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(NAR) VOL. 29 NO. 1/ JANUARY - MARCH 18

[ RESOLUTION NO. 01, S. 2018, March 01, 2018 ]

A RESOLUTION ADOPTING THE AMENDMENTS TO THE RULES FOR THE DISTRIBUTION OF NET SETTLEMENT SURPLUS (NSS)



Adopted: 20 February 2018
Date Filed: 01 March 2018

WHEREAS, Section 30 of Republic Act No. 9136, otherwise known as the Electric  Power Industry  Reform  Act of 2001 (EPIRA),  provides  for the establishment of the Philippine Wholesale Electricity Spot Market (WESM);

WHEREAS, the Philippine Electricity Market Corporation (PEMC) was incorporated on 18 November 2003 as a non-stock, non-profit corporation and designated as the Autonomous Group Market Operator (AGMO) of the WESM;

WHEREAS, the Department of Energy (DOE), on 21 June 2006, issued Department Circular (DC) No. 2006-06-0008 declaring the start of commercial operations of the WESM in the Luzon Grid on 26 June 2006;

WHEREAS, the DOE, on 26 November 2010, issued DC No. 2010-11-0012 declaring the start of commercial operations of the WESM in the Visayas the
Grid and its integration with the Luzon Grid;
 
WHEREAS,   there  is  a  surplus  or  deficit  resulting   from  the  aggregate settlement  transactions  in the WESM termed as the Net Settlement  Surplus or
Deficit;

WHEREAS, the ERC on 23 February 2009 promulgated the set of Rules for the Distribution of Net Settlement Surplus (“NSS Rules”) which incorporated the comments of the industry stakeholders;

WHEREAS, the NSS Rules establishes, among others, the (i) definition and allocation of Net Settlement Surplus; (ii) distribution period of Net Settlement Surplus; (iii) flow back computation of Net Settlement Surplus; (iv) treatment of interests  incurred  from  the Net Settlement  Surplus;  and  (v) reportorial requirements;

WHEREAS,  the  DOE  on  20  April  2017,  issued  DC  No.  2017-04-0005 adopting the WESM Market Manual Issue No. 3 on the Management of Net Settlement Surplus and its further amendments;

WHEREAS, in order to be consistent with the principle for the immediate equitable flow back to the party who paid for the line loss and congestion charges enunciated in the NSS Rules, the ERC deems it necessary to amend the existing NSS allocation formula;

NOW   THEREFORE,   after  thorough   and  careful   deliberation,   the  ERC consistent with its mandate under the EPIRA, hereby RESOLVES, as it is hereby RESOLVED, to APPROVE and ADOPT the “Amended Rules for the Distribution of Net Settlement Surplus”, herein attached as Annex “A” and made an integral part of this Resolution.

All previous Decisions, Issuances and Directives by the ERC contrary to the instant Resolution are deemed superseded.

This  Resolution  shall  take  effect  immediately   in  the  next  billing  month following its publication in the Official Gazette or in a newspaper of general circulation in the Philippines.

Let copies of this Resolution  be furnished  the University  of the Philippines Law Center-Office of the National Administrative Register (UPLC-ONAR).

Pasig City, 20 February 2018.

(SGD) AGNES VST DEVANADERA
Chairperson and CEO

(SGD) GLORIA VICTORIA C. YAP-TARUC
Commissioner
(SGD) ALFREDO J. NON
Commissioner


(SGD) JOSEFINA PATRICIA A. MAGPALE-ASIRIT
Commissioner
(SGD) GERONIMO D. STA. ANA
Commissioner


Annex “A”

Amended Rules for the Distribution of Net Settlement Surplus (NSS)
 
Pursuant to Section 2 (c), (f) and (j) of Republic Act No. 9136, the Price Determination Methodology  (PDM)  for the Wholesale  Electricity  Spot Market  (WESM)  and the WESM Rules, the Energy Regulatory  Commission  (ERC) hereby adopts and promulgates  these Rules to establish a suitable process for the immediate and equitable flow-back of the Net Settlement  Surplus (NSS) by the Philippine  Electricity  market Corporation  (PEMC) to the party who paid for the same.

