1. The Philippine Wholesale Electricity Spot Market
2008 APEx Conference
Sydney, Australia
Lasse A. Holopainen – President
Mario R. Pangilinan – Executive Vice President
Philippine Electricity Market Corporation

2. Presentation Outline Philippine Power Industry
Overview of the Philippine WESM
Results of Market Operations
Market Benefits
Market and Industry Outlook
Conclusions and Considerations

3. The Philippine Power Industry

4. The Philippine Power Industry
Overview
Electric Power Industry Reform Act of 2001 mandated deregulation and restructuring of the electricity industry
Generation sector was dominated by the National Power Corporation but is currently undergoing privatization
Transmission sector is a monopoly franchise awarded to private sector
Distribution sector is divided into franchise areas among private utilities or cooperatives but will be subjected to open access and retail supply competition
The WESM was established by law to promote supply competition at the wholesale level

5. The Philippine Power Industry
The New Industry Structure
Competitive generation
Regulated transmission
and distribution
Establishment of WESM
Competitive retail
electricity providers
Privatization of NPC
Unbundling of electricity rates for transparency
End-user
choice
Establishment of an Independent Transmission Company
Open Access of distribution network and retail competition

6. The Philippine Power Industry
Generation Rated Capacity Mix, % MW
Luzon
33.4%
24.3%
14.6%
19.8%
7.7%
Coal
Nat.
Gas
Diesel/
Oil
Hydro
Geo
Wind
0.2%
Visayas
34%
Diesel/
Oil
Geo
Coal
Hydro
0.6%
11%
Mindanao
52%
Coal
Geo 6%
Hydro
31%
11%
Diesel
Luzon
Visayas
Mindanao
Philippines
Total Gen Rated Capacity (MW)
11,396
1,778
1,907
15,081
2007 Peak Demand (MW)
6,589
1,171
1,203
8,963

7. The Philippine Power Industry
Demand Distribution
No. of Distribution Utilities
Per Region
Luzon
Mindanao
Visayas 30
(25.4%) 34
(28.8%) 54
(45.8%)
Wholesale Customers
(% based on Peak Demand)
28%
11%
61%
Meralco
Private
DUs
Elec.
Coops
End-Users
(% based on Actual Energy)
35%
27%
Industrial
Commercial
Residential
Others 3%

8. Overview of the Philippine WESM

9. Market Design Gross Pool Net Settlement Locational Marginal Pricing
All energy transactions are scheduled through the market
Net Settlement
Bilateral Contract quantities transacted in the pool can be settled outside of the market
Locational Marginal Pricing
Marginal price computed at each node or location to reflect transmission loss and / or congestion
Reserve Co-Optimization
Reserve and energy offers are scheduled at the same time
Demand Bids
Customers’ choice to buy energy lower than a specified price
Mandatory Market
EPIRA mandates procurement of at least 10% from the market for distribution utilities for the first 5 years from the establishment of the WESM 9

10. Generators/ Customers*
WESM Product Offering
Product
Description
Purchaser
Sellers
Energy
Electricity provided to Consumers
Customers
Generators
Ancillary Services
1. Regulating
Reserve
Load Following and Frequency Regulation
Generators/ Customers*
2. Contingency
Spinning reserve to provide response to significant decrease in system frequency.
3. Dispatchable
Back-up Reserves in response to a re-dispatch performed by the System Operator.
4. Interruptible
Load
Customer loads that can respond to re-dispatch from the System Operator. 10

11. WESM at a Glance
Locational Marginal Pricing (LMP) market with 270 trading nodes
30 Generating Resources/13 Trading Teams
8 Direct Customer Participants
135 Indirect/Unregistered Customers
1st Year Operation
2nd Year Operation
% Change
Peak Demand, MW
6,589
6,681
1.4%
Total Energy Volume, GWh
39,006
40,488
3.8%
Spot Market Volume, GWh
10,263
4,927
-52%
Average % Spot Volume
27%
13%
-55.6%
Spot Market Value, MPhp
51,253
22,542
-56%
Cumulative ESP, P/MWh
5,062
4,933
-2.5% 11 11

12. WESM Structure and Governance
Oversight
DOE
Policy making
Planning
ERC
Enforcement
Pricing
Governance
Market Surveillance
Committee
Rule Change
Dispute Resolution
Group
Technical
PEM Board
PEMC
PEM Audit
Market Operator
Enforcement and Compliance
Market Assessment Group
Acting as the governing body of the market is the Philippine Electricity Market Board or the “PEM Board”. The creation of a PEM Board is geared towards encouraging industry self-regulation.
Under the Board are the different Committees that would assist the Board of Directors in its decision-making process. There would be several Committees, the Rule Change Committee, the Disputes Committee, the Market Surveillance Committee, the Technical Committee, and the PEM Auditor.
WESM Members
Generators/
A/S Providers
Network Service Providers
(SO-Transco & DUs)
Suppliers/
Aggregators
Buyers

