ERC Resolution No. 11-08 Rules for the Default Wholesale Supply Arrangements for the Wholesale Electricity Spot Market in the Luzon Grid, as Amended

June 25, 2008

ERC RESOLUTION NO. 11-08

RESOLUTION ADOPTING THE RULES FOR THE DEFAULT WHOLESALE SUPPLY (DWS) ARRANGEMENTS FOR THE WHOLESALE ELECTRICITY SPOT MARKET (WESM) IN THE LUZON GRID, AS AMENDED

WHEREAS, Section 30 of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), provides for the establishment by the Department of Energy (DOE) of the wholesale electricity spot market (WESM);

WHEREAS, commercial operations of the WESM commenced on 26 June 2006;

WHEREAS, on 23 August 2006, the Energy Regulatory Commission (ERC) issued Resolution No. 44, Series of 2006 adopting the Rules for the Default Wholesale Supply Arrangements for the WESM;

WHEREAS, Article V of the aforementioned Rules limits the Effectivity of the DWS Arrangements for a period not longer than one (1) year from the start of both the WESM commercial operations in Luzon and in Visayas;

WHEREAS, on 20 June 2007, the ERC issued Resolution No. 18, series of 2007 which extended the effectivity of the DWS Arrangements for Luzon until 25 June 2008;

WHEREAS, on 31 March 2008, to facilitate the evaluation on whether to amend and extend or terminate the Rules on the Default Wholesale Supply Arrangements, the Commission issued a Notice of Public Consultation to solicit comments or amendments on the said Rules; ASHICc

WHEREAS, Public Consultation on the said Rules were held on 14 and 20 May 2008 at the ERC Hearing Room in Pasig City and ERC Visayas Field Office, respectively;

WHEREAS, the Commission posted on its website the proposed amended Rules for Default Wholesale Supply Arrangements to seek comments from the interested industry stakeholders;

NOW THEREFORE, after careful deliberation on the issues relative thereto, the ERC RESOLVED, as it hereby RESOLVES, to APPROVE and ADOPT the "Rules for the Default Wholesale Supply Arrangements for the Philippine Wholesale Electricity Spot Market in the Luzon Grid, As Amended", herein attached as Annex "A" and made an integral part of this Resolution.

This Resolution shall take effect immediately.

Let copies of this Resolution be furnished the University of the Philippines Law Center-Office of the National Administrative Register (UPLC-ONAR) and all entities engaged in the generation, transmission and distribution of electricity.

Pasig City, June 25, 2008.

(SGD.) RODOLFO B. ALBANO, JR.Chairman

(SGD.) RAUF A. TANCommissioner

(SGD.) ALEJANDRO Z. BARINCommissioner

(SGD.) MARIA TERESA A. R. CASTAÑEDACommissioner

(SGD.) JOSE C. REYESCommissioner

Published in The Manila Times on June 26, 2008.

Pursuant to Section 2 (c) and (j) of Republic Act No. 9136, Department of Energy (DOE) Circular No. 2006-06-0009 and Energy Regulatory Commission (ERC) Resolution No. 30, Series of 2006, the ERC hereby promulgates the following Rules on the Default Wholesale Supply Arrangements for the Philippine Wholesale Electricity Spot Market (WESM), as amended.

ARTICLE 1

General Provisions

SECTION 1.1 Objectives. —

1.1.1 To ensure transparent and reasonable prices of electricity and enhance the competitive operation of the electricity market;

1.1.2 To ensure the provision of continuous supply of electricity to Distribution Utilities (DUs) and End-users;

1.1.3 To determine the prices to be applied on Default Wholesale Supply Arrangements for the WESM; and

1.1.4 To designate the authorized Default Wholesale Suppliers.

SECTION 1.2 Scope. —

These Rules shall apply to:

1.2.1 Distribution Utilities;

1.2.2 End-users of electricity who are:

1.2.2.1 Permitted by ERC to connect to the grid in accordance with Resolution No. 48, Series of 2006; and

1.2.2.2 Permitted by other competent government agency to connect directly to the grid. IaDTES

1.2.3 National Power Corporation (NPC);

1.2.4 Power Sector Assets and Liabilities Management Corporation (PSALM);

1.2.5 Philippine Electricity Market Corporation (PEMC);

1.2.6 Assignees as defined in these Rules; and

1.2.7 Relevant industry participants, if applicable.

SECTION 1.3 Definition of Terms. —

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

Act	Refers to Republic Act No. 9136 also
	known as the "Electric Power Industry
	Reform Act of 2001".

Assigned Contracts	Refer to the power supply contracts
	assigned by NPC and PSALM to the new
	owners of NPC-owned power plants, as
	specified in the Terms and Conditions of
	the Asset Purchase Agreement between
	the PSALM and the new owner. These
	contracts shall be considered as TSCs
	until their expiration.

