PUBLIC

WESM Manual

Administered Price
Determination Methodology
Issue 5.0

Abstract This document contains the concept and procedures for determining the
administered price that will be used in the Philippine Wholesale Electricity
Spot Market during market suspension and intervention.

Document Identity: WESM-AP-005

Issue: 5.0
Reason for Issue: Amendments
Approval Date: 28 April 2015
Publication Date: 30 July 2015
1
Effectivity Date:

1 All changes to this manual, except for Section 4.2.2.1 which is merely a clarification of the
implementation of Section 4.2.4, will take effect upon approval by the Energy Regulatory
Commission.
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Document Change History

Issue No. Modifier Date Synopsis/Reason for Change
0.0 PEMC MO 11/07/05 Original document
WESM 11/08/05 Revised to include provision to allow weekly
IRCC submission of Default Dispatch Offer
PEMC MO 06/26/06 Revised in compliance with ERC Decision in ERC
Case No. 2005-056 RC In the Matter of the
Application for Approval of the Administered Price
Determination Methodology for the Philippine
Wholesale Electricity Spot Market, 22 June 2006.
09/07/06 RCC approved Revision 1.0 and endorsed to PEM
Board for approval
3.0 PEMC 10/04/10 Revised clause 4.1 (f) and Section 4.2.5 to include
guidelines on regional application and methodology
for settlement of export and import quantities

Revised clause 4.2.1.3 to include substitute prices

determined under relevant pricing error or price
substitution methodologies in determining
administered prices

Revised Section 4.4 to provide for interim

administered price for Visayas

(approved by the PEM Board as Urgent

Amendments on 27 October 2010 and General
Amendments on 28 April 2011)
4.0 RCC 09/29/14 Revised section 3 Background to clarify that the
administrative price applies when the Market is not
able to determine the price for energy for a grid or
island grid for any given trading interval that the
intervention or suspension is in effect.

Revised section 3.1 to indicate that Market

Intervention is also permitted when an island grid
is in extreme state condition.

Revised section 3.1 to include the inability of the

market system hardware or software to produce
market schedules due to erroneous real-time status
input data as part of force majeure events.

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Included a new section 4.2.7 regarding new

provisions on the Application of Market Intervention
during Grid Islanding.
5.0 PEMC 04/28/15 1. Addition of Section 4.2.1.4 in the Manual to
correct the utilization of zero values in the
calculation of prices based on the previous
four weeks, same day, same hour in order to
ensure appropriate calculation of
administered price when MQ is zero;
2. Revisions of 4.2.5.2 and Appendix A to
ensure appropriate settlement in trading
intervals when regional administered pricing
is applied and the administered region
exports energy to the non-administered
region;
3. Addition of terms in the formula for
calculating the customer administered
settlement amounts of Section 4.2.2.1 to
include the consideration of bilateral
contracts for consistency with Section 2.4 of
the APDM Manual; and
4. Amendment of Sections 4.2.6, 4.2.7.2, and
4.2.7.3 for the integration of costs attributable
to bilateral contract quantities of the
customer administered settlement amounts.

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Document Approval
Author: PEMC Market Date: 11/07/2006
Operations Group
WESM IRCC Date: 11/08/2005
Approval: 09/07/2006
WESM RCC Date: 10/13/2010
Approval: (as Urgent Amendments)
04/06/2011
(as General Amendments)
09/10/2014
PEMC 04/08/2015
PEMC Board Date: 11/10/2005
Approval: 09/14/2006
10/27/2010
(as Urgent Amendments)
04/28/2011
(as General Amendments)
09/29/2014
04/28/2015

Reference Documents

Document ID Document Title

WESM Rules

Price Determination Methodology

Dispatch Protocol

Management of Must-Run and Must-Stop Units

Decision in ERC Case No. 2005-056 RC In the Matter of the

Application for Approval of the Administered Price
Determination Methodology for the Philippine Wholesale
Electricity Spot Market, 22 June 2006.

