and Open Access (RCOA), electricity end-users become part of the contestable market upon reaching the applicable contestability demand threshold. After being certified by the ERC, these contestable customers are given option to secure their supply from a retailer of their own choosing duly-licensed by the ERC. As CRB, PEMC manages the registry of these contestable customers and their current suppliers, tracks the market transactions made by their suppliers on their behalf, and facilitates customer-switching in the retail market. To date, the CRB has registered more than a thousand participants in the retail market.

PEMC also supported the Department of Energy’s (DoE) thrust to prepare Mindanao stakeholders for the eventual commercial operations of WESM in Mindanao. PEMC conducted several WESM trainings for the said stakeholders, started the registration of the Mindanao WESM participants using the Central Registration and Settlement System (CRSS), and performed trial runs to give them a feel of the market. It provided the DoE with regular readiness assessment reports and coordinated with NGCP to include the Mindanao grid in the Market Network Model (MNM) of the WESM.

Enhancements to the WESM design integrated in the New Market Management System (NMSS) and Central Registration and Settlement System (CRSS) involve all market-related processes such as registration, offer submission/nomination, pricing and scheduling, metering and settlements. These systems are currently undergoing parallel operations by PEMC. The CRSS has already been certified by an independent auditor while the NMMS is currently undergoing audit to ensure compliance with the WESM Rules and Manuals.

Transition to Independent Market Operations (IMO)

To bring to reality the IMO transition, the PTC crafted and proposed the Transition Plan for an Independent Market Operator (IMO). After unveiling the Transition Plan, the PTC consulted with the DoE and the market participants to gather their views and comments thereon.

The said plan calls for the formation of a new company to become the IMO, while PEMC remains the governing body for the WESM. While the IMO Board is composed of independent members, PEMC will continue as a stakeholder board with independent members.

During the PEMC Special Membership Meeting held in February 2018, the first ever membership meeting conducted by PEMC, WESM members representing the generation, distribution, supply and transmission sectors, voted to approve the plan. The approval was overwhelming.

With the joint endorsement of the PEMC membership and the DoE, the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP) was formed and registered with the Securities and Exchange Commission on May 16, 2018 to act as the IMO envisioned under the law.

Another first for the organization, PEMC conducted the elections of the PEM Board directors on June 25, 2018. It also marked the relinquishment by the DoE Secretary of the chairmanship of the PEM Board in favor of one of these directors duly-elected by the PEMC membership. This stood as one of the major milestones that brought the WESM stakeholders closer to the start of the IMO regime.

Also on the same day, the names of the seven IEMOP members who would comprise its Board of Directors, headed by PTC member Atty. Francis Saturnino C. Juan, were announced. They immediately organized the Board of Directors and thereafter tirelessly worked on the transition activities, such as identifying and hiring the necessary personnel from PEMC, identifying the assets and liabilities that will transfer to IEMOP, and finalizing the Operating Agreement to be executed with PEMC, to enable it to assume and perform the role of IMO. In less than three months from the time it was organized, in close collaboration with PEMC, IEMOP was ready to take on the task. On Sept. 19, 2018, IEMOP executed the Operating Agreement with PEMC to effect the transfer of its personnel, assets and liabilities pertaining to market operations in its favor effective Sept. 26, 2018.

A new WESM story unfolds

Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA), requires that WESM market operation be transferred to an independent entity that is separate from its governing body, which is the PEMC Board of Directors. As jointly endorsed by the market participants and the DoE, it is IEMOP that takes on this role to pursue the WESM objectives of having a transparent, fair, competitive, and reliable market for the trading of electricity throughout the Philippines.

As market operator, IEMOP is bound to strictly comply with the EPIRA, its Implementing Rules and Regulations, the WESM Rules and other related issuances of the DoE. Its service obligations are reiterated in the Operating Agreement it executed with PEMC, which agreement also formalized the transfer from PEMC of the assets and liabilities pertaining to market operations effective Sept. 26.

Beginning Sept. 26, IEMOP becomes the operator of the electricity market to manage the registration of market participants, receive generation offers, come out with market prices and dispatch schedules of the generation plants, and handle billing, settlement, and collections, among other functions. Under the policy and regulatory oversight of the DoE and the ERC (Energy Regulatory Commission), PEMC remains as governing body for WESM to monitor compliance by the market participants with the market rules.

Under the new setup, the transformation of the WESM is inevitable. The roles of governing body and market operator are now clearly delineated. They can now focus on their respective roles. Handing over the market operation to an independent entity bodes well for more transparency, fairness, and accountability in WESM. In time, the impact of conveying the governance of the WESM to market stakeholders and entrusting its operation in the capable hands of the IEMOP will manifest in terms of more competitive WESM and renewed investor confidence. In the end, it is the electricity end-users that stand to benefit from a stable supply of electricity at efficient and competitive prices. This is the only fitting ending to the new WESM story.