ARTICLE I
GENERAL PROVISIONS


Section 1. Objectives
1.1     To  ensure  transparent   and  reasonable   prices  of  electricity   and  enhance   the competitive operation of the electricity market;
1.2      To protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power;
1.3      To  provide   a  mechanism   for  the  just  and  equitable   distribution   of  the  Net Settlement Surplus; and
1.4     To flow back the Net Settlement  Surplus to End-users  in the most immediate  and equitable manner.
Section 2. Scope

These Rules shall apply to:
2.1      Generation Companies;
2.2      Distribution Utilities (DUs);
2.3      End-users of electricity;
2.4      Retail Electricity Suppliers (RES), including the Local RES and the Supplier of Last
Resort (SoLR), and other suppliers of electricity;
2.5      Philippine Electricity Market Corporation (PEMC); and
2.6      Relevant industry participants, as applicable.
Section 3. Definition of Terms

For purposes of these Rules, the following terms shall have the respective meanings:

Act - Republic  Act No. 9136 also known  as the “Electric  Power  Industry  Reform  Act of
2001 (EPIRA)

Bilateral Power Supply Contracts - The contracts for the physical supply of electricity as contemplated  under Section 45(c) of R.A. 9136, which do not include a financial derivative contract nor a contract for the sale of electricity from a distribution  utility to a person who requires  the  supply  and  delivery  of  that  electricity  for  its  own  consumption  nor  power supply contracts entered into by PSALM or its Assignee and End-users who are directly connected to the grid.

Direct WESM Member - A person or an entity who is registered with the Market Operator under Section 2.3 of the WESM Rules.

Distribution  Utility  (DU)  -  Any  electric  cooperative,  private  corporation,  government- owned utility or existing local government unit which has an exclusive franchise to operate a distribution system in accordance with the Act.

End-user - Any person or entity requiring the supply and delivery of electricity for its own use.

Energy Regulatory  Commission  (ERC) - The independent  and quasi-judicial  regulatory agency created under Section 38 of the Act.
 
Generation  Company  - Any person or entity authorized  by the ERC to operate facilities used in the generation of electricity.

Independent  Power  Producer  (IPP) - An existing  power generating  entity which is not owned by NPC.

Indirect WESM Member - A person or an entity who is allowed to indirectly trade in the
WESM through a Direct WESM Member.

IPP Administrator  - A qualified independent entity appointed by PSALM Corporation who shall  administer,   conserve   and  manage   the  contracted   energy  output  of  NPC  IPP contracts.

Local Retail Electricity Supplier (RES) - The non-regulated  business segment of the DU catering to the contestable market only in its franchise area. As such, a license for a Local RES is not required.

Market Operator - The administrator  of the WESM who is responsible  for the day-to-day operations of the WESM as well as the registration of WESM members. The MO operates the WESM in coordination with the System Operator (SO). In simple terms, the MO is responsible  for coordinating  all the commercial  aspects  of WESM transactions  while the SO takes care of the physical implementation  of these market transactions.

National   Power   Corporation   (NPC)   -  The  government   corporation   created   under
Republic Act No. 6395, as amended.

Net Settlement  Surplus  (NSS) or Deficit 
- The settlement  surplus  or deficit remaining after  all  market  transactions   have  been  accounted   for,  including  the  assignment   of transmission  line rentals to Network Service Providers. This surplus or deficit is assumed to  be  attributable   to  economic   rentals   arising   from   other   binding   constraints,   and accounted for in accordance with the WESM Rules provision on the Treatment of Net Settlement Surplus.

Network Service Provider - A person who engages in the activity of owning, controlling, or operating a transmission or distribution system and who is registered with the Market Operator.

Successor Generating Company/Assignee - Otherwise known as the winning bidder, to which PSALM has successfully turned over any NPC-owned power plant privatized in accordance with Section 47 of the Act.

Participant  - Generators,  Distribution  Utilities,  Retail  Electricity  Suppliers,  or any  other entities that are allowed to register in the WESM as Direct WESM Members for which the total net settlement surplus/ deficit allocation is calculated

Philippine Electricity Market Corporation (PEMC) - The entity responsible for governing and administering  the operations  of the WESM,  also  referred  to in these  Rules  as the Market  Operator,  provided,  however,  that should  the market  operations  functions  of the WESM be transferred  to an Independent  Market Operator (IMO), all references  to PEMC or the Market Operator shall refer to such Independent Market Operator without need of amendment of these Rules.