DOE Directive to the RCC relative to the management of

Must Run Units

iii
 Table of Contents

1. PURPOSE ................................................................................................. 1

2. REFERENCES .......................................................................................... 1

3. BACKGROUND ........................................................................................ 1

3.1. Conditions for Market Intervention ...................................................... 2

3.2. Conditions for Market Suspension ...................................................... 4

4. ADMINISTERED PRICE DETERMINATION METHODOLOGY ............... 4

4.1. Guiding Principles ............................................................................... 4

4.2. Methodology ....................................................................................... 5
4.3. Publication and Effectivity of Administered Prices ............................ 11
4.4. Interim Administered Price ................................................................ 11

APPENDIX A – REGIONAL APPLICATION OF MARKET SUSPENSION OR

INTERVENTION ............................................................................................ 12

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1. PURPOSE

The purpose of this document is to specify the procedure for the establishment
of the administered price that will be used by the Market Operator for the
settlement of energy transactions during intervention by the System Operator
in or suspension of the market.

This document implements the directive of the Energy Regulatory Commission

(ERC) in its Decision dated 22 June 2006 in ERC Case No. 2005-056 RC
entitled In the Matter of the Application for Approval of the Administered Price
Determination Methodology for the Philippine Wholesale Electricity Spot
Market.

2. REFERENCES

The determination of the administered price shall be in accordance with the

following documents:

(a) Wholesale Electricity Spot Market Rules (Chapter 6)

(b) Dispatch Protocol
(c) WESM Emergency Procedures
(d) System Security and Reliability Guidelines
(e) Energy Regulatory Commission Decision, ERC Case No. 2005-
056 RC entitled In the Matter of the Application for Approval of the
Administered Price Determination Methodology for the Philippine
Wholesale Electricity Spot Market (22 June 2006).

3. BACKGROUND

Under the WESM Rules, the administered price shall be used for settlement in
cases where there is intervention in the market by the System Operator or
where the market is suspended by the ERC (WESM Rule 6.2.3 and 6.8.3.1).
The administered price applies when the Market Operator is not able to
generate or determine the price for energy for a grid or island grid for any given
trading interval that intervention or suspension is in effect.

During market suspension or intervention, the System Operator assumes

responsibility for giving directions and coordinating the actions to be taken by
the Market Operator and the WESM participants (WESM Rule clause 6.2.1.1).
Among other actions, the System Operator takes over the scheduling function
during these periods.

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The ERC authorized the imposition of an administered price based on the

administered pricing scheme of the Ontario Electricity Market as determined in
the following modified manner –

a) The price and schedule for a given price schedule or trading

interval shall be equivalent to the load weighted average ex-post
energy price of the corresponding trading interval of the four (4)
preceding similar days, that have not been administered.

In case any of the prices covered by the four preceding same

days have been administered, said prices shall be excluded and
replaced with the prices that have not been administered from the
most recent earlier same or similar day.

b) The trading participant which has complied with the instructions

during market suspension or intervention may be entitled to
additional compensation upon determination and sufficient proof
that the administered price is not sufficient to cover the following
–
1) fuel costs incurred in complying with the dispatch
instructions; and
2) Variable operating and maintenance costs incurred in
complying with the dispatch instructions.

c) During the first month of WESM commercial operations, the ERC-

approved National Power Corporation effective rates for Luzon for
the current period shall be adopted as the interim administered
price.

3.1. Conditions for Market Intervention

Market intervention by the System Operator is permitted in clause

6.2.1.2 of the WESM Rules when a grid or island grid is in extreme state
condition arising from (a) an emergency (b) a threat to system security
or (c) an event of force majeure.

