Study On The Extension of WESM Commercial Operation in Vis

TECHNICAL ASSISTANCE
ON WESM POLICY
DEVELOPMENT
Report to the DOE
(PHRD Project TF055609)
10 March 2008
Final Report: Extension of WESM
to Visayas
TO VISAYAS
Disclaimer
The professional analysis and advice in this report has been prepared by
Intelligent Energy Systems Pty Ltd (IES) for the use of the party or parties to
whom it is addressed, the Recipient(s), and for the purposes specified in the
report.
This report is supplied in good faith and reflects the knowledge, expertise and
experience of the consultants involved. In conducting the analysis for this report
IES has endeavoured to use what it considers is the best information available at
the date of publication, including any information supplied by the Recipient. IES
makes no representations or warranties as to the accuracy of the assumptions or
estimates on which the forecasts and calculations are based.
Although IES exercises reasonable care when making forecasts or predictions,
factors in the process, such as future market behaviour, are inherently uncertain
and cannot be reliably forecast or predicted. All projections, forecasts and
calculations in this report are for illustrative purposes only, using assumptions
and estimates described herein. The calculations are based on certain
assumptions that may not be realised or estimates that may prove to be
inaccurate. In addition, the projections involve a number of risks and
uncertainties. Actual results may be materially affected by changes in economic
and other circumstances. Factors that could cause actual results to differ
materially from the projections contained in the report, include, but are not limited
to, changes in interest rates, changes in general economic conditions, changes in
applicable legislation or government policy and changes in supply and demand
for energy.
IES makes no representation or warranty that any calculation, projection,
assumption or estimate contained in this report should or will be achieved or is or
will prove to be accurate. The reliance that the Recipient places upon the
calculations and projections in this report is a matter for the Recipients own
commercial judgement. In addition, IES shall not be liable in respect of any claim
arising out of the failure of the Recipients investment to perform to the
advantage of the Recipient or to the advantage of the Recipient to the degree
suggested or assumed in any advice or forecast given by IES.
Intelligent Energy Systems
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Executive Summary
Introduction
Mr Stephen Wallace of Intelligent Energy Systems (IES) was contracted to
provide technical assistance to the Philippines Department of Energy (DOE) on
Wholesale Electricity Market (WESM) Policy Development in the areas of:
The proposed WESM reserve market and what should be sensible

preconditions for its operation in the WESM;
The proposed extension of the WESM to Visayas and what should be

sensible preconditions for the extension the WESM to Visayas; and
The determination and assessment of performance indicators for the System

Operator and the Market Operator
This report comprises the second tranche of work for the technical assistance
and is largely focussed on the proposed extension of the WESM to Visayas.
Consultation
IES and DOE had one or more specific meetings with stakeholders to discuss the
extension of the WESM to the Visayas grid. We had separate meetings with:
Market Operator;
The Visayas System Operator;
Visayas Generators:
Distribution utilities:
These meetings were in addition to the earlier consultations IES and DOE had
with all of the key stakeholders currently involved in the WESM regarding issues
in the WESM and the proposed reserves market.
Key Findings
There are a number of problems concerning extending the WESM to Visayas; the
main ones being:
A. Participants Readiness.
Some of the Visayas participants are not ready to effectively operate in an

extended WESM1. Only the MO seems to be fully prepared. The SO is
reasonably well prepared but slightly under staffed. The generators can
lodge bids but are probably not fully prepared for commercial operation in a
market. The ECs and DUs still are not really prepared.
Based on some additional discussions with the MO and SO in February 2008
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B. Supply and Demand Situation.
The tight demand and supply balance situation in Cebu, Negros and Panay
will make it difficult to start the WESM in the immediate future. However,
unless this situation can be readily rectified by transmission upgrades alone
then new generation plant will be required but private investors are unlikely
to build new plant unless there is an operating market, the WESM, or there
are government guarantees or long term power purchase agreements.
However, avoiding the latter two options is one of the reasons for creating
the WESM. Consequently introducing the WESM to Visayas is going to be
difficult.
Extending the WESM to Visayas is probably essential to ensuring that there
is adequate generation to meet the demands there. This is likely to result in
high WESM prices in Cebu, Negros and Panay which should encourage
generation in the medium to long term and consequently reduce the
frequency of power interruptions. However there is a danger that high
WESM prices in Visayas could cause lots of political problems for the
market.
One solution to this apparent conundrum could be to start the market with a
number of market power and risk mitigation measures in place such as:
a.
high levels of contracting2 for a number of years;
b.
the minimization of local market power of generation portfolios by

ensuring that the IPPA arrangements and NPC generation sales do not
result in local market power, to the extent possible;
c.
improvements in the supply situation through contracting backup

generators and interruptible loads as reserve ancillary services (may
need some revisions to the Visayas SOs ancillary service procurement
program ASPP);
d.
addressing the most dysfunctional aspects of the WESM to ensure that

all generation capacity is offered into the market at a price and there are
incentives and sufficient and timely market information for all generation
plant to be managed so that it is available and offered into the market at
times when it is likely to be needed;
e.
co-optimising energy and contracted reserves to ensure the best use of

available plant capacity;
f.
enhanced provision of information to all market participants to enable

more efficient operation and better detection of any market power
abuses; and
g.
other market power and risk management measures that the DOE and
ERC can develop.
The contracting could be financial (derivatives) contracts or bilateral contracts which are effectively
derivatives (swap) contracts settled through the WESM.
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Finding and implementing an adequate set of market power and risk
mitigation measures will not be an easy task.
C. Transparency Issue.
Improving the provision of information in terms of availability and timing will

allow many stakeholders in Visayas to better manage their affairs and for all
stakeholders to scrutinise the market outcomes and judge whether there has
been any misuse of market power when there are high prices.
D. Dysfunctional aspect of the WESM
There still are some dysfunctional aspect of the WESM market rules and the
WESM implementation that could adversely affect the market in Visayas;
these should be rectified.
E. Establishment of Reserve Market and FTRs
There is a need (a) for FTRs in the longer term and (b) for making some
minor adjustments to the proposed reserve market to better cater for the
particular requirements of the Visayas region.
Criteria for Extending the WESM to Visayas

The key criteria that need to be satisfied before the WESM should be extended to
include Visayas are as follows:
The SO, generators and Customers/DUs/ECs are in a position where they

are able to operate effectively in a market environment;
The most dysfunctional aspects of the WESM are fixed up, in particular
those aspects of the WESM that will contribute to ensuring that all available
capacity is offered into the WESM at a price and plant limitations such as
energy constraints are effectively managed by the traders via the prices and
quantities offered;
Reserves and energy are able to be co-optimised in the dispatch of plant in

the Visayas (this does not mean that the full reserve market has to be
operating);
A plan is in place to develop FTRs or some other risk management tool to

deal with divergent locational prices;
Improvements in the provision of information particularly the supply of bid

data much sooner than 30 days after the event and speeding up the
provision of spot prices when there have been re-runs; and most importantly,
The WESM is only expanded to Visayas after

a.
sufficient transmission upgrades and new generation is in place to

ensure that there is both adequate supply and effective competition
and/or
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b.
measures are in place to ensure that the risks of high WESM spot prices
due to a tight demand and supply balance and local market power of
generators are effectively mitigated so that the revenue and cost
streams of generators, DUs, ECs and wholesale customers are
reasonably predictable and the impacts of any high spot prices dont
adversely affect customers too much.
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Table of Contents
Executive Summary
iii
iii
iii
v
Introduction
1.1
1.2
1.3
1.4
3
4
5
6
7
8
9
10
11
iii
Introduction
Consultation
Key Findings
Criteria for Extending the WESM to Visayas
Objective
Background
Scope of Work
Consultation
9
9
11
12
The Visayas Market
14
2.1
2.2
2.3
2.4
2.5
2.6
2.7
14
14
16
19
21
24
25
Introduction
Market Participants
Network and Connections
Loads
Generation
Demand and Supply Balance
Involuntary Load Shedding
Necessary Conditions for Extension to Visayas

Dysfunctional Aspects of the WESM
Reserve Market
Financial Transmission Rights
Zonal Prices and Customer Prices
Generation Competition
Transmission and Generation Competition
Competition and Starting a Spot Market
Generation Supply and Price Conundrum
26
28
29
30
31
32
33
34
35
11.1 Introduction
11.2 Market Price Incentives
11.3 Starting the WESM with Tight Demand and Supply
11.4 Contracting and Retailing/Supply Arrangements
11.5 Market Power Mitigating Measures
11.6 Pricing to Ensure Proper Signalling of Supply Shortages
11.7 Provision of Information
35
35
35
36
37
37
37
12 Market Preparedness of Stakeholders

12.1 Introduction
12.2 DOE Process to Monitor the Readiness of Participants
12.3 Questions for Generators
12.4 Questions for Customers/Retailers/DUs/ECs
12.5 Market implementation, systems and procedures
12.6 Questions for the Visayas System Operator
12.7 Participants Readiness (February 2008).
13 Readiness of Systems
14 Conclusion
40
40
41
43
45
45
46
48
49
14.1 Key Findings

14.2 Criteria for Extending the WESM to Visayas
40
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50
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List of Figures
Figure 1
Figure 2
MOs Estimates of Interconnection Capabilities Based on MOs

January 22 nd 2008 Visayas Update to PEM Board
17
Visayas Power Grid Map
(Extract from Transcos 2006 Power
Figure 3
Figure 4
Grid Map)
Visayas Loads for 5th to 11th February 2008
DOE Process for Determining Participant Readiness
18
20
41
List of Tables
Table 1
Table 2
Table 3
Visayas Market Participants as of May 23 2007

14
Demand statistics for 2005 for Visayas grid (in MW)
19
Estimated demand statistics for 2008 for Visayas grid (in MW) 19
Table
Table
Table
Table
Estimated Visayas Customer Loads for 2006-2007