Power   Sector   Assets   and  Liabilities   Management   (PSALM)   Corporation   -  The corporation created pursuant to Section 49 of the Act.

Resource  -  Customer  or  generator  for  which  Line  Loss,  Congestion   Cost  and  Net
Settlement Surplus are computed
 
Retail Electricity  Supplier (RES) - Any person or entity licensed by ERC to sell, broker, market or aggregate electricity to End-users.

Supplier  of Last  Resort  (SoLR)  - A regulated  entity  designated  by the ERC  to serve
End-users in the Contestable Market following a Last Resort Supply Event.

Trading  Nodes  - Connection  points  in  a  network,  or  junction  points  within  a  network model, whether physical or notional.

Wholesale  Electricity  Spot Market (WESM)  - The electricity  market established  by the
Department of Energy (DOE) in accordance with Section 30 of the Act.

Article II
DESCRIPTION  OF NET SETTLEMENT  SURPLUS

Section  1.  The  adoption  of  locational  marginal  pricing  for  the  WESM  under  different market trading nodes accounts for congestion and losses in the transmission system. As a result, price differences occur between generator nodes and customer nodes due to these losses and congestion. The surplus resulting from the aggregate WESM settlement transactions is the Net Settlement Surplus. This may also result in a settlement deficit.

Section  2. The  Net Settlement  Surplus  amount  shall  be calculated  based  on the total trading amount for every trading interval.

NSSk = Collectiblesk  - Payablesk

Where:

NSSk - Net Settlement Surplus for trading interval k

Collectibles  -  total  amount  to  be  collected  by  the  Market  Operator  from  the  trading participants  for energy transactions  in the market (including loss and congestion  charges for both spot and bilateral quantities) for all nodes at trading interval k

Payables - total amount to be paid by the Market Operator to the trading participants  for energy transactions  in the market (including loss and congestion charges) for all nodes at trading interval k

Section 3. The WESM Rules, as amended defines “Net Settlement Surplus (NSS)” as the settlement  surplus  remaining  after  all  market  transactions   have  been  accounted  for, including the assignment of transmission line rentals to Network Service Providers. This remainder is assumed to be attributable to economic rentals arising from other binding constraints,  and  accounted  for  in  accordance  with  the  WESM  Rules  provision  on  the Treatment of Remaining Settlement Surplus.

ARTICLE III
APPLICATION  OF THE NET SETTLEMENT  SURPLUS


Section 1. The NSS shall be allocated to Direct WESM Members as follows:
1.1      Distribution Utilities (DUs);
1.2      Retail Electricity Suppliers (RES), including the Local RES and the Supplier of Last
Resort (SoLR), and other electricity suppliers;
1.3      Generation Companies that acted as end-users or made withdrawal from the grid;
1.4      IPP Administrators  who will be assigned Contracts for the Supply of Electric Energy (CSEE) and assume the default wholesale supply functions for the assigned TSC customers; and
1.5      Other  parties  which  have  acted  as end-users  and paid line loss and congestion
charges.
Section 2. Any NSS allocated to the DUs shall be subject to immediate  re-distribution  to the corresponding End-users at the retail level.

Section 3. Any NSS allocated to the RES shall be subject to immediate  re-distribution  to the corresponding End-users in the competitive retail electricity market (CREM).

Section 4. Any NSS allocated to a Direct WESM Member on behalf of its Indirect WESM Member shall be subject to immediate re-distribution  to the corresponding  Indirect WESM Member.

Section  5.  When  prices  in  the  WESM  are  administered  i.e.,  upon  the  occurrence  of Market Intervention, Market Suspension, or Implementation  of Secondary Price Cap, there shall be no NSS allocation and re-distribution for the affected trading intervals.

ARTICLE IV
ALLOCATION  AND RE-DISTRIBUTION OF NET SETTLEMENT  SURPLUS


Section 1. Upon effectivity of these Rules, PEMC shall immediately include the NSS for allocation and reflect the same in the corresponding  billing statement on the current billing period, from the time of computation and determination  of the NSS amount. The allocation shall  be  in  the  form  of  an  immediate  deduction  from  or  an  adjustment  of  the  total settlement amount of the recipients of the NSS for their WESM transactions.