In clause 6.3.1.1 of the WESM Rules, emergency is defined as the

existence of a situation which has an adverse material effect on
electricity supply or which poses as a significant threat to system
security. As enumerated in clause 6.3.1.2 of the WESM rules,
emergency events may include the following:

a) a significant supply capacity shortfall, being a condition where

there is insufficient generation or supply options available to
securely supply in one or more regions of the power system likely
to be affected by the event;
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b) a power system disturbance due to an outage in the transmission

network or generating system for which market processes are
inadequate for recovery;

c) a significant environmental phenomenon, including weather,

storms or fires which are likely to or are significantly affecting the
power system for which market processes are inadequate for
recovery;

d) a system blackout or significant power system under-voltage

condition;

e) material damage to a distribution system which has or is likely to

adversely affect the operation of the transmission system or to
render the spot market ineffective; and

f) a situation in which the Government proclaims or declares an

emergency.

The WESM Dispatch Protocol more specifically classifies emergency

events based on their nature and origin. Emergency events can either
originate from failures in the grid or from failures in the market
mechanism itself.

In the document “Emergency Procedures” (Ref. c), three types of system

disturbances or emergency events that may require market intervention
are enumerated. These are a) transmission line overloading, b) system
over-frequency and c) system under-voltage condition.

Force majeure event is defined in Section 6.7.1 of the WESM Rules as

the occurrence in a trading interval of an event or events not within the
reasonable control, directly or indirectly, of the Market Operator and the
WESM member, to the extent that such event, despite the exercise of
the reasonable diligence, cannot be or be caused to be prevented, or
removed and has resulted in a reduction in the normal capacity of part
or all of the power transmission system during the trading interval and
such reduction is likely to materially affect the operation of the spot
market or materially threaten system security. Included in the list of force
majeure events enumerated in clause 6.7.2 of the WESM Rules are: a)
major network trouble that caused partial or system-wide blackout, b)
market system hardware or software failure that makes it impossible to
receive or process market offer/bid information or produce market
schedules due to erroneous real-time status input data or dispatch the
system in accordance with the WESM Rules and c) any other event,
circumstance or occurrence in nature of, or similar in effect to any of the
foregoing.

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The occurrence of an emergency event, force majeure or threat to

system security does not automatically lead to System Operator
intervention. Where there is threat to system security but the System
Operator believes that there is sufficient time for the market to address
the threat without intervention, it may advise the Market Operator to
make changes to the pre-dispatch schedule of affected WESM
participants in accordance with clause 6.6.4.2 of the WESM Rules. The
Market Operator may invite trading participants to revise their bids and
offers prior to the preparation of a new dispatch schedule using system
information provided by the System Operator.

Intervention in the market by the System Operator is warranted only if

the System Operator determines that there is insufficient time for the
Market Operator to address an emergency or a threat to system security
using the available market systems. In such case, the System Operator
shall take all the necessary steps to overcome the emergency and shall
take over the scheduling functions from the Market Operator.

3.2. Conditions for Market Suspension

Under clause 6.8.1 of the WESM Rules, only the ERC may suspend the
operation of the spot market or declare a temporary market failure in
cases of a) natural calamities or b) following official declaration of a
national and international security emergency by the President of the
Philippines.

The spot market shall be suspended at the start of the interval in which
the ERC gives advice to the Market Operator to suspend the market.
The suspension of the spot market shall remain in effect until such time
that the ERC advices the Market Operator to resume operation of the
market.

4. ADMINISTERED PRICE DETERMINATION METHODOLOGY

4.1. Guiding Principles

The administered price will be established by the Market Operator in

accordance with the following guiding principles:

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a) The administered price shall be fair and reasonable to both the

suppliers and consumers of electricity.

b) The administered price shall be the price that will be used for
settlements during market suspension and intervention.
Administered prices shall be determined for the energy market
only pending co-optimization of energy and reserve in the WESM.

c) The process for determining the administered price shall be

transparent to the trading participant and administratively simple
to implement.

d) The process for determining the administered price shall be

based on market-based information available prior to market
intervention or suspension.

e) The administered price will be used for settlement of transactions

in trading intervals during market intervention and suspension
where the Market Operator is unable to generate a market
schedule.

f) In the event that a market intervention or suspension is declared

to be applied only to one region, the methodology described in
this Manual shall apply only to the region where the suspension
or intervention is declared. For this purpose, the regions are
Luzon, Visayas or Mindanao.