Visayas Generating Units
Larger Embedded Generators
20
22
24
25
Leyte A Components
32
4
5
6
7
Table 8
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Introduction
Mr Stephen Wallace of Intelligent Energy Systems (IES) was contracted to
provide technical assistance to the Philippines Department of Energy (DOE) on
Wholesale Electricity Market (WESM) Policy Development. This report
comprises the second tranche of work for the technical assistance and is largely
focussed on the proposed extension of the WESM to Visayas. This report is
based considerably on the earlier report which looked proposed WESM reserve
market as many of the issues for the reserve market really need to be resolved
before the WESM is extended to Visayas.
1.1
Objective
The general objective of the technical assistance to DOE is to provide

independent and expert advice on the emerging competitive market and to
provide support in the reviews and decisions the DOE will have to make relative
to the development of WESM.
The principal issues that are to be addressed are as follows:
The proposed WESM reserve market and what should be sensible

preconditions for its operation in the WESM;
The proposed extension of the WESM to Visayas and what should be

sensible preconditions for the extension the WESM to Visayas; and
The determination and assessment of performance indicators for the System

Operator and the Market Operator
The background to the DOEs interest in the reserve market and other aspects of
the WESMs development is outlined in the next section.
1.2
Background
The Government of the Philippines, through the Department of Energy (DOE)

and with grant assistance from the Policy on Human Resources Development
(PHRD) and the International Bank for Reconstruction and Development (IBRD),
is implementing the Preparation of Private Sector Development
Support/Guarantee for Power Sector Reform Project. The objective of the
Project is to contribute positively towards the fiscal stability and improvements in
the investment climate, which are critical for the countrys goal for economic
growth and social inclusion, through support for the implementation of power
sector reform.
The Philippine Wholesale Electricity Spot Market (WESM), a key component of
the power reform program, started its commercial operations on June 26, 2006.
As expected in a new spot market, the implementation is discovering unexpected
results and problems which may affect the development of a competitive power
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sector that has reasonable and efficient spot prices and can attract timely
investment and private sector participation.
The DOE wants to monitor the development of competition in the WESM. On the
WESMs third month of operation, an investigation was conducted by the Market
Surveillance Committee (MSC) on the strategic bidding of the government entity
trading pre-existing PPAs with IPPs (PSALM). The MSC concluded that there
was evidence that the PSALM traders had acted in a co-ordinated way and
PSALM had misused its market power. ERC then took over the jurisdiction of the
matter and eventually concluded that there was not prima facie evidence that
PSALM had abused its market power even though there was circumstantial
evidence that three of the four PSAL traders had acted in a co-ordinated manner
rather than as three independent traders.
Given the potential impact of WESM in the development of the power sector, the
DOE needs to assess the efficiency of spot prices. Based on the current WESM
operation reports, there are a significant numbers of hours with spot prices at or
below zero, which is deemed unusual for that type of market and that can
potentially create distortions or inefficiencies in the pricing signals for investors
and participants. Moreover, traders or generators may tend to bid higher prices
to compensate the hour were spot sales are priced at zero. This in turn makes
the WESM prices more volatile.
This zero price scenario may be attributed to the market procedures on the
management of generation minimum load or Pmin. Another area of concern is
the increase in number of constraint violations in the WESM, which result in a rerun to calculate spot prices and seem to show an increase in violation of
constraints related to demand and supply balances and transmission congestion.
In summary, there is a need for a review and assessment of WESM results and
its rules, as well as to the relevant provisions of EPIRA and its IRRs, given
current conditions and expected development in the power industry.
There are other anticipated developments in the WESM. These are the proposed
commercial operation of the WESM reserve markets and the extension of WESM
to Visayas on the 3rd Quarter of 2007 (now thought to be later than this quarter,
probably in 2008). In the case of WESM Reserve Markets, it is expected that the
Regulatory decision on the filing of Pricing and Cost Recovery Mechanisms for
Reserves will be forthcoming on the 2nd Quarter of 2007(now thought to be the
4th quarter 2007).
Given the DOEs overall mandate on policy making in the power sector and
WESM development, it is proactively responding to the current development of
the scope of WESM to ensure its efficiency. Consequently, prior to the DOE
declaration of the WESM launch in Visayas and its extension to a reserves
market, criteria on the prerequisites for such extensions shall be established. The
timing and the adequacy of conditions are the critical issue that needs to be
assessed for DOE to declare a go or no go decision.
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1.3
Scope of Work
The specific scope of work outlined by the DOE is listed below but also as part of
providing technical assistance, the DOE is expecting that the consultant will
share practical experience on electricity markets in order for the DOE to develop
a pro-active strategy in establishing the prerequisites and conditions necessary
for expanding the scope of the WESM and other policy decisions on the WESM.
1.3.1
Task 1: Assessment of the anticipated WESM Reserve Markets
Review and provide advice on the regulatory filing for Pricing and Cost
Recovery Mechanisms for Reserves;
Analyze the adequacy of the WESM Rules relative to the Reserves Market
(i.e., impact of Pmin; possible changes to MDOM);
Provide advice on the WESM Market Reserves (i.e., establishment of

prerequisites and conditions prior to commercial launching); and
Advice on other interrelated matters pertaining to the reserve market.
Deliverables:
Assessment report on the proposed WESM Reserve Markets including

comparison to other jurisdictions.
Analysis report on the possible dysfunctionality of the market due to some

outstanding issues in the current WESM Rules that will have impact on the
Reserve Market.
Development of criteria that will be used by DOE in determining whether the

WESM Reserve Market is ready to start commercial operation (go or no go
decision)
Study on the expected results of the WESM Reserve Markets including the
benefits vis a vis the existing WESM Energy Market
Possible recommendations on the regulatory filing for Pricing and Cost

Recovery Mechanisms for Reserves
1.3.2
Task 2: Assessment of WESM current operation and Extension

to Visayas
Assess the efficiency and problems of WESM operation in Luzon based on

operational results;
Identify WESM Rules or market procedures that need to be amended or

modified to support the envisioned competition in the generation and supply
sector, ensure efficient pricing and avoid creating distorted incentives to spot
bidding;
Advice on the triggers for operationalization of Visayas WESM;
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Advice on other interrelated matters pertaining to the extension of WESM to

Visayas, in particular consequences of transmission constraints in extending
WESM to Visayas, based on information to be provided by the DOE.
Deliverables:
Assessment report of the timing and corresponding impact of extending

WESM operation to the Visayas Grid.
Formulation of criteria and assessment on feasibility of WESM operations in

the Visayas Grid.
Determination of possible constraints and level of competition.
1.3.3
Task 3: Assessment of Performance Indicators
Assess performance indicators for the System Operator
Assess performance indicators for Market Operator
Deliverables:
Assessment report on the efficiency of WESM taking into consideration the

productive, allocative, and dynamic efficiency.
Development of performance indicators for System Operator and Market

Operator
1.4
Consultation
IES and DOE had specific meetings with stakeholders to discuss the extension of
the WESM to the Visayas grid. We had separate meetings with:
Market Operator;
Visayas Generators:
Leyte Geothermal Power Plant - PSALM,
Global Business Power Corporation,
Toledo
Panay Diesel Power Plant NPC
PB 101 Diesel (Power Barge) NPC
PB 102 Diesel (Power Barge) NPC,
Bohol Diesel Power Plant NPC
Palinpinon Geothermal Power Plant - NPC;
CEBECO 1
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CEBECO 2
CEBECO 3
VECO
These meetings were in addition to the earlier consultations IES and DOE had
with all of the key stakeholders currently involved in the WESM regarding issues
in the WESM and the proposed reserves market. During these earlier
consultations, IES and DOE met with each of the following stakeholders at least
once:
The Market Operator;
PEMCs Market Assessment Group;
PEMCs Enforcement and Compliance Office;
The Luzon System Operator;
Each of the three traders from PSALM;
National Power Corporation;
First Gas;
Meralco; and
Energy Regulatory Commission.
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The Visayas Market

2.1
Introduction
The extension of the WESM to include Visayas would comprise an extension of

the WESM to the interconnected islands in the Visayas region. These are:
Leyte/Samar,
Cebu,
Bohol,
Negros, and
Panay.
Because the Visayas region is not as strongly meshed as the Luzon region
issues regarding generation competition and local market power, local reserve
and system security requirements, divergence of nodal prices and hedging price
differences need to be considered when considering the extension of WESM to
Vsayas. A number of complications also arise in terms of expanding the
transmission system which requires under sea inter-island transmission
connections which are costly and difficult to implement. This combined with the
geography of the location has implications for the optimal citing of generation
assets.
2.2
Market Participants
The market participants for the Visayas grid, as of November 2007, are
presented in Table 1. Some of them only have observer status.
Table 1
Visayas Market Participants as of May 23 2007
Organisation
Abbreviation
Role
Status
Full
Global Business Power Corporation
GBPC
Generator
National Power Corporation
NPC
Generator
PSALM
Generator
Participant
Full
Power Sector Assets and Liabilities

Management Corporation
Participant
Full
Participant
Full
Salcon Power Corporation
Generator
Participant
Full
Toledo Power Corporation
GBPC
Generator
Participant
Electric
Antique Electric Cooperative, Inc.
ANTECO
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Cooperative
Not registered
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Organisation
Abbreviation
Bohol Electric Cooperative, Inc.
BOHECO
Role
Status
Electric
Cooperative
Not registered
Distribution
Bohol Light Company Inc.
BLCI
Utility
Not registered
Electric
Capiz Electric Cooperative, Inc.
CAPELCO
Cebu I Electric Cooperative, Inc.
CEBECO I
Cebu II Electric Cooperative, Inc.
CEBECO II
Cebu III Electric Cooperative, Inc.
CEBECO III
Central Negros Electric Cooperative
CENECO
Eastern Samar Electric Cooperative,

