By Myrna M.Velasco
Via its proposed Circular, the Department of Energy (DOE) is amending the ‘prudential requirement’ that a trading participant in the Wholesale Electricity Spot Market (WESM) must post to cover its traded energy in case there shall be default on payments.
A prudential requirement takes the form of a “security deposit” that a WESM participant must post or submit to the operator of the spot market – and this amount must be called upon in case the trading participant fails in paying its obligations.
As propounded, the WESM operator – which in this case is the Independent Electricity Market Operator of the Philippines (IEMOP) – “shall determine the initial prudential requirements of a new WESM member corresponding to the projected maximum exposure of the new WESM member.”
This shall be calculated as “the average of the projected settlement amount of each complete billing period,” as prescribed in the Market Manual as well as by the WESM rules.
It has been set forth that “prior to the end of each financial year, the market operator shall determine and provide written confirmation to each WESM member of its maximum exposure to the market operator in respect of a billing period in the following financial year.”
As stipulated in the market manual, the amount of security to be provided by each WESM member “shall be equivalent to the maximum exposure.”
And if there is a change in the bilateral contract of a WESM member, “the maximum exposure shall be computed based on the settlement amounts estimated by the market operator using the average actual market price,” that shall be reckoned on the billing period of 26th March to 25th September of a particular year.
It has been explained that “the average actual market price shall refer to the ratio of the total spot market payment of a WESM member,” which may include spot market energy and reserve transactions as well as the total metered quantities net of bilateral contract quantities for each billing month.
To arrive at the amount of the prudential requirement that a WESM trading participant must comply with, the spot market member “shall submit to the Market Operator its assumptions for determining its projected gross ex-post energy settlement quantities.”
The DOE Circular further stipulated that “the market operator may require the WESM member to submit supporting documents if necessary.”
IEMOP is similarly required to assist WESM trading participants “in determining the projected gross ex-post energy settlement quantities.” Ex-post quantities would refer to the actual volume of energy that had been traded in the spot market.