Section 2. The DUs serving the captive customers shall be eligible for an NSS Allocation. As such, any NSS Allocation received by the DUs shall be re-distributed  back to its End- users respective of their consumption during the same billing period that it received the allocation. Re-distribution  of which is deemed to be received by the End-users by virtue of adjustment in the billed amount from the DUs.

Section 3. The RES, being the direct WESM member, shall be eligible to receive an NSS Allocation. As such, any NSS Allocation received 'by the RES shall be re-distributed  back to its End-users  in the CREM,  respective  of their  consumption  during  the same  billing period that it received the allocation.

In the event of a deficit, the RES may collect the amount of deficit payable to PEMC from its End-users in the CREM respective of their consumption.

Section 4. The Generators  that have withdrawn  from the grid or the generators  declared as the paying counterparty of the Line Rental shall be eligible to receive an NSS Allocation from PEMC. Any NSS Allocation received by the Generators shall be an adjustment to the settlement amount of the Generators for the subject billing month.

ARTICLE V
COMPUTATION  OF NET SETTLEMENT  SURPLUS ALLOCATION


Section  1. Subject  to the allocation  period under Article IV hereof, PEMC shall allocate the NSS  to the trading  participants  that paid for the loss and congestion  charges.  The allocation  shall be on a pro-rata basis, depending  on each recipient’s  contribution  to the total NSS. The monthly amount to be allocated to each recipient shall be equal to the sum of the recipient’s  NSS  allocation  amounts  computed  for all trading  intervals  in a billing month. A recipient’s NSS allocation amount per interval is equal to the total NSS amount per  trading  interval  multiplied  by  the  ratio  of  the  recipient’s  line  loss  and  congestion charges payments for the trading interval to the total line loss and congestion charges payments for the trading interval of all recipients. This rule shall apply regardless of the allocation method, whether outright deduction or otherwise.

This is represented by the following formula:

RJ,k = NSSk x (!LLCCjk / ELLCCk)
 
Where:

RJ,k = rebate amount or NSS allocation for Participant J for trading interval k

NSSk = Net Settlement Surplus for trading interval k

ELLCCj,k  = sum of line loss and congestion charge payments of participant J’s resources for trading interval k

ELLCCk  = sum of line loss and congestion  charges payments of all eligible resources for
trading interval k

J = any WESM Participant paying line loss and congestion  charges for which a pro-rated amount of NSS will be returned or allocated

j = any resource of Participant J paying line loss and congestion charges for which a line loss and congestion charge payment will be computed

k = trading interval

LLCCj,k = LLCPRTDj,k x
(EAQj,k - BCQj,c,k) +
LLCPRTXj,k x (MQj,k - EAQj,k) + Line Rentalj,k

LLCPRTD/X,j,k = LMPRTD/X,j,k - MCPLowest,k

Where:

LLCCj,k = line loss and congestion charge payments of resource j for trading interval k

LLCPRTD/X,j,k  = line loss and congestion  price of resource j during ex-ante or ex-post run for trading interval k

LMPRTD/X,j,k  = locational  marginal  price  of resource  j during  ex-ante  or ex-post  run  for
trading interval k

MCPLowest,k = lowest marginal clearing price for trading interval k

EAQj,k = ex-ante quantity of resource j for trading interval k

BCQj,c,k   =  bilateral  contract  quantity  of  the  bilateral  contract  between  resource  j  and
counterparty c for trading interval k

MQj,k = metered quantity of resource j for trading interval k

Line Rentalj,c,k  = line rental trading amount associated with the bilateral contract between resource  j  and  counterparty  c  for  trading  interval  k  (this  amount  may  be  zero  if  the resource is not the assigned payer of the line rental trading amount)

j = any resource of Participant J paying line loss and congestion charges for which a line loss and congestion charge payment will be computed

k = trading interval

Section 2. LLCC for a resource is only computed if Metered Quantity (MQ) is negative indicating  withdrawal  from  the grid;  otherwise  LLCC  for the resource  shall  only  be the declared Line Rental if resource is the paying counterparty.
 
ARTICLE VI
NET SETTLEMENT  DEFICIT

Section  1. There  is Net Settlement  Deficit  when  the Payables  exceed  the Collectibles. The Application of Net Settlement Deficit, Allocation and Re-distribution  of Net Settlement Deficit and Computation of Net Settlement Deficit Allocation shall follow accordingly the stipulations discussed in Articles Ill, IV and V, respectively.