4.2. Methodology

4.2.1. Generator Administered Prices - Average Ex-Post Nodal Energy

Price

4.2.1.1. For each generator node, the administered price will be

computed as the load weighted average of the ex-post
nodal energy prices and meter quantity of the four most
recent same-day (i.e., Monday to Sunday, Holidays)
same-hour trading intervals that have not been
administered.

Thus, for any generator node i:

 EPP
D =1
Gen-i,D *MQ Gen-i,D
APGen-i  4

 MQ
D =1
Gen-i,D

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Where:

EPP = Ex-Post Price

AP = Administered Price
D = number of historical trading days to be
considered
i = Generator resources
MQ = Meter Quantity

4.2.1.2. In case any of the prices covered by the four preceding

same days have been administered, said prices shall
be excluded and replaced with the prices that have not
been administered from the most recent earlier same
or similar day.

4.2.1.3. In cases where any of the prices in the four preceding

same days reflect constraint violation coefficient prices,
or are subject of a pricing error notice or price
substitution as a result of a pricing error, the substitute
market prices used for settlement of WESM
transactions by the Market Operator pursuant to
relevant pricing error or price substitution
methodologies under the WESM Rules or relevant
market manual will be used.

4.2.1.4. If no administered price can be determined for a

generator trading node because the generating plant
associated with that trading node had no actual
generation, i.e. no metered quantity or MQ, the
administered price shall be determined, as follows:

4.2.1.4.1 The Ex-post Price of the immediately

preceding same day, same hour, non-
administered price, with actual generation,
within one (1) year prior to the trading day
and hour being considered shall be used in
calculating the administered price.

4.2.1.4.2 In case Section 4.2.1.4.1 failed to determine

a valid value for administered price, it shall
then be computed by obtaining the simple
average of the ex-post nodal energy prices
of four immediately preceding same-day,
same-hour trading intervals that have not
been administered . This is as set out in the
following formula:

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AP Gen-i = ∑ Gen-i, D

Where:

EPP = Ex-Post Price

AP = Administered Price
D = number of historical trading days to be considered
i = Generator resources
MQ = Meter Quantity

4.2.2. Customer Settlement Amounts

4.2.2.1. The customer administered settlement amounts will be

calculated by allocating the total generation payments
based on the customers’ actual energy metered
quantities for the trading intervals during market
suspension or intervention when the administered
pricing is applied.

For any customer at load node j, the Settlement

Amount (SA) is given by the following:

∑ ̵ × 
˗ = ×  −  ,  × 
∑ 

Where:

AP = Administered Price
SA = Settlement Amount
n = number of generator resources with
positive meter quantity
m = number of load resources with negative
meter quantity
i = Generator resources
BCQ = Bilateral Contract Quantity
P = Price of the generator counterparty of
Load j wherein P is the Ex-Ante Price if the
generator is from the non-administered
region and P is the administered price if the
generator is from the administered region

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4.2.3. Additional Compensation

4.2.3.1. A Trading Participant which has complied with dispatch

instructions during market intervention or suspension
may be entitled to additional compensation. Additional
compensation is allowed in cases where the Trading
Participant submits sufficient proof that the
administered price is not sufficient to cover the
following costs that are incurred in complying with the
dispatch instructions –

a) fuel costs
b) variable operating and maintenance costs, which
may include start-up cost and shut-down costs

4.2.3.2. The additional compensation will not be more than the

aggregate of the above costs less the amount of the
administered price already paid or payable, subject to
the determination and approval of the Market Operator.

