SEC regulation sought on WESM’s 'forward market'

Published May 4, 2022, 3:32 PM

by Myrna M. Velasco

A definitive regulation is being sought from the Securities and Exchange Commission (SEC) for the proposed “forward market’” to be instituted in the country’s Wholesale Electricity Spot Market (WESM).

The Independent Electricity Market Operator of the Philippines (IEMOP), which is the operating entity of the WESM, emphasized that “currently, we’re in talks with the SEC on the legalities of operating a forward market in the Philippines.”

A forward market typically sets the price of financial instruments or assets that are still slated for future deliveries. Under WESM’s plan, part of the forward market will be offer of forward or futures contract for part of energy volumes to be traded in the spot market.

According to IEMOP, one feature being proposed is “contract for differences” (CFDs), a type of contract which will allow the buyer to pay the seller the price difference between the current value of the asset or financial instrument to its actual value when the contract is consummated.

“As per our last discussion with the SEC, they don’t have the rules yet for trading of CFDs in the Philippines, so currently it’s a prerequisite for us to push for the forward market,” IEMOP said.

At this stage, IEMOP indicated that there are already internal developments pursued on WESM’s journey into having a forward market , initially packaged via its self-designed electricity forward alternative trading system (EFATS).

The market operator stated they are going to adjust depending on the regulation that will be put in place by the SEC “that will eventually depend on the design of the forward market.”

IEMOP further noted that the possible market-templates for the forward contracting at the WESM could be the energy markets of Australia and the United States, albeit, it noted that there are some disparities in market features also that need to be factored in.

“The implementation varies depending on the jurisdiction. So that will depend on the SEC as to which one shall be adopted for the Philippines,” the spot market operator stressed.

Apart from establishing a “forward market” in the WESM, IEMOP Chief Operating Officer Robinson P. Descanzo said they are studying ‘blockchain trading of electricity, as eventual feature of the domestic spot market.

Through blockchain-enabled or digitally revolutionalized peer-to-peer (P2P) energy trading, the so-called prosumers or the end-users generating their own power supply can already sell their surplus electricity generation to other consumers.