Assignees	Refer to the winning bidders, to which
	PSALM has successfully turned over any
	NPC-owned power plant or designated as
	IPP administrator. Said assignees should
	have already complied with all the
	deliverables as provided in the Asset
	Purchase Agreement including the
	required up-front payment generally
	amounting to forty percent (40%) of the
	bid price.

Bilateral Power Supply	Refers to the contracts for the physical
Contracts	supply of electricity as contemplated
	under Section 45 (c) of R.A. 9136, which
	do not include a financial derivative
	contract nor a contract for the sale of
	electricity from a distribution utility to
	a person who requires the supply and
	delivery of that electricity for its own
	consumption nor power supply contracts
	entered into by NPC or its Assignee and
	end-users who are directly connected to
	the grid. For purposes of these Rules,
	TSCs shall be subject to the provisions of
	ERC Resolution No. 37, Series of 2006.

Default Wholesale Supplier	Refers to the entity which shall provide
	the supply of electricity to cover the
	imbalances of customers in the WESM.

Default Wholesale Supply	Refers to the arrangements for the supply
Arrangements	of electricity to cover the imbalances of
	customers in the WESM.

Department of Energy	Refers to the government agency created
	pursuant to Republic Act No. 7638 whose
	expanded functions are provided under
	the Act.

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

Direct WESM Transactions	Refer to the transactions of Direct WESM
	Members covering electricity purchased
	or sold through the WESM.

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

Economic Zones (EZs)	Refer to selected areas which are highly
	developed or have the potential to be
	developed into agro-industrial, industrial,
	tourist, recreational, commercial, banking,
	investment and financial centers.
	Economic Zones which are directly
	connected to the Grid shall, for purposes
	of these Rules, be considered Distribution
	Utilities.

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

Energy Regulatory	Refers to the independent and
Commission	quasi-judicial regulatory agency created
	under Section 38 of the Act.

Ex-Post Nodal Energy Price	Refers to the price determined by the
	Market Operator for each market trading
	node and trading interval at the end of
	every trading interval.

Grid	Refers to the high voltage backbone
	system of interconnected transmission
	lines, substations and related facilities,
	located in each of Luzon, Visayas and
	Mindanao, or as may otherwise be
	determined by the ERC in accordance
	with Section 45 of the Act.

Imbalances	Refer to the electricity withdrawals made
	by a customer from the WESM in excess
	of its contracted levels, subject to Section
	2.3 of these Rules.

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

Indirect Primary WESM	Refer to the transactions of an Indirect
Transactions	WESM Member covering electricity
	purchased or sold through the WESM.

Indirect Secondary WESM	Refer to the transactions of a non-WESM
Transactions	Member covering electricity purchased
	or sold through the WESM.

National Power Corporation	Refers to the government corporation
	created under Republic Act No. 6395, as
	amended.

National Transmission	Refers to the corporation organized
Corporation (TransCo)	pursuant to the Act to acquire all the
	transmission assets of the NPC.

NPC Grid Rate	Refers to the NPC's existing Time of Use
	(TOU) rates and the Franchise and
	Benefits to Host Communities (FBHC)
	charge, approved by the ERC. Changes in
	the NPC Grid Rate shall be adopted based
	on approval of new levels of TOU Rates
	and/or FBHC charge or any additional
	charges that may be authorized by the
	ERC.

Non-WESM Member	Refers to a person or entity who is not
	registered with the Market Operator either
	as a Direct WESM Member or an Indirect
	WESM Member but continues to
	withdraw/inject power and energy
	from/into the grid through the WESM.

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

Power Sector Assets and	Refers to the corporation created pursuant
Liabilities Management	to Section 49 of the Act.
Corporation

Transition Supply Contract	Refers to a contract duly negotiated by
(TSC)	NPC with a Distribution Utility pursuant
	to Section 67 of the Act.

Wholesale Electricity Spot	Refers to the electricity market established
Market	by the Department of Energy (DOE) in
	accordance with the Act.

Terms not defined in Section 1.3 hereof, but which are defined in the Act, its Implementing Rules and Regulations, or the WESM Rules, shall have the same meaning ascribed to them therein.

ARTICLE 2

Application of the Default Wholesale Supply Arrangements

SECTION 2.1 The Default Wholesale Supply Arrangements shall apply to the following customers in the Luzon Grid:

2.1.1 Distribution Utilities; and

2.1.2 End-users of electricity who are:

2.1.2.1 Permitted by ERC to connect to the grid in accordance with Resolution No. 48, Series of 2006; and

2.1.2.2 Permitted by other competent government agency to connect directly to the grid.

SECTION 2.2 Default Wholesale Supply Arrangements shall apply to the following transactions:

2.2.1 Indirect Primary WESM transactions; and

2.2.2 Indirect Secondary WESM transactions.

SECTION 2.3 For TSCs, the DWS shall only apply to the imbalances equivalent to actual consumptions beyond one hundred twenty percent (120%) of the total contracted levels under said Contract or such other level as determined by the ERC, relative to its approval of the TSCs.