4.2.3.3. The affected Trading Participant will submit to the

Market Operator a claim for additional compensation
with supporting documents justifying the requested
additional compensation. The claim should be made
not later than two weeks from the resumption of market
operation.

4.2.3.4. The Market Operator will inform the requesting Trading

Participant of the approval or disapproval of the claim
within two (2) weeks from receipt of the complete
documents from the Trading Participant.

4.2.3.5. Should the Trading Participant not agree with the

determination of the Market Operator, it may bring the
matter for resolution through the WESM dispute
resolution process.

4.2.3.6. If the Market Operator determines that additional

compensation is warranted, it will allocate the same
among the Customers in proportion to the volume of
their transactions based on metered quantities for the
relevant trading interval. The additional compensation
will be collected and paid following the usual billing and
settlements procedure.

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4.2.4. Settlement of Bilateral Contracts

The administered price will apply only to energy transactions

above the declared bilateral quantities. Quantities declared to the
Market Operator as bilateral contracts quantities will be settled
outside the market.

4.2.5. Regional Application of Market Suspension or Intervention

4.2.5.1. Where market suspension or intervention is declared in

one region only, the administered prices determined
according to this Manual shall be applied only to the
generators in the region (“administered region”) where
the suspension or intervention was declared. Subject to
the settlement of export and import quantities, the
resulting generator trading amounts will be allocated
amongst the customers in the same region. For this
purpose, export or import quantities refer to the
generation that passes through and are measured at
the interconnection between regions.

4.2.5.2. Where generation quantity is exported from the

administered region to the non-administered region,
the following shall apply –

a) The generator trading amount corresponding to

exported quantity (“export trading amount”) shall be
deducted from the generator total trading amounts
that will be allocated and collected from the
customers of the administered (i.e., exporting)
region. The export trading amount will be collected
from the customers of the non-administered (i.e.,
importing) region.

b) The export trading amount shall be determined by

multiplying the export metered quantities by the
metered quantity-weighted average price of the
administered generators.

c) The settlement amount calculated by multiplying the

export metered quantities by the difference of the
nodal price at an assigned reference market trading
node in the non-administered region and the
metered quantity-weighted average price of the
administered generators shall be allocated to all
loads in the non-administered region based on their
metered quantities. The appropriate reference

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market trading nodes shall be determined by the

Market Operator and shall be published at the
market information website.2

4.2.5.3. Where generation quantity is imported from non-

administered region to administered region, the
following shall apply –

a) The trading amount corresponding to such quantity

(“import trading amount”) will be added to the
generator total trading amounts that will be
allocated to and paid for by the customers in the
administered (i.e., importing) region following the
methodology provided for in this Manual.
b) The import trading amount shall be determined by
multiplying the import metered quantities by the
nodal price at an assigned reference market trading
node in the non-administered region. The
appropriate reference market trading nodes shall be
determined by the Market Operator and shall be
published at the market information website.

4.2.6. Computation of Amounts associated with Pricing Mechanism

Differential

4.2.6.1. Where market suspension or intervention is declared in

one region only, and the generator in that region has a
bilateral contract quantity with the customer in the
normal region, the trading participant that pays for the
line rental shall be charged an amount calculated by
multiplying the bilateral contract quantity to the
difference of the ex-ante price of the customer and
administered price of the generator.

4.2.6.2. Where market suspension or intervention is declared in

one region only, and the customer in that region has a
bilateral contract quantity with the supplier in the
normal region, the amount associated with the pricing
mechanism differential is already included in the
administered settlement amount of the customer.

4.2.7 Application of Market Intervention during Grid Islanding

2Initially, the reference market trading nodes that will be used are the market trading nodes located at Naga,
Camarines Sur (Luzon) and Ormoc, Leyte (Visayas).