Inc.
Cooperative
Not registered
Electric
Full
Cooperative
Participant
Electric
Full
Cooperative
Participant
Electric
Full
Cooperative
Participant
Electric
Full
Cooperative
Participant
Electric
ESAMELCO
Iloilo I Electric Cooperative, Inc.
ILECO I
Iloilo III Electric Cooperative, Inc.
ILECO III
Leyte I Electric Cooperative, Inc.
LEYECO I
Cooperative
Not registered
Electric
Full
Cooperative
Participant
Electric
Cooperative
Not registered
Electric
Cooperative
Not registered
Electric
Leyte II Electric Cooperative, Inc.
LEYECO II
Cooperative
Not registered
Electric
Leyte III Electric Cooperative, Inc.
LEYECO III
Leyte IV Electric Cooperative, Inc.
LEYECO IV
Cooperative
Not registered
Electric
Leyte V Electric Cooperative, Inc.
LEYECO V
Negros Occidental Electric

Cooperative, Inc.
NOCECO
Panay Electric Company
PECO
Panay Electric Cooperative, Inc.
PECO
Cooperative
Not registered
Electric
Full
Cooperative
Participant
Electric
Full
Cooperative
Participant
Distribution
Utility
Not registered
Electric
Cooperative
Not registered
Electric
Samar Electric Cooperative, Inc.
SAMELCO
Cooperative
Not registered
Electric
Samar II Electric Cooperative, Inc.
SAMELCO II
Southern Leyte Electric Cooperative,

Inc.
Visayan Electric Company
Cooperative
Not registered
Electric
SOLECO
VECO
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Cooperative
Not registered
Distribution
Full
Utility
Participant
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Organisation
Abbreviation
Role
Status
Philippine Phosphate Corporation
PHILPHOS
Customer
Participant
Customer
Observer
Customer
Observer
Other Utilities
Observer
Full
Strategic Corporate Investment
Partners Ltd.
International Institute for Energy
Conservation
PNOC - Energy Development
Corporation
What is noticeable in the table above is that many of the electricity co-operatives
(ECs) have not registered as participants in the WESM. If they dont register as
participants then National Power Corporation (NPC) will assume the role of
wholesale supplier of last resort and hence will be effectively participating in the
spot market as both a generator and retail supplier. However, NPC is not
registered for the role of wholesale supplier of last resort / retailer in the WESM.
Many electricity co-operatives are unlikely to ever be retail participants in the
WESM as they are unlikely to be able to satisfy the prudential requirements.
Consequently, the role of NPC as a wholesale supplier of last resort (retailer in
the WESM) is not fully appreciated and has important implications with respect to
the sale of NPCs assets, the PPA trader arrangements and NPCs own financial
risk management and exposure to the WESMs prices. If NPC sells off most of
its generation assets yet is still the wholesale supplier to a number of electricity
co-operatives then it will have a considerable exposure to WESM prices unless it
hedges this exposure with contracts with generators. Given this potential
exposure to WESM prices then in this case it should be registered as a supplier
and be required to meet the prudential requirements of the market even if it was
only by government guarantee.
2.3
Network and Connections
The network in Visayas is largely a radial network starting at Samar and ending
at Panay. Figure 2 shows the islands that make up Visayas and the main
transmission system that supplies them. Figure 2 is an extract from Transcos
2006 Power Grid Map. Some of the key points to note are:
Not all elements in the Luzon grid are managed on an N-1 security basis. In
fact all of the interconnections between the islands in Visayas and between
Visayas and Luzon are not managed on an N-1 basis. The power flows can
be dispatched up to the interconnector continuous ratings. Consequently
should one interconnector line trip, for whatever reason, to avoid either
overloading the remaining line where there are two lines or frequency
problems where there was one line and the system has been islanded then
there is a need for automatic load shedding and generator tripping schemes
to maintain system security.
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The connection between Luzon and Samar/Leyte is a single circuit DC

connection which is a single contingency. The transfer capabilities in the
market network model are: Samar to Luzon 440 MW and Luzon to Samar 150 MW. However due to transmission issues in the Luzon grid as of
February 2008 the transfer capability is restricted to 100 MW in either
direction.
The connection between Leyte and CEBU is a double circuit undersea AC

connection consisting of two lines, each with a continuous rating of 200MW
and a short term rating of 220MW. The current approach is to dispatch the
interconnection up to 360MW to meet the loads of Cebu, Negros and Panay.
The connection between Leyte and Bohol is a single circuit AC transmission

line with a 215MW continuous rating. The line is dispatched up to 100MW.
The connection between CEBU and Negros is a single circuit AC

transmission line with continuous rating of 215MW. The line is dispatched
up to 100MW but this can be reduced to 80MW due to stability limits.
The connection between Negros and Panay is a single circuit AC

transmission line with continuous rating of 108MW. The line is dispatched
up to 100MW but this can be reduced to 60MW due to stability limits.
One question that the various interconnection limits raises is how are forced
outages of any of the lines which form the interconnections managed? Does the
SO try to maintain some reserves on some of the islands in Visayas or do they
just resort to load shedding? If it is desirable to spread the reserves around the
islands then this defines the need for being able to specify and dispatch local
reserve requirements rather than just whole of Visayas requirements.
Figure 1
+440 MW
-150 MW
MOs Estimates of Interconnection Capabilities Based on

MOs January 22nd 2008 Visayas Update to PEM Board
Leyte
400 MW
360 MW 1
+-100 MW2
Cebu
100 MW
80 MW 1
Negros
100 MW
Panay
60 MW 1
100 MW
Luzon
80 MW 1
Bohol
Notes: 1 Based on stability limits and 2 based on temporary limits in Luzon
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Figure 2
Visayas Power Grid Map

(Extract from Transcos 2006 Power Grid Map)
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2.4
Loads
IES was provided with hourly load data for each of the islands comprising the
Visayas grid. This data was for the year 2005. We were also supplied with
Visayas data for July 2006 to June 2007 but this data was not decomposed into
loads for each island. From both sets of data we estimated that the recent load
growth in Visayas was around 7% per annum. Thus we were able to create
estimates for the load characteristics for each of the islands in the Visayas grid
for 2008. For Bohol there is an estimated 0MW for the minimum demand which
is due to there being several hours in 2005 when the demand was zero
presumably due to forced outages which prevented any Bohol demand being
met. The statistics for 2005 are presented in Table 2 and estimated statistics for
2008 are presented Table 3. The figures for Panay and Visayas do not include
the loads for PECO. According to the SO, the system peak demand for Visayas
occurs around November to December in contrast to the Luzon which has its
peak demands around May to June.
Table 2
Demand
statistics
Minimum
Average
Maximum
Standard
Deviation
Demand statistics for 2005 for Visayas grid (in MW)

Visayas
409
666
967
Bohol
0
27
47
Cebu
166
312
445
LeyteSamar
49
124
190
Negros
70
135
198
Panay
4
69
132
133
70
20
28
20
967
46
438
168
195
120
PECO
22
65
108
Coincident
maximum
demand
Table 3
Minimum
Average
Maximum
Standard
Deviation
98
Estimated demand statistics for 2008 for Visayas grid (in MW)
Visayas
506
825
1197
Bohol
0
33
59
Cebu
205
386
551
LeyteSamar
60
154
235
Negros
86
167
245
Panay5
5
86
163
165
10
87
25
35
25
1197
57
542
208
241
148
PECO6
27
80
134
Coincident
maximum
demand
122
The figures for Panay do not include the loads for PECO
The PECO figures are rough estimates based on some monthly data. They are larger than other figures
but finding a definitive source is difficult.
5
The figures for Panay do not include the loads for PECO
6
The PECO figures are rough estimates based on some monthly data
4
IESREF: 4952
19
TO VISAYAS
th
th
Figure 3 presents one week of Visayas loads from 5 to 11 February 2008. The
peak demands for this week are all below the peak demands in Table 3 as would
be expected as this is not the time of peak demands. However, what is
noticeable is that the Panay forecasts for peak demands are similarly high as for
the other islands. They dont stand out as being excessively high.
Visayas Loads for 5th to 11th February 2008
Figure 3
500
450
400
350
MW
300
250
200
150
100
50
0
Feb 5
Feb 6
Feb 7
Leyte/Samar
Feb 8
Cebu
Negros
Feb 9
Feb 10
Bohol
Feb 11
Panay
The allocation of these loads to distribution utilities is roughly as presented in

Table 4 below.
Table 4
Estimated Visayas Customer Loads for 2006-2007

Average
Demand
(MW)
Proportion
of average
demand
Customers
Abreviation
Island
Antique Electric Cooperative, Inc.
ANTECO
Panay
0.9%
Bohol Electric Cooperative, Inc.
BOHECO
Bohol
20
2.5%
Bohol Light Company Inc.
BLCI
Bohol
16
2.0%
Capiz Electric Cooperative, Inc.
CAPELCO
Panay
32
3.9%
Cebu I Electric Cooperative, Inc.
CEBECO I
Cebu
26
3.2%
Cebu II Electric Cooperative, Inc.
CEBECO II
Cebu
33
4.1%
Cebu III Electric Cooperative, Inc.

Central Negros Electric
Cooperative
CEBECO III
Cebu
0.0%
CENECO
Negros
102
12.6%
Eastern Samar Electric
ESAMELCO
Samar
1.0%
IESREF: 4952
20
TO VISAYAS
Abreviation
Island
Average
Demand
(MW)
Iloilo I Electric Cooperative, Inc.
ILECO I
Panay
30
3.7%
Iloilo III Electric Cooperative, Inc.
ILECO III
Panay
0.9%
Leyte I Electric Cooperative, Inc.
LEYECO I
Leyte
Leyte II Electric Cooperative, Inc.
LEYECO II
Leyte
Leyte III Electric Cooperative, Inc.

