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Whereas, Rule 8.6.1 of the Wholesale Electricity Spot Market (WESM) Rules provide for the approval by the Department of Energy (DOE) of proposals for any WESM rules changes upon endorsement by the PEM Board;

Whereas, on November 8, 2005 and December 8, 2005, the Interim Rules Change Committee has approved a resolution endorsing for approval before the PEM Board changes in the WESM rules pertaining to the governance and market operations;

Whereas, after discussion, the PEM Board has resolved on November 10, 2005 and December 15, 2005 to approve for endorsement to the Department of Energy (DOE) abovestated changes to the WESM Rules;

NOW, THEREFORE, pursuant to its authority under the WESM Rules, the DOE hereby issues, adopts and promulgates the following amendments to the WESM Rules. A. Amendments to the WESM Rules

1. Rule 1.4.2.7(a) is amended to read --

(a) is not a director, officer, employee, contractor, agent, manager or shareholder of a WESM Member;

2. Rule 1.4.2.7 (b) is amended to read --

(b) is not a relative of a person, within the fourth civil degree of consanguinity or affinity, of a director, officer, manager, shareholder of a WESM Member;

3. Rule 1.4.2.7 (c) is amended to read -

(c) is not an officer, manager, director or shareholder, agent, employee or contractor of, or is not a person directly or indirectly, through one or more intermediaries, controls, is controlled by a company, affiliate, or any other entity related to or associated with a WESM Member, where:

(1) A related company or body, is a parent, holding company subsidiary or affiliate of the WESM Member; and

(2) An associate is a person who is director, officer, manager or shareholder of that related company or entity, or a relative of such a person within the fourth civil degree of affinity or consanguinity;

4. Rule 1.4.2.7 (d) is amended to read -

(d) Has not been employed as an officer, or any supervisory or managerial capacity, by any electric power industry participant, or a company or body related to or associated with a WESM Member within one year prior to the nomination date; and

5. Rule 1.4.2.7 is added to read -

The term shareholder as used in this Clause 1.4.2.7 (a), (b), (c) shall be understood to exclude:

(a) a member of an Electric Cooperative who is not involved in the operation and management of the same Electric Cooperative; and

(b) an End-user who is required to subscribe to, or to purchase, a share in a Distribution Utility as an incident to the provision of service by the same Distribution Utility; provided that the interest of the End-user be not more than the minimum required to avail of the Distribution Utility’s services.

6. Rule 1.4.6 is amended to read -

The PEM Board shall form working groups and appoint qualified personnel who shall act as the following:

(a) The PEM Auditor to conduct audits of the operation of the spot market and of the Market Operator in accordance with clause 1.5;

(b) A Market Surveillance Committee to monitor and report on activities in the spot market in accordance with clause 1.6;

(c) A Technical Committee to monitor and review technical matters under and in relation to the WESM Rules, the Grid Code and Distribution Code in accordance with clause 1.7; [and]

(d) A Rules Change Committee to assist the PEM Board and the DOE in relation to the revision and amendment of the WESM Rules in accordance with Chapter 8, and the formulation, revision and amendment of market manuals, procedures and guidelines; and

(e) A Dispute Resolution Administrator to facilitate the mediation of the dispute between the parties to reach resolution within a specified period of time in accordance with the dispute resolution process under clause 7.3

7. Rule 1.4.7.1 is added to read -

The PEM Board shall establish a Market Assessment Group which shall have the following powers and functions:

a. Serve as the primary support unit of the PEM Committees;
b. Assist the PEM Board or the Market Surveillance Committee to establish the procedures for monitoring and assessing the performance of the WESM and the activities conducted by the WESM Members with the end view of ensuring the effective functioning or overall efficiency of the WESM;
c. Regularly collect and process market monitoring data and indices;
d. Prepare periodic assessment reports on overall market performance and competitiveness;
e. Provide support and assistance to the different PEM Committees formed in accordance with clause 1.4.6 when requested and in a manner as deemed necessary by the respective Committee Chairmen; and
f. Perform such other tasks as assigned by the PEM Board, the PEM Committees or the President of the Philippine Electricity Market Corporation.

8. Rule 1.4.7.2 is added to read -

The Market Assessment Group shall be composed of an adequate number of personnel with the appropriate knowledge, experience and qualifications necessary to provide timely and effective support and assistance to the PEM Committees.

9. Rule 1.4.7.3 is added to read -

The Market Assessment Group shall be a unit under the Office of the President of the PEMC.

10. Rule 1.4.8 is added to read -

The PEM Board shall create an Enforcement and Compliance Officer to investigate alleged breaches of and enforce sanctions against the System Operator, Market Operator, and other WESM members.