13. Results of Market Operations

14. 7-Day Moving Averages - Supply, Demand & LWAP
Market Outcomes
7-Day Moving Averages - Supply, Demand & LWAP
Hydro and & Coal Supply Limitation ( 990 MW)
Maintenance of
Nat. Gas Facility (2700 MW)
Forced & Planned Outages ( 1280 MW)
Congestion at EHV Backbone
2006
2007
2008
Generation Offers
Actual Demand
Hourly LWAP 14

15. Market Outcomes Luzon Energy Mix Max = 52.9% Min = 35.1% Max = 36.3%
Hydro and Coal Supply Limitation
Congestion at EHV
Backbone
Maintenance of Nat Gas Facility
Tight Supply
4.6%
4.8%
6.8%
9.6% 5%
5.2%
10.2%
Max = 52.9%
Min = 35.1%
Max = 36.3%
Min = 21.2%
Max = 11.7% Min = 6.3%
Max = 21.8% Min = 5.1%
Note: Data based on metered quantities 15

16. Representative Nodes: Ave Nodal Price and Max Price Spread
Market Outcomes
Representative Nodes: Ave Nodal Price and Max Price Spread
Average Monthly LMPs
La Trinidad
Mexico
Balintawak
Maximum Price Spread
Sucat
Price spikes due to line
congestions
Batangas
Naga
2006
2007
2008 16

17. Effective Settlement Price
Market Outcomes
Effective Settlement Price
Cumulative Average:
P4,989/MWh * *
2006
2007
2008
- TOU Rates Applied * 17

18. Transaction Volumes and Values
Market Outcomes
Transaction Volumes and Values
2006
2007
2008 18

19. Market Benefits

20. Long-Term Pricing Impact
Market Benefits
Long-Term Pricing Impact
Price Trend
Year

21. Generation Efficiency
Market Benefits
Generation Efficiency
11.5% 5%
4.1%
3.2%
44.1%
39.7%
41.5%
31.1%
2.4%
34.2%
39%
36.1%
47.1%
31.8%
8.5%
28.1%
9.6%
7.6%
6.7%
10.7%
10.6%
10.7%
13.3%
10.9%
11.6%
1st Half

22. Increased Investor Interest
Market Benefits
Increased Investor Interest
Tiwi-Makban Geo
(747.5MW, $446.9M)
WESM
Commercial
Operations
Ambuklao-Binga Hydro
(175 MW, $325M)
Calaca Coal
(600 MW, $787M)
Masinloc Coal
(600 MW, $930M)
Loboc Hydro (1.2 MW, $1.4M)
Cawayan Hydro (0.4 MW, $0.4M)
Agusan Hydro (1.6 MW, $0.4M)
Barit Hydro (1.8 MW, $0.48M)
Talomo Hydro (3.5 MW, $1.37M)
Magat Hydro
(360 MW, $530M)
Pantabangan-Masiway
Hydro (112 MW, $129M)
2005
2006
2007
2008

23. Market and Industry Outlook

24. Market and Industry Outlook
Visayas Market
Completed System Readiness, Participant Training, Trial and Live Dispatch Operations
Awaiting for DOE’s decision for WESM Commercial Operation
Reserve Market
The Energy Regulatory Commission (ERC) has recently released on order setting forth additional compliance requirements on the part of PEMC-MO and Transco-SO prior to the opening of the reserve market
Industry is continually evolving towards retail competition
Monitoring and Enforcement of Market Rules
Regulatory oversight and policy planning for new capacities
Customer participation and Demand side management
Full preparation for Retail Competition
Enhanced competition with Wholesale Aggregators (WA) and Retail Electricity Suppliers (RES) participation 24

25. Market and Industry Outlook
Traders Accreditation Program
Formation of an Electricity Traders Association
Aims to institutionalize the “Electricity Trader” as a profession, promoting competency, professionalism, compliance and ethics
Electricity Derivatives Forward Market
Development of an OTC bulletin board facility to allow auctioning and trading of standardized Forward Contracts
Market is non-mandatory and is the venue for hedging physical spot market risks, and trading of excess capacities
Capacities in IPPA portfolios can be bundled into Forward Contracts
Aims to provide indications of future supply scenario and economics

26. Conclusion and Considerations

27. Conclusion and Considerations
Operation of Electricity Markets brings benefits to the industry, stakeholders and government
Market is faced with challenges
Policy
Regulation
Design
Operations
Market is only good as industry
Stakeholders
Regulator
Policymakers
Physical System on which it operates

28. Conclusion and Considerations
While vested interests exist in the Market, decisions should be focused on objectives for which the Market was established
Good governance and enforcement is key to the sustainable operation of the Market
As the industry evolves the Market should continuously develop itself to maintain its relevance in the reform process

29. THANK YOU