Leyte IV Electric Cooperative,
Inc.
LEYECO III
Leyte
LEYECO IV
Leyte
1.1%
Customers
Proportion
of average
demand
Cooperative, Inc.
0.0%
30
3.7%
0.0%
Leyte V Electric Cooperative, Inc.

Negros Occidental Electric
Cooperative, Inc.
LEYECO V
Leyte
24
3.0%
NOCECO
36
4.4%
Panay Electric Company
PECO
73
9.0%
Panay Electric Cooperative, Inc.
PECO
Samar Electric Cooperative, Inc.

Samar II Electric Cooperative,
Inc.
Southern Leyte Electric
Cooperative, Inc.
SAMELCO
Negros
Panay
Panay
Samar
SAMELCO II
Samar
11
1.4%
SOLECO
1.5%
VECO
300
37.0%
Philippine Phosphate Corporation
PHILPHOS
Leyte
Cebu
Leyte
12
Visayan Electric Company
35
4.3%
811
100.0%
TOTAL
2.5
0.0%
0.0%
Generation
The generating units in Visayas are listed in Table 5. Many of these units are
operating below their registered capacities (Pmaxs). For instance:
the three power barges are operating at maximum output levels in the
20MW-24MW range rather than their rated capacities of 32MW each;
the Northern Negros Geothermal plant is operating at around 12MW rather

than its rated capacity of 49MW (this is apparently due to the lack of steam);
and
Leyte A can not operate at the maximum of 590MW due to a lack of steam.
These three examples highlight a general issue in Visayas that the actual
dependable capacity of a number of units is materially below the rated capacity.
Consequently Visayas has a lot less dependable generation than might appear
based on the rated capacities. Table 5 attempts to document the WESM
generators and their registered capacities and their dependable capacities. This
is not an easy task as there are several sources of inconsistent or erroneous
information. In addition to the WESM registered generators there are a number
of embedded generators. The larger ones are in Table 6.
IESREF: 4952
21
TO VISAYAS
The other interesting aspect of the supply side of Visayas is that the power
barges are movable and there are a number of connection points in the
Philippines that the barges could be moved to. In Visayas they can be located in
Panay, Cebu and Bohol.
Table 5
Visayas Generating Units

Pmax
(MW)
Resource
Name
7BDPP_G01
7BDPP_G02
Plant
Bohol Diesel Power
Plant
Bohol Diesel Power
Plant
Org
Island
Fuel
Type
Pmin
(MW)
NPC
BOHOL
Diesel
NPC
Pmax
(MW)
Regist
Depen
ered
dable
11
BOHOL
Diesel
11
LHEP
BOHOL
Hydro
1.2
JANOPOL
BOHOL
Hydro
NPC
CEBU
Diesel
7.3
NPC
CEBU
Diesel
7.3
NPC
CEBU
Diesel
7.3
NPC
CEBU
Diesel
7.3
NPC
CEBU
Diesel
7.3
NPC
CEBU
7.3
NPC
CEBU
27.5
25
NPC
CEBU
27.5
25
NPC
CEBU
10
50
48
NPC
CEBU
Diesel
Gas
Turbine
Gas
Turbine
Thermal
(Coal)
Thermal
(Coal)
11
55
52
GLOBAL
CEBU
Diesel
12
37
GLOBAL
CPPC
CEBU
CEBU
Thermal
(Coal)
Diesel
EAUC
CEBU
Diesel
NPC
PSALM
ETD3
CEBU
32
20
LEYTE
Diesel
Geother
mal
174.3
590.6
578
NPC
LEYTE
Geother
mal
37.5
30
NPC
LEYTE
Geother
mal
37.5
30
5CDPPI_G01
5CDPPI_G02
5CDPPI_G03
5CDPPI_G04
5CDPPI_G05
5CDPPI_G06
5LBGT_G01
5LBGT_G02
5NAGATH_G01
5NAGATH_G02
5TPC_G01
5TPC_G02
5CPPC_G01
5EAUC_G01
4LEYTE_A
4LGPP_G01
4LGPP_G02
Naga Thermal Power

Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Naga Thermal Power
Plant Complex
Toledo Power
Company (Carmen
Sta diesel)
Toledo Power
Company (Sangi
Thermal & Carmen
diesel)
Cebu Private Power
Corporation
East Asia Utlities
Power Barge 101
Leyte A Geothermal
(Unified Leyte)
Tongonan
Geothermal Power
Plant (Leyte)
Tongonan
Geothermal Power
Plant (Leyte)
IESREF: 4952
10
64
70
55
62
49.6
42
22
TO VISAYAS
Pmax
(MW)
Resource
Name
4LGPP_G03
6NNGPP_G01
6PAL1A_G01
6PAL1B_G01
6PAL1C_G01
6PAL2A_G01
6PAL2B_G01
6PAL2C_G01
6PAL2C_G02
8PDPP_G01
8PDPP_G02
8PDPP_G03
8PDPP_G04
8PDPP_G05
8PDPP3_G01
8PDPP3_G02
8AVON_G01
8PPC_G01
(MW)
Regist
Depen
ered
dable
Org
Island
Fuel
Type
NPC
LEYTE
Geother
mal
37.5
30
PNOCEDC
NEGRO
S
Geother
mal
14
49
12
NPC
NEGRO
S
Geother
mal
7.5
37.5
31
NPC
NEGRO
S
Geother
mal
7.5
37.5
31
NPC
NEGRO
S
Geother
mal
7.5
37.5
31
NPC
NEGRO
S
Geother
mal
20
20
NPC
NEGRO
S
Geother
mal
20
20
NPC
NEGRO
S
Geother
mal
20
20
NPC
NEGRO
S
Geother
mal
20
20
NPC
PANAY
Diesel
7.3
NPC
PANAY
Diesel
7.3
NPC
PANAY
Diesel
7.3
NPC
PANAY
Diesel
7.3
NPC
PANAY
Diesel
7.3
NPC
PANAY
Diesel
60
19
NPC
PANAY
Diesel
60
19
GLOBAL
PANAY
Diesel
20.00
20
GLOBAL
PANAY
Diesel
72
69
Power Barge 103
NPC
PANAY
Diesel
32
24
Power Barge 102
NPC
PANAY
Diesel
32
24
267.8
1716
1473
Plant
Tongonan
Geothermal Power
Plant (Leyte)
Northern Negros
Geothermal Power
Plant
Negros Geothermal
Power Plant (1&2)
Palinpinon
Negros Geothermal
Power Plant (1&2)
Palinpinon
Negros Geothermal
Power Plant (1&2)
Palinpinon
Negros Geothermal
Power Plant (1&2)
Palinpinon
Negros Geothermal
Power Plant (1&2)
Palinpinon
Negros Geothermal
Power Plant (1&2)
Palinpinon
Negros Geothermal
Power Plant (1&2)
Palinpinon
Panay Diesel Power
Plant I
Panay Diesel Power
Plant I
Panay Diesel Power
Plant I
Panay Diesel Power
Plant I
Panay Diesel Power
Plant I
Panay Diesel Power
Plant 3
Panay Diesel Power
Plant 3
Panay Power
Corporation
Panay Power
Corporation
Total
IESREF: 4952
Pmin
(MW)
Pmax
23
TO VISAYAS
Table 6
Larger Embedded Generators
Plant
PECO
15 MW Bunker
Fuel (GBPC)
5 MW Bunker
Fuel (GBPC)
Guimaras Power
Project
2.6
Org
Panay Electric
Corp.
PPC/Global
Business Power
Corp.
PPC/Global
Business Power
Corp.
Trans-Asia
Pmax (MW)
Pmax (MW)
Location
Fuel
Type
Registered
Dependable
Panay
Diesel
19.85
0.00
Panay
Diesel
12.60
7.60
Panay
Diesel
5.00
5.00
Panay
Diesel
3.40
3.40
At first glance Visayas appears as though it will have adequate generation to

meet peak demands. On the basis of Table 3 the estimated coincident peak
demand in the region for 2008 will be around 1,300MW and the generation
capacity in Visayas of Table 5 around 1,700MW with the potential to import
150MW through the HVDC connection to Luzon. However, the reality is that
Visayas will have a very tight demand and supply balance. This situation has to
date lead to regular occurrences of involuntary load shedding. In November
2007 red and yellow reserve alerts were declared for periods in November and
December due an unavoidable planned geothermal plant outage and this being
the period of highest demands. Over 2007, 54% of the days had yellow alerts
and 5% red alerts. The reserve alerts indicate that there were forecast reserve
shortages even when all planned available plant is available.
The reason for this apparent contradiction is that Visayas does not have a
strongly meshed transmission network. It is largely a radial transmission network
where most of the generation capacity is located on the Samar and Leyte islands
which in 2008 are currently estimated to have a coincident maximum demand of
about 200MW. The generation capacity within Samar-Leyte is 700MW, with a
dependable capacity of 670. If an n-1 security criterion were applied to the
dispatch of power flows on the transmission path between Leyte and Cebu, then
only 220MW of the surplus generation could be transferred to the rest of Visayas,
or if the current approach is used to dispatch power flows on this transmission
path, then at most 360MW can be transferred. Table 7 presents the dependable
generation capacity, forecast peak demands and excess or deficit generation for
each island. The table assumes that the island demands are net of embedded
generation. The table also includes an allocation of reserves based on island
generation capacity.
IESREF: 4952
24
TO VISAYAS
Table 7
Island
Leyte
Bohol
Cebu
Negros
Panay
Total
Total for Cebu
Negros and
Panay
Generation
668
21
399
185
201
1473
Demand
208
57
542
241
270
1318
Excess /
deficit
460
-36
-143
-56
-70
155
785
1053
-268
Reserves7
79
2
47
22
24
156
Excess /
deficit after
reserves
381
-39
-190
-78
-93
-19
93
-361
From Table 7 it is quite clear the Cebu, Negros and Panay combined have a
deficit of generation, -268MW. This deficit can be met with the 360MW of power
available from the interconnection with Leyte but if generation reserves are
considered then the situation is much tighter. In the case of Panay alone the
situation is worse with a deficit of -70MW, which can be less than capability of the
interconnection to Negros (60MW to 100MW depending on stability limits). Thus
when the possibility of generator outages and any reserve requirements for
frequency control are considered, it can be seen that the Visayas grid is very
susceptible to supply shortages.
2.7
Involuntary Load Shedding
Involuntary load shedding is a regular feature of the Visayas grid. The load
shedding is occurring due to shortages of supply. The loads in Panay are the
most often shed. This is because the power flows are from Leyte to Cebu then
Negros and then Panay and consequently shedding load in Panay means less
load needs to be shed due the marginal losses in providing power to Panay.
However even though this is an efficient solution it is not very equitable.
The total reserves were allocated on the basis of MW of generation in each island.
IESREF: 4952
25
TO VISAYAS
Necessary Conditions for Extension to