To assist the Enforcement and Compliance Officer, an Enforcement and Compliance Office shall be created to perform the following functions:

a. Serve as a technical and investigative support unit of the Enforcement and Compliance Officer;

b. Establish a mechanism to promote consultation and voluntary compliance of industry participants; and,

c. Continuously develop systems and procedures to deter breaches of the WESM Rules and further evolve enforcement of penalties consistent with the objectives of the WESM.

11. Rule 1.6.2. (d) is amended to read -

d. Assist the PEM Board or the Enforcement and Compliance Officer to investigate and gather evidence of:

1. Unusual or suspicious behavior or activities of WESM Members in the spot market;
2. Suspected or alleged breaches of the WESM Rules by WESM Members; and
3. Suspected or alleged anti-competitive behavior;

12. Rule 3.2.2.1 is amended to read -

A market trading node is a designated point in the market network model where energy is bought or sold based on the schedules and prices determined by the Market Dispatch Optimization Model. A market trading node where energy is primarily sold into the WESM is referred to as the generator node while a market trading node where energy is primarily bought from the WESM is referred to as a customer node.

13. Rule 3.2.2.2 is amended to read –

Each market trading node defined under clause 3.2.21 shall:

a. Be assigned to a Trading Participant that intends to buy or sell energy and is capable of complying with the dispatch and settlement requirements in the WESM;

b. Be associated with a revenue metering and remote telemetering facilities capable of measuring all relevant incoming and outgoing energy deliveries for the purpose of dispatch and settlement in the WESM; and

c. As much as possible, represent the connection point between the Network Service Provider and the Trading Participant.

14. Rule 3.2.2.3 is amended to read -

If the connection point of the Trading Participant could not be represented in the market network model or if a particular market trading node must be assigned to more than one Trading Participant because the conditions set in clause 3.2.2.2 are not met, the affected Trading Participants, the Metering Services Provider and the Network Service Provider will mutually agree on adjustments that will be implemented by the Market Operator and the System Operator.

15. Rule 3.5.13.1 is amended to read -

Subject to clause 3.5.13.3, the System Operator may recommend to the Market Operator that constraints be imposed on the energy dispatch of a specific facility which may have the effect of fixing or bounding the generation or re- serve scheduled from the plant, if the System Operator reasonably believes that the generator offer, reserve offer or demand bid does not provide a valid representation of the actual or expected capability of that facility in that trading interval, and where, in the reasonable opinion of the System Operator, such misrepresentation seems likely to impact materially on dispatch or pricing.

16. Rule 3.5.13.6 is amended to read -

If a review conducted under clause 3.5.13.5 concludes that a Trading Participant or the Market Operator or the System Operator has acted inappropriately, and has thereby imposed significant costs on other parties, the market surveillance committee may refer that matter to the Enforcement and Compliance Officer under clause 7.2 or require that Trading Participant or the Market Operator or the System Operator (as the case may be) to pay compensation in accordance with clause 7.2

17. Rule 3.6.1.4 (i) is amended to read -

Power flow equations, as defined by a DC approximation to an AC power flow within AC sub-systems, or equivalent mathematical representation;

18. Rule 3.10.2 is amended to read -

Determination of Ex-Ante Nodal Energy Price

The ex-ante nodal energy price for each market trading node in any trading interval shall, subject to clause 3.10.5, be determined as the shadow price on the energy balance equation or equivalent mathematical formulation for that market trading node formed in accordance with clause 3.6.1.4 (c), in the dispatch optimization performed for that trading interval in accordance with clause 3.8.1

19. Rule 3.10.6 is amended to read -

Determination of Ex-post Nodal Energy Price

The ex-post nodal energy price for each market trading node shall be determined as the shadow price on the energy balance equation or equivalent mathematical formulation for that market trading node, formed in accordance with clause 3.6.1.4 (c), in a ex-post dispatch optimization performed, in accordance with the timetable, to determine target dispatch levels for the end of that trading interval, assuming:

20. Rule 3.9 is amended to read -

Treatment of Load Shedding, Excess Generation and Reserve Violation

21. Rule 3.9.9 is added to read -

Management Procedures for Reserve Violation

22. Rule 3.9.9.1 is added to read -

Should either the dispatch optimization or any market projection indicate a violation of a reserve requirement, the Market Operator shall:

a. Promptly advise the System Operator that it may be necessary to reduce the level of the reserve requirement.

b. Reduce the reserve requirement by the minimum amount to a level that prevents a violation of that requirement.

c. Solve the market dispatch optimization model with the reduced reserve requirement.