ARTICLE VII
SUBMISSION,  VERIFICATION  AND REPORTORIAL  REQUIREMENTS


Section   1.  Upon  effectivity   of  these  Rules,  PEMC  shall  comply  with  the  following reportorial requirements:
1.1      Regular monthly summary reports on the amount of NSS or deficit being generated and distributed and the corresponding  final metered quantities, Marginal Line Loss and  Marginal  Congestion  Cost[1].  The  corresponding  value  added  tax  (VAT)  and interest amounts, as well as the date when the interests were earned or credited to PEMC,  if any. This report shall be made available  to all Market  Participants  and shall be published  in the market information  website. A verified copy of the report shall likewise be submitted to the ERC on a monthly basis including contributors to and reasons for the deficit or surplus.

1.2      Annual report comparing the subject year and the preceding year’s NSS levels and allocations,  and analysis  of the factors  and constraints  giving rise to any NSS or deficit. This report shall be made available to the market participants and will be submitted to the PEM Board Directors and the ERC.
Section 2. PEMC shall contract a qualified external auditor who shall conduct an annual audit of the NSS or deficit, the corresponding  value added tax (VAT) and interest amounts as  well  as  the  procedure  used  by  PEMC,  and  submit  to  the  ERC  the  audit  report immediately  upon  its completion  but no later than three  (3) months  after calendar  year end.

Section  3. DUs  and  RES,  which  are eligible  recipients  of any  NSS  amount  shall  also submit monthly reports to the ERC of said amount and metered quantities including the corresponding  reports on NSS re-distributed  to customers.  For Indirect WESM Members, the responsibility  of submitting reports shall be borne by the corresponding  Direct WESM Members representing the former.

ARTICLE VIII
INTEREST AND PENALTIES

Section  1. Should PEMC be unable to return the amount of the NSS due to .be flowed back  to  WESM  recipients  under  these  Rules  during  the  period  specified,  the  retained amount  shall be imposed  an interest  at the rate of the prevailing  91-day  T-bill rate plus
300 basis points.

Section 2. The DUs and RES, which are recipients of the NSS but have not complied with the re-distribution  process under these Rules during the period specified shall be subject to the interest  at the rate of the prevailing  91-day  T-bill rate plus 300 basis  points,  the return of which shall be in accordance with Article V hereof.

ARTICLE IX
PERIOD OF EFFECTIVITY

Section   1.  These  Rules  shall  be  implemented   accordingly   in  Luzon,  Visayas   and Mindanao[2]    and  shall  take  effect  immediately   in  the  next  billing  month  following  its publication   in  the  Official  Gazette   or  in  a  newspaper   of  general  circulation   in  the Philippines and will continue until otherwise directed by the ERC.

Section  2. Upon the approval  of the ERC on the new Price Determination  Methodology (PDM) for the WESM which was filed by PEMC in May 2017, the formula for NSS amount, the allocation and manner of re-distribution  of the NSS as contained in the approved new PDM,  shall  supersede  the corresponding  formula  as contained  in these  Rules,  without need of further amendment.

ARTICLE X
SEPARABILITY


Section  1. If for any reason any provision  of these Rules is declared  unconstitutional  or invalid by final judgment of a competent  court, the other parts or provisions  hereof which are not affected thereby shall continue to be in full force and effect.

ARTICLE XI
SANCTIONS


Section 1. The ERC shall impose the appropriate  fines and penalties for any violation or non-compliance  with these Rules, pursuant to the “Guidelines to Govern the Imposition of Administrative  Sanctions  in the Form  of Fines  and Penalties  Pursuant  to Section  46 of R.A. 9136”.

Pasig City, 20 February 2018

(SGD) AGNES VST DEVANADERA
Chairperson and CEO

(SGD) GLORIA VICTORIA C. YAP-TARUC
Commissioner
(SGD) ALFREDO J. NON
Commissioner


(SGD) JOSEFINA PATRICIA A. MAGPALE-ASIRIT
Commissioner
(SGD) GERONIMO D. STA. ANA
Commissioner


[1] Upon approval and implementation of the new Price Determination Methodology.

[2] Upon the declaration of the commercial operations of WESM in Mindanao Grid.
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