Visayas
In order to have the WESM operate successfully in Visayas a number of
conditions need to be satisfied prior to the WESMs implementation there. These
principally include:
WESM
fixing up the most dysfunctional aspects of the WESM, in particular ensuring

that all available capacity is offered into the WESM at a price and plant
limitations such as energy constraints are effectively managed by the traders
via the prices and quantities offered;
Reserves Market
successful operation of the WESM reserve co-optimisation in Luzon just

using contracted plant and the extension of the reserve definitions to cover
lower services and other specific locational services that may be required by
Visayas (this does not mean that the reserves spot market has to be started
before the WESM is extended to Visayas, just that contracted reserves
should be co-optimised with the energy dispatch rather than the current
approach of the SO constraining plant out of the energy market to provide
reserves);
a firm plan to create financial transmission rights or some other mechanism

to manage the likely price difference between islands and hence enable
generators or customers to manage these nodal price risks;
Competition
ensuring that there is adequate competition in both the energy and reserve
markets;
or
if ensuring that there is adequate competition is not possible without the
WESM to facilitate increased availability and dependable capacity of existing
plant and new generation entry, then market power mitigation measures8 are
in place including adequate measures to prevent the pass through of high
spot prices to captive and other customers, given the tight demand and
supply balance situation in Visayas;
Other than ensuring high levels of contracting in the market, effective market power mitigation strategies
are not at all obvious and may be difficult to develop. Consequently, there would need to be a coordinated
effort between DOE and ERC to develop coherent strategies for avoiding creating market power as much as
possible by looking at the sales process and PSALM IPPA portfolio structures and for mitigating the effects
of market power when it is present.
IESREF: 4952
26
TO VISAYAS
Participant Readiness
ensuring generators, distribution utilities and electricity co-operatives are

adequately prepared to operate in the market;
ensuring the SO is ready to operate in the Visayas market;
ensuring the MO is ready to operate the Visayas market;
ensuring the Visayas SO and the MO interface is effective; and

Systems Readiness
ensuring the necessary communication and IT systems are in place to

implement the market.
The conditions and other related issues are discussed in subsequent sections.
IESREF: 4952
27
TO VISAYAS
Dysfunctional Aspects of the WESM

Before extending the WESM to Visayas some of the most dysfunctional aspects
of the market need to be fixed up. Principally these revolve around ensuring that
all available generation capacity is offered into the market at a price. This in turn
requires: appropriate price signals, the provision of useful and timely information,
competent traders who can effectively manage their plant in the spot market
including any energy limits, start up times etc and finally, breaches of the rules
regarding capacity withholding being enforced. Some of the dysfunctional
aspects of the WESM, such as ineffective spot market trading of generation units,
are not directly related to the rules and hence do not specifically require market
rule changes. On the other hand some aspects of trader behaviour can be
improved by changes in the provision of information and pricing incentives.
Some of these may require rule changes. In summary the key dysfunctional
areas of the WESM which could affect Visayas are:
capacity withholding and poor management of plant energy and physical

constraints such as Pmins by a number of the NPC and PSALM traders;
must run generating unit pricing and capacity withholding;
ex ante market re-run prices using ex post re-run prices and the lack of
transparency and speed with which re-run prices are calculated;
The use of ex post prices as replacements for ex ante rerun prices has
reduced the incentives for some plant to offer all their capacity into the
market. This is because the ex post prices are almost always lower than
what would have been the case had the ex ante re-run prices been
based on just relaxing the violated constraints in the ex ante dispatch.
This is due to the ex post prices including must run plant in the market
dispatch when this plant may not have been offered into the market ex
ante.
energy prices being set well below the bid cap even when there is
involuntary load shedding used to balance supply and demand; and
lack of transparency regarding the market network model parameter values

used in the ex ante and ex post dispatches and lack of transparency in what
security constraints the SO provides the MO.
The IES report also outlined possible ways of remedying these problems.
IESREF: 4952
28
TO VISAYAS
Reserve Market
It is probably not necessary to have the full reserves spot market operating
before extending the WESM to Visayas. However, given the tight demand and
supply balance in Visayas it is probably necessary to have contracted reserves
co-optimised with the energy market dispatch to ensure the optimal use of all
available plant.
As well, before starting the full reserves spot market it will be necessary for the
reserve service definitions to be extended to include lower services to cater for
(a) times in which the HVDC connection to Luzon trips and (b) times when one of
the AC connections from Leyte to Cebu trips. During such events some of Leyte
As generation is tripped by venting the steam directly rather than passing it
through the generation units to avoid overloading the remaining interconnections
or pushing up frequency. This is a frequency control ancillary service and should
be priced and dispatched in the market. A more detailed discussion of the
proposed reserve market is outlined in IESs earlier report, Technical Assistance
on WESM Policy Development: Final Report Task 1.
Even though having the full reserve spot market operating in Luzon should not
necessarily be a precondition to starting the WESM in Visayas, dispatching
contracted reserves via the MDOM co-optimisation of energy and reserves
should be.
Currently Visayas is regularly short of plant capacity and consequently reserve
requirements are not always met. Consequently if the WESM were extended to
Visayas without the co-optimisation of reserves, the SO would constrain off
individual units to provide reserves and then on occasions would have to interrupt
loads to achieve a demand and supply balance. There could be regular
occurrences of under generation. On the other hand if the dispatch of energy
and reserves is co-optimised then the constraint violation costs for the
contingency reserves could always be set to lower values than the nodal energy
balance constraints and thus ensuring demands are met before meeting the
contingency reserve requirements. Under this arrangement, involuntary load
shedding would essentially be acting as a non market contingency reserve.
IESREF: 4952
29
TO VISAYAS

Although the market rules specify that the WESM should have financial
transmission rights (FTRs) this aspect of the market has not been progressed so
far. Substantial nodal price differences which may cause financial risks for
customers or generators are likely to occur with the inclusion of Visayas into the
WESM..
For instance, there can be a surplus of generation in Leyte and a shortage of
generation in Panay. A generator in Leyte could have a bilateral contract with a
load in Panay. Under this arrangement the generator pays the difference
between the customers nodal price and the generators nodal price times the
bilateral contracts quantity. In effect the generator pays a transmission charge
(wheeling charge) for the bilateral contract. Now the spot prices in Leyte could
be around P2/kWh while the price in Panay could be near the price cap
(P62/kWh) if there was shortage of supply as is regularly the case. The
generator would then have to pay around P60/kWh transmission charge. As
illustrated by this example, generators contracting between islands could face
extensive financial exposures.
This is crudely managed at the moment by returning the settlement surpluses
due to nodal pricing on the basis of contract quantities but the returned amounts
do not necessarily match the generators nodal price risks due to contracting.
Further, if bilateral derivatives and forward markets develop then the basis risks
due to nodal price differences facing generators and customers are unlikely to be
effectively addressed using the current approach. The only effective long term
solution is to develop a proper FTRs regime. This could be done along the lines
of the one in PJM.
A program to progress the development of an FTR regime should be a prerequisite to extending the market to Visayas.
IESREF: 4952
30
TO VISAYAS
Zonal Prices and Customer Prices

The discussion of FTRs and nodal price risks also raises the issue of customer
pricing zones in Visayas. IES understands that in the case of Luzon there was
no aggregation of customers into pricing zones. Customers in Luzon are
charged for spot market energy based on their nodal prices. If the customer
pricing zones to be used in the future operation of the WESM in Visayas are just
the customer nodes then the following discussion can be ignored. On the other
hand there may be some pressure to use customer pricing zones to average out
what could be quite large nodal price differences in Visayas. If this has some
chance of occurring then the following discussion is of relevance.
If the whole of Visayas is used as a customer pricing zone then this may create
disincentives for customers in high priced areas such as Panay to contract
bilaterally with generators because the generators would want to receive contract
prices roughly equal to the expected spot prices but customers would want
contract prices to be roughly equal to the expected load weighted average price
for Visayas as a whole. This problem results from defining a customer pricing
region which is composed of areas which have quite different expected spot
prices. If some averaging of prices to customers were desired, then it would
probably be more efficient to base customer pricing regions on, say, an island
basis.
IESREF: 4952
31
TO VISAYAS
Generation Competition
There will not be adequate competition in both the energy and reserve markets in
Visayas in the immediate future because there is a very tight demand and supply
balance and there is regular involuntary load shedding. Under these
circumstances generators in Panay, Negros and Cebu will regularly have
substantial market power and be able to set prices to very high levels. Over time
this can change if there is sufficient new entry and the dependable capacities of
some of the existing plants are returned to levels closer to their rated capacities.
In addition to the tight demand and supply balance in Panay, Negros and Cebu,
the problem of market power is likely to be further exacerbated by PSALMs
packaging of power stations in the proposed asset sales. PSALM intends selling
the Negros Geothermal Power Plant (Palinpinon) combined with the Panay
Diesel Power Plant and the Tonganan Geothermal Plant (Leyte) combined with
Bohol Diesel Power Plant. The sale of the combined generation portfolio of
Palinpinon and Panay Diesel creates a situation of local market power for the
purchaser in Panay and Negros.
In addition if Leyte A is packaged as just one IPP Administrator (IPPA) then the
IPPA will have some degree of market power as well though this will be mitigated
to some extent by the fact that loads in Leyte are much smaller than generation
capacity. None the less, if possible, it would probably be better to create two
IPPAs to trade the Leyte A power stations. This looks as though this could be
done with a little care as Leyte A is composed of four power stations: Malitbog
(231MW), Mahanagdong A (120MW), Mahanagdong B (60MW), Upper Mahiao
(112.5MW) and the Optimization Plant for each power station (49MW). Careful
attention would have to be paid to the steam arrangements. A flexible
arrangement could possibly be created via an internal market for unders and
overs for steam requirements.
Table 8
Name of Plant
Mahanagdong A
Mahanagdong B
Upper Mahiao
Malitbog
Total
Leyte A Components
No.
Optimization
Units
2
1
3
1
7
Output
(MW net)
12.45
6.25
16.95
13.35
49 MW
Operation
Plant Type
Topping
Topping
Topping
Bottoming
IESREF: 4952
Main Plant
120
60
112.5
231
Total Plant
132.45
66.25
129.45
244.35
572 MW
32
TO VISAYAS
Transmission and Generation Competition