SECTION 2.4 For clarity, Default Wholesale Supply Arrangements shall not apply to Direct WESM transactions and transactions covered by Bilateral Power Supply Contracts.

ARTICLE 3

Transition Supply Contracts and Bilateral Power Supply Contracts

SECTION 3.1 The central dispatch of electricity in the WESM entails the scheduling of all requirements of customers, including the requirements covered by TSCs and Bilateral Power Supply Contracts.

SECTION 3.2 The ERC shall monitor compliance by the Distribution Utilities to the provisions of Section 45 (c) of the Act, which requires the Distribution Utilities not to source more than ninety per cent (90%) of its total demand from Bilateral Power Supply Contracts for the first five (5) years from the establishment of WESM. IcTEAD

SECTION 3.3 The TSCs shall be treated as special and distinct contracts, and shall not be considered Bilateral Power Supply Contracts for purposes of Section 45 (c) of the Act as per ERC Resolution No. 37, Series of 2006.

SECTION 3.4 A TSC entered into between the NPC and Distribution Utilities shall remain valid until one (1) year after introduction of open access. At the end of the one year period, all TSCs are considered terminated by operation of Section 67 of the Act. However, the Distribution Utility, subject to NPC's concurrence (in cases where the TSC is not an Assigned Contract) or to the Assignee's concurrence (in cases where the TSC is an Assigned Contract), shall have the option to file with the ERC, an application for approval of said contract as a Bilateral Power Supply Contract pursuant to Section 45 (b) of the Act. The said application should be filed by the Distribution Utility at least six (6) months prior to the end of the one (1) year period from introduction of open access. DASCIc

SECTION 3.5 Any Distribution Utility with an existing TSC with NPC, which opts to become a Direct WESM Member, shall no longer be subject to the twenty percent (20%) bandwidth as stated in its TSC with NPC. All quantities beyond the Distribution Utility's contracted levels, including the one-hundred percent (100%) contracted level in the TSC and the contracted quantities from the other Bilateral Power Supply Contracts, if there are any, shall be deemed taken from the WESM.

ARTICLE 4

Designation of the Default Wholesale Supplier

SECTION 4.1 Unless otherwise determined by the ERC, PSALM and NPC shall remain as the authorized Default Wholesale Suppliers, except for the Assigned Contracts whose Assignees have agreed to be the Default Wholesale Suppliers. Should the Assignees refuse to become the Default Wholesale Suppliers, NPC and PSALM shall remain the Default Wholesale Suppliers for the said transactions.

SECTION 4.2 The designation of the Assignees as authorized Default Wholesale Suppliers shall be limited to transactions attached to the Assigned Contracts and the Assignees shall not be authorized as Default Wholesale Suppliers for any transactions other than those attached to the Assigned Contracts.

SECTION 4.3 Within five (5) days upon signing of the agreement designating the Assignee for the Assigned Contracts, NPC shall forward to the ERC and PEMC (1) the list of Assignees for a particular privatized NPC generating asset or the IPP Administrator; (2) the corresponding Assigned Contracts; and (3) the date of effectivity.

ARTICLE 5

Pricing for the Default Wholesale Supply Arrangements

SECTION 5.1 The price to be imposed on the supply provided by the DWS shall be the NPC Grid Rate or the WESM Ex-Post Nodal Energy Price for each relevant trading hour, whichever is higher, plus a premium of ten percent (10%) of the said higher amount, unless the ERC approves a new pricing mechanism.

SECTION 5.2 The ten percent (10%) premium paid by any Distribution Utility relative to its DWS transactions shall not be considered as recoverable charges from its end-users or customers.

SECTION 5.3 PEMC shall be responsible for providing relevant information for the billing and settlement of DWS transactions.

ARTICLE 6

Period of Effectivity

SECTION 6.1 These Rules shall be implemented in Luzon from 26 June 2008 until one (1) year after the start of open access and retail competition.

SECTION 6.2 During the said effectivity period, the DWS Arrangements may be replaced by any other arrangement or alternative mechanism as approved by the ERC.

ARTICLE 7

Separability

SECTION 7.1 If for any reason any provision of these Rules is declared unconstitutional or invalid by final judgment of a competent court, the other parts or provisions hereof which were not affected thereby shall continue to be in full force and effect.

ARTICLE 8