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4.2.7.1 Where market intervention is declared in an island grid

(“grid islanding), the administered prices determined
according to this Manual shall be applied only to the
generators in the island grid where the intervention was
declared. The resulting generator trading amounts will
be allocated amongst the customers in that island grid.

4.2.7.2 Where market intervention is declared in an island grid,

and the generator in that island grid has a bilateral
contract quantity with the customer in the part of the grid
or region without market intervention, the trading
participant that pays for the line rental shall be charged
an amount calculated by multiplying the bilateral
contract quantity to the difference of the ex-ante price of
the customer and administered price of the generator.

4.2.7.3 Where market intervention is declared in an island grid,

and the customer in that island grid has a bilateral
contract quantity with the supplier in the part of the grid
or region without market intervention, the amount
associated with the pricing mechanism differential is
already included in the administered settlement amount
of the customer.

4.3. Publication and Effectivity of Administered Prices

The Market Operator will publish the administered prices covering all
days and trading intervals for one billing period. These will be posted in
the Market Information website during the period of their effectivity.

4.4. Interim Administered Price

For the first month from the start of the WESM in Luzon, the administered
price that will be applied will be the Time-of-use (TOU) effective rate of
the National Power Corporation approved by the ERC for the Luzon.
Similarly, for the first month from the start of the WESM operations in the
Visayas, the administered price that will be applied will be the Time-of-
use (TOU) effective grid rate approved for the Visayas.

Thereafter, the administered price will be determined based on the

methodology set forth in this Manual. The first set of administered prices
covering a one-month period will be determined by the Market Operator
using the resulting ex-post nodal energy prices during the first month of
WESM commercial operations in Luzon or the Visayas, as applicable.

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APPENDIX A – REGIONAL APPLICATION OF MARKET SUSPENSION OR

INTERVENTION

Where generation quantity is exported from the administered region to the non-
administered region, the generator trading amount corresponding to exported
quantity (“export trading amount”) shall be deducted from the generator total
trading amounts that will be allocated and collected from the customers of the
administered (i.e., exporting) region.

Thus, the settlement amount of customer is allocated by the formula:

(∑ ̵ ×  )−( × , )
˗ = × 
∑ 

Where:

APGen-i= Administered Price of generator i

SA = Settlement Amount
n = number of generator resources with positive meter quantity
m = number of load resources with negative meter quantity
i = Generator resources
j = Load resources
MQ = Meter Quantity
APGen,Ave = Metered quantity-weighted average price of the administered
generators calculated by ∑(APGen × MQGen) / ∑MQGen

Moreover, the settlement amount resulting from the price difference between
the non-administered and administered regions shall be added to or deducted
from the payments of the loads from the non-administered region on a pro-rated
basis using the formula:

× ( − , )
, = × ,
∑ ,

Where,

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ISA = Incremental settlement amount of load from non-administered region

due to the price difference of the exported quantity
EPPNAR = Ex-Post Price of Non-Administered Region
j = Load resources
APGen,Ave = Metered quantity-weighted average price of the administered
generators
m = number of load resources with negative meter quantity in the non-
administered region
MQLoad,NA-j = Metered quantity of load from non-administered region

Where generation quantity is imported from non-administered region, The

trading amount corresponding to such quantity (“import trading amount”) will be
added to the generator total trading amounts that will be allocated to and paid
for by the customers in the administered (i.e., importing) region following the
methodology provided for in this Manual.

Thus, the settlement amount of customer is allocated by the formula:

n
( APGen-i *MQ Gen-i )  (MQ HVDC *EPPNAR )
SALoad-j  [ i 1 m
] * MQ Load-j
 Load-j
MQ
j=1

Where:

AP = Administered Price
SA = Settlement Amount
D = number of historical trading days to be considered
n = number of generator resources with positive meter
quantity
m = number of load resources with negative meter quantity
i = Generator resources
j = Load resources
MQ = Meter Quantity
EPPNAR = Ex-Post Price of Non-Administered Region

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