23. Rule 3.9.9.2 is added to read -

The prices determined in clauses 3.10.2, 3.10.6 and 3.10.10 will be derived from the solution of the market dispatch optimization model provided for in clause 3.9.9.1 (c)

24. Rule 4.2 (a) is amended to read -

A Customer in respect of any market trading node that is assigned to it through which it purchases electricity from the spot market; and

25. Rule 4.2 (b) is amended to read -

A Generation Company in respect of a market trading node that is assigned to it through which it sells electricity to the spot market; and

26. Rule 4.3.1.1 is amended to read -

Before a Trading Participant who is a Direct WESM Member will be permitted by the Market Operator to participate in the spot market in respect of a market trading node, the Trading Participant shall ensure that:

(a) Each of its assigned market trading node has a metering installation;

27. Rule 4.3.1.2 is amended to read -

The Market Operator may refuse to permit a Trading Participant who is a Direct WESM Member to participate in the spot market in respect of any assigned market trading node if the metering installation associated with that market trading node does not comply with the provisions of this Chapter 4, the Grid Code and Distribution Code.

28. Rule 4.4.2 is amended to read -

A Generation Company or Customer which is involved in the trading of energy shall not be registered as a Metering Services Provider for any market trading node assigned to it.

29. Rule 4.5.2.1 is amended to read -

The Metering Services Provider shall ensure that the metering point is located as close as practicable to the market trading node.

30. Rule 4.5.2.2 is amended to read -

The Trading Participant, the Network Service Provider and the Market Operator shall use their best endeavors to agree to adjust the metering data to allow for physical losses between the actual metering point and the relevant market trading node.

31. Rule 4.8.3 is amended to read -

The only entities entitled to have either direct or remote access to metering data on a read only basis from the metering database or the metering register in relation to a metering point are:

(e) Any Customer with respect to the metering data in relation to the metering point registered to it.

32. Rule 7.1 is amended to read -

In line with the principles of self-governance, expeditious, just and least ex- pensive disposition of disputes and considering the continuous nature of the transactions and operations of the WESM, this chapter sets out:

(a) The responsibilities for ensuring that all WESM Members comply with the WESM Rules;

(b) The procedures on how the alleged breaches will be dealt with including:

1) The correct party to whom notice of an alleged breach of the WESM Rules by a WESM Member shall be given;

2) The manner in which an alleged breach is to be investigated;

3) The manner in which a breach is to be sanctioned; [and]

(c) Other provisions on how disputes are to be resolved; and

(d) The appointment of an Enforcement and Compliance Officer, a Dispute Resolution Administrator and Dispute Resolution Panel.

33. Rule 7.2.2 is amended to read -

Breaches of the WESM Rules by the WESM Members

34. Rule 7.2.2.2 is amended to read -

The PEM Board shall direct the Enforcement and Compliance Officer to investigate the alleged breach as soon as possible, when:

a) A WESM Member or the Market Operator notifies the PEM Board of an alleged breach of the WESM rules in accordance with clause 7.2.2.1; or

b) The PEM Board has a reasonable ground to believe that the WESM Member has committed or is committing an act probably in violation of the WESM Rules; or

c) The Market Surveillance Committee submits a report showing suspected breaches of the WESM Rules by WESM Members.

35. Rule 7.2.2.3 is amended to read -

The Enforcement and Compliance Officer shall issue a written notice to the WESM Member who is alleged to be in breach of the WESM Rules within five calendar days upon receipt of notice from the PEM Board.

36. Rule 7.2.2.4 is amended to read -

The said notice issued by the Enforcement and Compliance Officer shall:

a) Specify the nature of the breach and the sanctions that may be imposed if the breach is not remedied;

b) Require the WESM Member to explain in writing the alleged breach within ten (10) calendar days from receipt thereof and;

c) Order the WESM Member who is in alleged breach to immediately remedy the act or omission comprising the alleged breach or some other remedial measure, if in the opinion of the Enforcement and Compliance Officer, exercising due and necessary diligence, believes that some remedial or preventive measure should be taken to abate the effects of the act or omission complained of; Provided that (i) complying with the order shall not be deemed as an admission of guilt of the act or omission complained of, and (ii) shall be recognized as a mitigating factor if the complying party is later determined to be in breach.

37. Rule 7.2.2.5 is amended to read -

The notice shall be copy furnished to:

a) The PEM Board; [and]
b) The ERC, and
c) the market operator

within five business days from issuance of notice.

