ERC blamed for absence of cost recovery mechanism for reserves

MANILA, Philippines - The operator of the country’s wholesale electricity spot market is pinning the blame on the Energy Regulatory Commission (ERC) for the absence of a cost recovery mechanism for reserves.

In a statement, the Philippine Electricity Market Corp. (PEMC) said the ERC has not acted on a request for the phase-in implementation of WESM pricing and cost recovery mechanism for reserves June 2009.

PEMC proposed the phased-in implementation of the WESM Reserve Market in two phases: the first phase for the initial operations of the reserve market and the second phase for its operational enhancements.

PEMC’s proposed phased-in approach aims to ensure a smoother transition by introducing less change and allowing for an evaluation of the proposed enhancements using the experiences and live data of an operational reserve market.

With an effortless transition from the current arrangement into the Reserve Market, the degree of acceptability by the Market Participants will be favorable.

“This was PEMC’s way of anticipating the ERC’s concerns about accomplishing the ancillary market as well as ensuring that with the two phases of implementation, we are able to slowly but surely effectuate the reserve market by concentrating on specific areas at a time,” PEMC executive vice president Mario R. Pangilinan said.

The ERC issued an order on July 2008 for the adoption of the reserve market along with 27 detailed directives for PEMC to comply with that which were not in the original application of PEMC in January 2007.

These are: to implement the ex-ante partial effectiveness factors to allow broader competition in reserve market categories; realign the specification of reserve services to create a fast contingency service; introduce and implement new lower reserve service; introduce interruptible load (ILD) as a fully functioning reserve service; implement an interim arrangement for the ILD; ensure appropriate changes are introduced in the Grid Code; document procedures of the saystem operator; develop measures to mitigate market power; plan for future enhancements; and develop interim plans.

“We at PEMC have complied with most of the directives provided in the ERC’s order. This, despite the fact that they were not in our original application. However, the technical study that should be jointly undertaken by the system operator and the market operator has yet to be accomplished,” PEMC president Melinda L. Ocampo said.