As surging costs of ancillary services or power reserves had been pointed to as culprit in electricity rate hikes, the Energy Regulatory Commission (ERC) has directed ‘settlement and billing suspension’ for the reserve market for the March billing period.

The stoppage of reserve market settlement had been ordered on the Independent Electricity Market Operator of the Philippines (IEMOP), the entity overseeing the capacity trading for both energy and reserves in the Wholesale Electricity Spot Market (WESM).

“The suspension shall cover the March 2024 billing period and will be in place until the Commission finalizes its evaluation of the PDM (price determination methodology) used by IEMOP, likely in May 2024,” the ERC stated.

As of March 21 this year, the WESM operator reported significant price increases in reserve costs for March compared to last month - and that is generally expected to drive up electricity rates to be billed to consumers.

With the temporary deferment of reserves market settlement and billing, consumers will feel temporary relief in not shouldering that cost component in the forthcoming billing cycle – but that is more of delaying the bad news because these costs will still show up in the electric bills when pass-on is already allowed by the industry regulator.

ERC Chairperson Monalisa Dimalanta admitted that “there are issues arising from the implementation of the system (reserve market) as currently designed that puts to question the resulting rates.”

The ERC chief thus stipulated that they are “strictly requiring PEMC and IEMOP to submit the audit results of the software so we can identify and address these issues and immediately resume normal operations of the market.” PEMC is the governing body for the WESM.

In particular, the PDM fleshes out the dispatch schedules as well as locational marginal prices of traded capacities based on the Market Dispatch Optimization Model (MDOM) being enforced in the spot market.

The interim relief for the PDM governing the reserve market was approved by the power industry regulator in August last year.

In a co-optimized market, the WESM draws both the optimal dispatch schedules and prices for both energy and reserves – factoring in key consideration on security constrained economic dispatch (SCED) process, as set forth in the WESM rules.

The ERC expounded that it will need to “assess the outcome of the then-ongoing trial operations program (TOP) for the reserve market,” primarily stressing the importance of an audit to be undertaken on the PDM.

Such evaluation, according to the ERC, must include findings and recommendations from PEMC and IEMOP “for the final evaluation and eventual approval of the proposed software for running the co-optimized market.”

The full commercial operation of the reserve market as a separate trading layer in the WESM kicked off in January 26 this year, and that had been anchored on an advisory formally issued by the Department of Energy.

Following that, the ERC has mandated both PEMC and IEMOP since last month “to submit additional compliances, including the results of the software audit for the system for billing and settlement and the systems for the management of the reserve market.