One way of increasing generation competition and reducing the potential for
generators to exercise local market power would be to increase the transmission
capability in Visayas, particularly the transmission from the generation rich areas
in Leyte to the load centres in Cebu, Negros and Panay. Such upgrades should
also increase the reliability of supply in these areas. Since the activities of the
Transco are regulated, these upgrades would not require the WESM to be
operating in Visayas. However, such upgrades may not be the least cost way of
reliably meeting the growing loads in Visayas. It may be the case that
commissioning of generation facilities within Cebu, Negros and Panay would be
less costly.
From a market perspective new generators or investors in existing generators, all
other things being equal, would prefer a stronger transmission grid in Visayas.
However, it should be noted that a stronger grid will reduce the variation in spot
prices from island to island and hence would make generation in Panay less
valuable and generation in Leyte more valuable. This may, on a longer time
horizon, provide incorrect pricing signals to investors in generation plant if the
most economic power supply for Panay was more expensive generation plant in
Panay rather than cheaper generation plant elsewhere combined with increased
transmission capacity to Panay..
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10 Competition and Starting a Spot Market

The ideal time to begin an electricity spot market is when there is adequate or
surplus generation capacity, adequate transmission with no major transmission
constraints that enable the exercise of local market power and a sufficiently large
number of generation portfolios to ensure that the generation sector is
competitive. However, even if all of these conditions are satisfied there can still
be problems in starting an electricity spot market if the retailers/suppliers and
generators are not adequately hedged with longer term contracts on market
commencement.
One contributing factor in the electricity market problems experienced in the case
of California was the fact that the incumbent retailers/suppliers did not have
much in the way of longer term contracts or hedges and when the market prices
rose they were essentially unhedged yet had set fixed rates for their customers.
Consequently they had revenue streams that were largely fixed while being
exposed to variable cost streams that exceeded their revenues.
As it is presently, Visayas is not a good candidate for being included in the
WESM. It has a shortage of supply, significant transmission constraints and
potentially a number of suppliers/retailers who are likely to be inappropriately
hedged. Further, even if these players wanted to be fully hedged the EPIRA, as
it is now, requires them to take 10% of their supply from the WESM. However, if
the Philippines government does not want to invest in new generation then how
this situation can be readily rectified is not at all obvious as transmission
upgrades alone are unlikely to be the least cost solution that can rectify the
supply shortages and the competition problems that are likely to eventuate in
Visayas should the spot market be expanded to include this region.
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11 Generation Supply and Price Conundrum

11.1 Introduction
One of the reasons for the tight demand and supply situation in Cebu, Negros
and Panay is because the ERC approved wholesale contract prices are not an
adequate incentive for generation companies to invest in new generation and
maintain and manage their existing generation to meet the demand at all times.
For example, the Panay Diesel Plants marginal costs can be above the
regulated time of day rates. This can lead to situations where NPC loses money
when the plant is run. Thus there can be a perverse incentive at times to not
want to generate even when there is a shortage of supply.
11.2 Market Price Incentives

The problem of generation availability and supply in Visayas could be
substantially alleviated in the medium term if prices were set by the market.
Thus extending the WESM to Visayas is likely to be a key driver in meeting the
growing demands in this area. However extending the WESM to Visayas is likely
to result in high average spot prices for some of the islands and some periods of
very high spot prices. If these high spot prices are passed on to customers via
ERCs rate setting for captive customers this could cause problems for customers
which in turn would cause further political problems for the WESM. Hence the
conundrum: the WESM is the best way to encourage new generation supply but
high prices in the WESM which are passed on to customers could end the WESM
as it is now in Visayas. This conundrum is the heart of the problem when
considering when is the right time to extend the WESM to Visayas. There is no
easy answer unless the Philippines government wanted to encourage new
generation and transmission into Visayas and ensure a comfortable demand and
supply situation before extending the WESM to Visayas, but this would defeat
one of the main aims of the electricity reforms which was to remove the
government from the electricity market and have prices set by competition.
11.3 Starting the WESM with Tight Demand and Supply

If the WESM were started with tight demand and supply conditions then great
care would have to be taken to ensure that customers, generators, DUs and ECs
were not exposed too much to volatile and possibly very high spot prices for the
first few years of WESM. The best way to avoid this problem is for the DUs, ECs
and wholesale customers to be largely contracted when the WESM starts in
Visayas and for ERC not to pass through WESM prices to any extent to captive
customers via their rate setting.
This can be facilitated by the suggested EPIRA amendments discussed in IESs
earlier report for task 1. Principally these involve changing ERCs rate setting
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process to be one of setting benchmark rates rather than rates based on a cost
pass through and to eliminate from EPIRA the requirement that retailers
purchase at least 10% of their supply from the WESM.
As well, DOE would need to facilitate a process to ensure that before starting the
WESM in Visayas that all customers, DUs, ECs and generators (including IPPAs
and NPC generators for sale) were contracted with longer term contracts that
were designed to minimise adverse affects of volatile spot prices during the initial
years of the market. A great deal of thought would have to go into these
arrangements to ensure that spot market risks were managed to acceptable
levels. FTR arrangements may be necessary to achieve this.
11.4 Contracting and Retailing/Supply Arrangements

In section 2.2, the issue of NPCs role as a wholesale supplier of last resort
(retailer in the WESM) was discussed and how this has important implications
with respect to the sale of NPCs assets, the PPA trader arrangements and
NPCs own financial risk management and exposure to the WESMs prices.
Similarly facilitating contract arrangements prior to starting the WESM in Visayas
is likely to be an important aspect of managing price risks and market power of
Visayas generators.
These two issues highlight the need for more attention to be paid to contracting
arrangements between generators and retailers/suppliers in the WESM because
these arrangements are fundamental to the orderly development of a competitive
market. Most of the reasonably successful introductions of spot markets have
had some form of vesting arrangements whereby contracts have been allocated
to generators and retailers/suppliers to manage their financial risks and provide
reasonably certain revenue and cost streams for these businesses over a
number of years. These contractual arrangements are often set up such that a
retailer is contracted to a number of generators and generators are also
contracted to a number of retailers. This reduces credit risks and sets every
participant up in a way that encourages competitive contracting as vesting
contracts expire (or are wound down) and the captive customer loads become
smaller.
In the case of the Philippines, the imposition of contracts on all participants in the
WESM may be very difficult to achieve but the Philippines government does have
a chance to at least set up some more orderly contractual arrangements for the
generators it currently owns or controls (i.e. the NPC generation and PSALM
IPPAs) with many of the DUs and ECs and perhaps with a clearly defined NPC
wholesale supplier of last resort entity (a specialist retailer dealing with ECs).
Ignoring the area of contracting arrangements and selling off the generation
assets could cause lots of problems for the WESM in the future, particularly in
Visayas with its issues of tight demand and supply and local market power.
Before there are further sales of NPC generation assets and before the IPPA
arrangements are finalised the whole area of contracting should be revisited. In
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particular the possibility of setting up contracts for a transitional period which do
not allow the counter parties to opt in or out at any stage. The arrangements to
date have effectively had such flexibility. Some generators which had been sold
have returned their contracts. This was probably due to the contracts not being
a good match to their generation capabilities and cost structures. None the less,
embedding such optionality into the contracting arrangements increases the risks
for some participants, in particular NPC.
11.5 Market Power Mitigating Measures

Market power mitigation measures that should be considered include:
Portfolio structures of PSALM and NPC controlled generation (ideally the

portfolio structures should minimise local market power where possible);
High levels of contracting for loads and consequently generators; and
Provision of information to quickly reveal the use of market power by

generators.
Other measures which aim to cap the market price or directly control the offers
generators make should be avoided if at all possible as they are essentially
attempts to re-regulate the market.
11.6 Pricing to Ensure Proper Signalling of Supply

Shortages
Another issue, which also needs to be fixed up to ensure that scarcity of supply is
properly priced in Visayas, is for the ex ante rerun prices when there has been
under generation in any nodes to be based on the ex ante input data rather than
the ex post prices. When there is a shortage of supply signalled by under
generation or involuntary load shedding, then the WESM prices should be at
least P62/kWh ex ante and ex post respectively in order to create the incentives
for managing existing plant better and to encourage new generation.
Allied to this point is that the nodal prices which come from the market dispatch
should not be indirectly smoothed out via the SO directly constraining on
generators to manage transmission issues or reserve issues when these could
be managed directly by the MDOM dispatch. Providing the correct nodal prices
will be very important to indicating where new generation should locate.
11.7 Provision of Information

