Role Of ERC in the WESM To enforce the rules and regulations governing the operations of the WESM and monitors the activities of the Market Operator and other participants in the spot market. Also, through the competition rules and other relevant guidelines, promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the spot market.

Monitoring and Enforcement Monitors the following: Hourly Movement of Demand and Price Bidding Behavior of trading participants Occurrences of Constraint Violation Coefficients, Pricing Error Notices and Forecast Errors beyond +/-3%. Actions made by MO and SO during any significant events (compliance to the WESM Rules)

Monitoring and Enforcement Take measures in accordance to the EPIRA to penalize Abuse of market power CartelizationAnti-Competitive Discriminatory behavior by any market participants.

4 The WESM and its Basic Concepts The heart of the industry structure Market place for trading electricity as a commodity that reflects the market based value of electricity Prices not subject to regulation but governed by market forces. Uses the concept of a “gross pool” where all electricity output including those not covered by bilateral contracts, are centrally coordinated while allowing competition to meet the electricity demand in real time.

The Philippine WESM Wholesale market - it is open to generators, distribution utilities, directly connected customers, large customers and eventually supply aggregators with at least one (1) Mega-Watt (MW) of electricity requirement. Spot market - electricity is traded in real time because it cannot be stored for future use. Electricity is difficult to store. A centralized venue for sellers and buyers to trade electricity as a commodity.

 As envisioned, the WESM will provide an efficient and transparent venue for trade and investment in the power industry  The WESM is aimed to: WESM Provide cost-efficient dispatch of power plants through an economic merit order; Create reliable price signals to assist participants in weighing investment options; Provide a fair and level playing field for sellers and buyers of electricity as prices are driven by market forces.

7 Market Operator (MO) Dispatch Scheduler Operates the WESM Metering Service Provider Ancillary Service Provider Key Players in the WESM Customers System Operator Network Service Provider Trading Participants Generators

Administers the operation of the WESM in accordance with the WESM Rules Operate the WESM on a non- profit basis Determines the dispatch schedule of all facilities Monitor daily the trading activities in the market

Operate the power system in accordance with the WESM Rules, Grid Code or any instruction from the MO or the ERC to ensure security and reliability of the power system. Provide central dispatch to all generating facilities and loads in accordance with the dispatch schedule submitted by the Market Operator.

GOVERNANCE AND REGULATORY STRUCTURE FOR THE WESM Governance Market Participants ERC Enforcement Pricing Market Monitoring DOE Policy making Planning Rule Change Committee PEM Auditor Disputes Resolution Administrator Technical Management Committee Market Surveillance Committee PEM Board TRANSCO (SO) Market Operator DistributorsGenerators End-Users Suppliers/ Aggregators

11 Locational Marginal Pricing LMP Generation Congestion Losses = + + Cost of supplying next MW of load at a specific location, considers generation marginal cost, cost of losses and transmission congestion cost.

12 LMP

13 LMP

14 GencoCGencoC Economic Dispatch; Supply & Demand P/MWh MW Supply Side Demand Side Offer of Genco A Q = 100 MW P = P500/MWh 100 Industry Demand: 400 MW Offer of Genco B Q = 250 MW P = P 800/MWh ,500 Offer of Genco C Q = 500 MW P = P 1,500/MWh 400 Market Clearing Price is set at P 1,500/MWH. Offer of Genco D Q = 500 MW P = P 1,800/MWh 50 Genco A Genco B Offer of Genco E Q = 300 MW P = P 9,500/MWh

WESM Prices

WESM Price vs. TOU Rates

WESM Settlement Prices MonthPhP/MWh July 20107,773 August 20103,828 September 20105,872 October 20107,940 November 20105,930 December 20105,526 January 20113,388 February 20113,453 March 20112,554 April 20113,404 May 20116,408 June 20114,189

NEXT STEPS Pricing and Cost Recovery Mechanism (PCRM) for Reserves in the WESM Market Transaction Fees for CY 2012 Market Monitoring Framework Must Run nomination and compensation.