38. Rule 7.2.2.6 is amended to read -

The Enforcement and Compliance Officer after according the parties due process shall determine whether the WESM Member in question is in breach of the WESM Rules.

39. Rule 7.2.2.7 is amended to read -

If the Enforcement and Compliance Officer determines that a WESM Member has indeed breached a WESM Rule, the Enforcement and Compliance Officer shall require in writing the WESM Member to remedy the breach within a reasonable period of time; Provided that, the period to remedy, as determined by the Enforcement and Compliance Officer, shall take in consideration all the attendant circumstances surrounding the breach including the nature and extent of damages or injuries caused as well as the quickest possible time required to correct the breach.

40. Rule 7.2.2.8 is amended to read -

The Enforcement and Compliance Officer may further recommend to the PEM Board that the WESM Member determined to be in breach be suspended in accordance with clause 3.15.7 if the said Member has:

a. Committed such a breach of the WESM Rules and that the breach cannot be rectified;
b. Continued to breach the WESM Rules over a period of time; or
c. Failed to remedy a breach after it has been required to do so.

The Enforcement and Compliance Officer may recommend to the PEM Board for approval the suspension of the party in breach in accordance with clause 3.15.7

41. Rule 7.2.3.2 is amended to read -

If the PEM Board considers that the Market Operator or System Operator has committed a breach of the WESM Rules, the PEM Board shall direct the Enforcement and Compliance Officer to investigate the alleged breach as soon as possible.

42. Rule 7.2.3.3 is amended to read -

The Enforcement and Compliance Officer shall issue a written notice to the Market Operator or the System Operator within five business days upon receipt of notice from the PEM Board.

43. Rule 7.2.3.4 is amended to read -

The notice which the Enforcement and Compliance Officer is required to issue under clause 7.2.3.3 shall:

a) Specify the nature of the breach and sanctions which may be imposed if the breach is not remedied; and

b) Require the Market Operator or the System Operator to explain in writing the alleged breach within a reasonable period of time.

44. Rule 7.2.4.1 is amended to read -

The Enforcement and Compliance Officer may request from the WESM Member who is alleged to be in a breach of the WESM Rules all information relating to the breach.

45. Rule 7.2.4.2 is amended to read -

If the Enforcement and Compliance Officer makes a request for information under clause 7.2.4.1, it shall provide to the WESM Member to whom the request is made the reasons for the request.

46. Rule 7.2.4.3 is amended to read -

If a WESM Member fails to comply with a directive or request by the Enforcement and Compliance Officer for information under clause 7.2.4.1, the Enforcement and Compliance Officer may request the Market Surveillance Committee to investigate the matter and to prepare a report or such other documentation as the Enforcement and Compliance Officer may determine.

47. Rule 7.2.7 is amended to read -

Subject to clause 5.3, the Enforcement and Compliance Officer shall publish a monthly report setting out a summary for the period covered by the report of all actions and rulings made during that period in relation to the enforcement of the WESM Rules.

48. Rule 7.2.8 is added to read -

Appointment of an Enforcement and Compliance Officer

49. Rule 7.2.8.1 is added to read -

The President of PEMC shall appoint a person to act as Enforcement and Compliance Officer with the concurrence of the PEM Board.

50. Rule 7.3.2.1 is amended to read -

The PEM Board shall appoint a person to act as Dispute Resolution Administrator, who shall also be part of the Dispute Resolution Group.

51. Rule 7.3.2.5 is amended to read -

For the avoidance of doubt, the dispute resolution group selected under clause 7.3.2.4 may include any person the Dispute Resolution Administrator considers to have the same qualifications stated in clause 7.3.2.2.

52. Definition of Enforcement and Compliance Officer in Rule 11 is added to read -

Enforcement and Compliance Officer. A person tasked to perform compliance and enforcement functions pursuant to clause 7.2, including the investigation and such other functions as may, from time to time, be assigned to him by PEMC.

53. Definition of the Philippine Electricity Market Corporation or PEMC in Rule 11 is added to read --

Philippine Electricity Market Corporation or PEMC. The corporation incorporated upon the initiative of the DOE composed of all WESM Members and Whose Board of Directors will be the PEM Board.

54. Appendix A1.1 is amended to read

Generation Offers:

c) May include up to ten (10) energy offer blocks per (aggregate) unit. The maximum combined capacity of generation and reserve offers must not be less than the maximum available capacity of the generator.

B. Effectivity

These amendments shall be effective fifteen (15) days following its publication in two (2) national newspapers of general circulation.

Adopted: 10 Jan. 2006

(SGD.) RAPHAEL P.M. LOTILLA
Secretary