In IESs previous reports the issue of provision of information has been
extensively discussed, particularly section 6 of the report to the DOE Technical
Assistance On Market Power Abuse in WESM (PHRD Project TF055609) dated
15 February 2007. One of the themes of these discussions is that provision of all
key information in a timely manner:
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allows participants to operate in an informed manner and hence be more

efficient,
allows all stakeholders to scrutinise market outcomes which in turn gives

them confidence in the market, and
lastly, allows all affected parties to identify when some participants are
misusing their market power rather than have to wait until a market
surveillance group or regulator identifies the problem.
By international standards, the WESM is now reasonably good regarding the

provision of information but none the less it could still improve a lot as well.
Ideally any market participant or any potential new entrant should be able to
transparently see what happened in the market and even be able to recreate the
market dispatch and prices. Such transparency gives confidence to new
investors and incumbents as to whether the market is operating according to the
rules. Further it provides everyone with the opportunity to observe when there
have been market power abuses. Any market power abuse problems will be
detected as early as possible if everyone is able to see the bid data soon after
the day on which it was used.
The WESM information made available to the public is limited both in scope and
in terms of historical content. Not all inputs or outputs of dispatch processes are
published and data published is often only available for limited time periods.
Some data such as rerun prices is available too late. Ex ante prices should be
available ex ante (before the dispatch period) whether they are reruns or not.
Further some data such as bid data is only published a month after the event.
This lack of data will to some extent inhibit potential investors ability to assess
the operation of the WESM and make informed decisions about any investments.
Some of the data that is missing that should be published includes:
transmission power flow information;
transmission security constraints arising from the SO/TransCo;
transmission security constraints implemented in the WESM MDOM;
shadow prices of security constraints;
downloadable results from WAP, DAP processes (even though graphs are
provided);
underlying data for market indices (while market indices are viewable as
graphs, it would be useful to DOE and the public if the underlying data could
be downloaded directly thus saving the need for computing the indices from
scratch using raw data);
the detailed network model which is used in dispatch for each hour (this
doesnt appear to be available, despite there being a clause in the market
rules requiring the market operator to provide this information, as per clause
3.2.1.1 of the market rules the data could be in the form of changes from
the normal values of the market network model); and
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the five minute SCADA snapshots of the system and the translation table for
moving between SCADA tags and market elements or the snapshots
converted into the values corresponding to the market network model.
One of the main problems with the data is that it is provided only over rolling
periods and the full history is difficult to obtain. For example, typically at most 2
months is provided. While we understand the difficulty in making full historical
data sets available, a suitable benchmark might be a year of historical data and
the option to purchase or obtain a full history from the Market Operator.
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12 Market Preparedness of Stakeholders

12.1 Introduction
In November 2007, IES and DOE had specific meetings with stakeholders to
discuss the extension of the WESM to the Visayas grid. We had separate
meetings with:
Market Operator;
Visayas Generators:
Our overall impressions from those meetings were that:
the MO was prepared;
the SO was understaffed and not really prepared to operate properly in a

market context;
although the generators had submitted market offers etc and tested the
market systems they were not really ready to operate in the market; and
the distribution utilities and electricity co-operatives were not ready. Many
had not even registered and participated in the trial operations and nearly all
of them were not ready to operate in a market context.
To address the issues of market preparedness DOE and IES developed

additional sets of questions to ask the SO, Generators and Distribution Utilities /
Electricity Co-operatives. These additional questions are outlined later in this
section. They were designed to look at aspects of preparedness not picked up in
the MOs survey. The MOs assessment of preparedness is really looking at
whether the various stakeholders can undertake the required interactions with the
market not whether they can operate in a market context effectively. For
instance a generator may know how to lodge its offers into the WESM but may
not know how to offer its plant so that its Pmins, energy constraints, start up
costs, bilateral contracts etc are managed in a way that can maximize its profits.
12.2 DOE Process to Monitor the Readiness of

Participants
Because it was quite clear from the interviews that DOE and IES had with the
SO, generators and DUs that they were not all ready to effectively operate in the
WESM, the DOE and IES set up a series of additional questions to what the MO
asks to gauge not only whether each of these groups could participate in the
WESM but whether they were capable of participating effectively. The idea was
for the DOE to survey the relevant organisations on a four weekly basis with a
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th
view to having them ready by the 26 of July 2008. The DOEs diagram of this
process is presented in Figure 4.
Figure 4
DOE Process for Determining Participant Readiness
V i s a ya s W E S M C o m m e r c i a l O p e r a t i o n
Novem ber 2007
15 Novem ber 2007
16 N ovem ber 2007
G overnance Issues
Visayas R epresentative to R CC
E R C C om petition R ules
Send A ssessm en t S urvey F orm

D eadline: N ov.27, 200 7
A ttached: N otice of M eeting on
N ov. 21, 2007
C onfirm ation of R eceipt and

Attendance to the M eeting
21 Novem ber 2007
27 Novem ber 2007
29 N ovem ber 2007
M eetin g w ith V isayas

W ESM Participants
Deadline of Subm ission an d

G ath ering of Assessm ent
Survey Form
Iden tification and Analysis

of Issues
January 2008
January 2008
February 2008
Form ulation of A ction Plan
Feedback Assessm ent
R eassessm ent of V isayas

W E SM R eadiness
Com pliance M onitoring
2008
2008
Reassessm ent of V isayas

W ESM R eadin ess
C om pliance M on itoring
D eclaration of V isayas
W E SM C om m ercial
O peration
12.3
Questions for Generators
12.3.1 Trading Strategy

Do you have documented trading policies and strategies which address the
following?
Physical market operations and spot trading in particular determining the

most profitable prices and quantities offered for each generator that:
Ensure all capacity is offered into the market at some price,
Manage energy limitations/constraints,
Manage Pmin and Pmax,
Manage bilateral contract quantities,
Manage fuel contracts,
Manages PPA contracts,
Manage plant maintenance,
Manage plant ramping, and
Manage plant start up/shut down;
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Bilateral contracting strategy including nominations;
WESM spot market exposure and prices;
Pricing and contracting with retailers (DUs and ECs) and contestable
customers;
Managing prudential requirements if any;
Managing planned and forced outages; and
Managing market regulation including WESM Rules, ERC decisions, OATS

and other regulatory issues.
12.3.2 Risk Management

Do you have documented risk management policies and procedures and
corresponding systems for managing risk which addresses the following?
Physical market operations and spot trading;
Bilateral contracting;
Derivatives contracting;
WESM spot market exposure and variability of spot prices;
Pricing and contracting with retailers (DUs) and contestable customers;
Managing prudential requirements if any; and
Managing planned and forced outages.
12.3.3 Market Systems

Do you have the systems necessary to effectively operate in the WESM in
addition to those systems required by the MO?
Database systems that can collect and store all relevant market data;
Systems to analyse market data;
Systems to verify WESM settlements and any bilaterally settled contracts
Systems to verify and collect metering data ;
Systems to assist in determining the prices and quantities in generator

offers;
Systems to record and store history of generators own offers and any
changes;
Systems to manage derivatives and bilateral contracts;
Systems to assist in pricing contracts to retailers (DUs) and contestable

customers;
Systems to implement trading and risk management policies and

procedures; and
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Systems and procedures to ensure that generators meet the dispatch target
for energy and reserve.
12.3.4 Staff and Training

Do you have an adequate number of competent and dedicated staff suitably
trained to undertake the trading and risk management activities necessary to
operate effectively in the WESM? In particular in these areas?
Physical market operations and spot trading;
Contract management (bilateral contracts, derivatives contract)
Settlements;
Contract trading (bilateral contract nominations, etc.);
Risk management (compliance, calculation of risk, etc.);
Regulation (WESM Rules, ERC Hearings, OATS and other related regulatory
issues);
Market operations and trading strategy development;
Analysis and forecasting;
Pricing; and
IT and communications systems.
12.4 Questions for Customers/Retailers/DUs/ECs

12.4.1 Trading Strategy
Do you have documented trading policies and strategies which address the
following?
Bilateral contracting strategy including nominations;
Forecast load and load variability of your customers;
WESM spot market exposure and prices;
Regulated retail rates for captive customers with pass through/without pass
through of energy cost;
Pricing and contracting with contestable customers;
Managing embedded generation;
Managing prudential requirements;
Managing and contracting interruptible load; and
Regulation including WESM Rules, ERC decisions, OATS and other regulatory
issues.
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12.4.2 Risk Management
Do you have a documented risk management policies and procedures and
corresponding systems for managing risk which addresses the following?
Bilateral contracting ;
Derivatives contracting;
Load variability of your customers;
WESM spot market exposure and variability of spot prices;
Regulated retail rates for captive customers without pass through of energy
cost;
Pricing and contracting with contestable customers;
Managing embedded generation;
Managing prudential requirements; and
Managing and contracting interruptible load.
12.4.3 Market Systems

Do you have the systems necessary to effectively operate in the WESM in
addition to those systems required by the MO?
Database systems that can collect and store all relevant market data;
Systems to analyse market data;
Systems to verify WESM settlements and any bilaterally settled contracts ;
Systems to verify and collect metering data;
Systems to manage derivatives and bilateral contracts;
Systems to assist in pricing contestable customer contracts;
Systems to implement trading and risk management policies and

procedures; and
Systems for forecasting customer loads.

Do you have adequate number of competent and dedicated staff suitably trained
to undertake the trading and risk management activities necessary to operate
effectively in the WESM?
Contract management (bilateral contracts, derivatives contract);
Settlements;
Trading (bilateral contract nominations, etc.);
Risk management (compliance, calculation of risk, etc.);
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issues;
Strategies;
Analysis and forecasting;
Pricing; and
12.5 Market implementation, systems and procedures

There are a number of important issues associated with a spot market for
reserves. Some of the principal ones being as follows:
Is the SO ready to manage a spot market in regulation and reserves?
Are the control and communication systems in place and tested?
Are the performance measurement systems in place? Are the systems in

place to ascertain whether a generator or load is delivering the amount of
reserves and in the times required for which they were dispatched?
Have all of the providers of reserves been tested for their technical
capabilities to deliver the reserves?
Are the spot market traders sufficiently competent and knowledgeable to

trade both energy and reserves for their plant?
12.6 Questions for the Visayas System Operator

12.6.1 Market Operations:
Has the SO documented all of the key security limits and formulated them
appropriately for MDOM? In particular:
Thermal limits,
Voltage limits,
Stability limits, and
Any local reserve requirements.
Has the SO documented all the material deviations of all line capacities from
the Visayas market network model (MNM)?
Has the SO documented the reserve requirements for Visayas?
Will the reserve requirements be adequate to maintain frequency and avoid

involuntary load shedding?
Has the SO documented the reserve requirements for Visayas?
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12.6.2 Operations
Does the SO have the capacity to manage the dispatch of all the generators
under market operations where generator dispatch targets for energy and
reserve could change materially from hour to hour? In particular is the SO
ready and capable of the following?
Managing reserve from many generators in particular regulation
Managing non-conformance of generators to the dispatch targets
Updating security limits for MDOM in real time with changes in system
conditions
Monitoring MO load forecast
Have the documents regarding security limits, etc been published to the
market? In particular:
Material deviations of all line capacities from the MNM
System Protection Scheme (SPS) settings which can materially affect

the market
Does the SO have procedures in place to provide timely system advisories to

market participants of significant events, line outages, schedule of line
rehabilitation/construction, etc?

Does the SO have an adequate number of competent and dedicated staff
suitably trained to undertake the SO activities necessary to effectively manage
the WESM 24x7? In particular staff to manage the following:
Dispatch of generation, managing voltages and switching of transmission

system;
System security issues via the market dispatch (MDOM);
Contract management (ancillary services contracts);
issues);
Analysis and forecasting; and
12.7 Participants Readiness (February 2008).

Based on the DOEs feedback from their survey and discussions with the MO,
SO and some participants in February the conclusions regarding participant
readiness are as follows. Some of the Visayas participants are not ready to
effectively operate in an extended WESM. Only the MO seems to be fully
prepared. The SO is reasonably well prepared but slightly under staffed. The
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generators can lodge bids but are probably not fully prepared for commercial
operation in a market. The ECs and DUs still are not really prepared.
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13 Readiness of Systems
There were issues regarding the communications systems between the SO in
Visayas and the MO in Luzon. The ideal situation would be to establish a
number of completely independent communication paths such that the collective
system is highly reliable. At a meeting in 27th February 2008 the MO informed
the DOE the communication redundancy issues were satisfactorily solved. This
will be validated by the certification that will be issued and submitted by the MO
and SO to the DOE.
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14 Conclusion
14.1 Key Findings
There are a number of problems concerning extending the WESM to Visayas; the
main ones being:
A. Participants Readiness.
Some of the Visayas participants are not ready to effectively operate in an

9
extended WESM . Only the MO seems to be fully prepared. The SO is
reasonably well prepared but slightly under staffed. The generators can
lodge bids but are probably not fully prepared for commercial operation in a
market. The ECs and DUs still are not really prepared.
B. Supply and Demand Situation.
The tight demand and supply balance situation in Cebu, Negros and Panay
will make it difficult to start the WESM in the immediate future. However,
unless this situation can be readily rectified by transmission upgrades alone
then new generation plant will be required but private investors are unlikely
to build new plant unless there is an operating market, the WESM, or there
are government guarantees or long term power purchase agreements.
However, avoiding the latter two options is one of the reasons for creating
the WESM. Consequently introducing the WESM to Visayas is going to be
difficult.
Extending the WESM to Visayas is probably essential to ensuring that there
is adequate generation to meet the demands there. This is likely to result in
high WESM prices in Cebu, Negros and Panay which should encourage
generation in the medium to long term and consequently reduce the
frequency of power interruptions. However there is a danger that high
WESM prices in Visayas could cause lots of political problems for the
market.
One solution to this apparent conundrum could be to start the market with a
number of market power and risk mitigation measures in place such as:
a.
high levels of contracting10 for a number of years;
b.
the minimization of local market power of generation portfolios by

ensuring that the IPPA arrangements and NPC generation sales do not
result in local market power, to the extent possible;
c.
improvements in the supply situation through contracting backup

generators and interruptible loads as reserve ancillary services (may
Based on some additional discussions with the MO and SO in February 2008

The contracting could be financial (derivatives) contracts or bilateral contracts which are effectively
derivatives (swap) contracts settled through the WESM.
10
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need some revisions to the Visayas SOs ancillary service procurement
program ASPP);
d.
addressing the most dysfunctional aspects of the WESM to ensure that

all generation capacity is offered into the market at a price and there are
incentives and sufficient and timely market information for all generation
plant to be managed so that it is available and offered into the market at
times when it is likely to be needed;
e.
co-optimising energy and contracted reserves to ensure the best use of

available plant capacity;
f.
enhanced provision of information to all market participants to enable

more efficient operation and better detection of any market power
abuses; and
g.
other market power and risk management measures that the DOE and
ERC can develop.
Finding and implementing an adequate set of market power and risk

mitigation measures will not be an easy task.
C. Transparency Issue.
Improving the provision of information in terms of availability and timing will

allow many stakeholders in Visayas to better manage their affairs and for all
stakeholders to scrutinise the market outcomes and judge whether there has
been any misuse of market power when there are high prices.
D. Dysfunctional aspect of the WESM
There still are some dysfunctional aspect of the WESM market rules and the
WESM implementation that could adversely affect the market in Visayas;
these should be rectified.
E. Establishment of Reserve Market and FTRs
There is a need (a) for FTRs in the longer term and (b) for making some
minor adjustments to the proposed reserve market to better cater for the
particular requirements of the Visayas region.
14.2 Criteria for Extending the WESM to Visayas

The key criteria that need to be satisfied before the WESM should be extended to
include Visayas are as follows:
The SO, generators and Customers/DUs/ECs are in a position where they

are able to operate effectively in a market environment;
The most dysfunctional aspects of the WESM are fixed up, in particular
those aspects of the WESM that will contribute to ensuring that all available
capacity is offered into the WESM at a price and plant limitations such as
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energy constraints are effectively managed by the traders via the prices and
quantities offered;
Reserves and energy are able to be co-optimised in the dispatch of plant in

the Visayas (this does not mean that the full reserve market has to be
operating);
A plan is in place to develop FTRs or some other risk management tool to

deal with divergent locational prices;
Improvements in the provision of information particularly the supply of bid

data much sooner than 30 days after the event and speeding up the
provision of spot prices when there have been re-runs; and most importantly,
The WESM is only expanded to Visayas after

a.
sufficient transmission upgrades and new generation is in place to

ensure that there is both adequate supply and effective competition
and/or
b.
measures are in place to ensure that the risks of high WESM spot prices
due to a tight demand and supply balance and local market power of
generators are effectively mitigated so that the revenue and cost
streams of generators, DUs, ECs and wholesale customers are
reasonably predictable and the impacts of any high spot prices dont
adversely affect customers too much.
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TECHNICAL ASSISTANCE

Intelligent Energy Systems

The proposed WESM reserve market and what should be sensible

The proposed extension of the WESM to Visayas and what should be

The determination and assessment of performance indicators for the System

The Visayas System Operator;

Some of the Visayas participants are not ready to effectively operate in an

Intelligent Energy Systems

high levels of contracting2 for a number of years;

the minimization of local market power of generation portfolios by

improvements in the supply situation through contracting backup

addressing the most dysfunctional aspects of the WESM to ensure that

co-optimising energy and contracted reserves to ensure the best use of

enhanced provision of information to all market participants to enable

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Improving the provision of information in terms of availability and timing will

D. Dysfunctional aspect of the WESM

E. Establishment of Reserve Market and FTRs

Criteria for Extending the WESM to Visayas

The SO, generators and Customers/DUs/ECs are in a position where they

Reserves and energy are able to be co-optimised in the dispatch of plant in

A plan is in place to develop FTRs or some other risk management tool to

Improvements in the provision of information particularly the supply of bid

The WESM is only expanded to Visayas after

sufficient transmission upgrades and new generation is in place to

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The Visayas Market

Necessary Conditions for Extension to Visayas

12 Market Preparedness of Stakeholders

14.1 Key Findings

MOs Estimates of Interconnection Capabilities Based on MOs

Visayas Market Participants as of May 23 2007

Estimated Visayas Customer Loads for 2006-2007

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The general objective of the technical assistance to DOE is to provide

The proposed WESM reserve market and what should be sensible

The proposed extension of the WESM to Visayas and what should be

The determination and assessment of performance indicators for the System

The Government of the Philippines, through the Department of Energy (DOE)

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Task 1: Assessment of the anticipated WESM Reserve Markets

Provide advice on the WESM Market Reserves (i.e., establishment of

Advice on other interrelated matters pertaining to the reserve market.

Assessment report on the proposed WESM Reserve Markets including

Analysis report on the possible dysfunctionality of the market due to some

Development of criteria that will be used by DOE in determining whether the

Possible recommendations on the regulatory filing for Pricing and Cost

Task 2: Assessment of WESM current operation and Extension

Assess the efficiency and problems of WESM operation in Luzon based on

Identify WESM Rules or market procedures that need to be amended or

Advice on the triggers for operationalization of Visayas WESM;

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Advice on other interrelated matters pertaining to the extension of WESM to

Assessment report of the timing and corresponding impact of extending

Formulation of criteria and assessment on feasibility of WESM operations in

Determination of possible constraints and level of competition.

Task 3: Assessment of Performance Indicators

Assess performance indicators for the System Operator

Assess performance indicators for Market Operator

Assessment report on the efficiency of WESM taking into consideration the

Development of performance indicators for System Operator and Market

The Visayas System Operator;