Customer Bulletin 2024-14

ANCILLARY SERVICES (AS) RATES FOR FEBRUARY 2024 BILLING PERIOD

1. General Statement. AS Rates for the February 2024 Billing Period have increased from the
January 2024 Billing Period following the full commercial operations of the Reserve Market on 26
January 2024.

2. Chronology of Events. In March 2021, Department of Energy (DOE) issued Department Circular
No. DC2021-03-0009, entitled, “Adopting a General Framework Governing the Operationalization
of the Reserve Market in the Wholesale Electricity Spot Market and Providing Further Policies to
Supplement DC2019-12-0018”, which provides, among others, the following.

a. Section 3.5: The SO shall be the single buyer for AS requirements and shall be
accountable in ensuring adequate procurement of AS through combination of ASPAs and
Reserve Market procurement.

b. Section 7.4: The SO shall be responsible for the collection of payments from the
electric power industry participants in accordance with the AS Cost Recovery Mechanism
(AS-CRM) as approved by the ERC.

c. Section 8.1: The MO shall net out the contracted reserves from the total reserve quantity
scheduled and bill the total spot reserve trading amount to the SO as the single buyer.

d. Section 8.2: The SO shall remit the total spot reserve trading amount to the MO within
the deadline set.

e. Section 11.3: Monitor compliance and conformance of ASPs with the schedule and
dispatch instructions for energy and reserves issued by the MO and SO,
respectively, and submit a monthly report on the same to the DOE and ERC.
(Responsibilities of the WESM Governance Arm)

In September 2023, DOE issued Department Circular No. DC2023-09-0026, entitled, “Declaring
the Commercial Operations of the Reserve Market and Providing Further Policies”, which
provides, among others, the following:

a. Section 1.1 Final Preparations Stage

The MO is mandated to conduct the Final Preparations Stage and the Limited Live
Dispatch Operations of the Reserve Market immediately after the effectivity of this Circular
until 25 December 2023, unless otherwise lifted for full commercial operations. During this
period, the MO shall conduct live parallel operations involving end-to-end testing among
the MO, SO, and registered AS Providers using a non-production system, thus
transactions shall not be binding for purposes of settlement. xxx
 b. Section 1.2 Full Commercial Operations Date

Starting 26 December 2023 or such earlier date as may be declared under Section
1.1, the MO shall implement the full commercial operation of the Reserve Market
wherein the co-optimized energy and reserve schedules, including their associated
prices generated by the Market Dispatch Optimization Model shall be financially
binding. xxx

On 22 December 2023, few days prior to the scheduled commercial operation of the Reserve
Market as per Department Circular No. DC2023-09-0026, DOE issued an Advisory for the
continuation of the preparatory activities for the commercial operations of the Reserve Market.
The said Advisory provided that the final preparations for the commercial operations have been
substantially completed. However, the WESM Governance Arm (GA) is yet to issue the
corresponding certification pending the software certification by the Independent Auditor and the
ERC is still reviewing the simulations on additional constraints submitted by IEMOP for the
approval of the Price Determination Methodology (PDM). Hence, the MO, SO, and all Trading
Participants were directed to continue the final preparatory activities in accordance with the
Operating Procedures for the Central Scheduling and Dispatch of Contracted Ancillary Services
and shall continue the same until the full commercial operations of the Reserve Market to be
declared by the DOE.

On 25 January 2024, DOE issued an Advisory 2024-01-001-SEC declaring the start of the full
commercial operations of the Reserve Market at dispatch interval 0005H of 26 January 2024.
Such Advisory provides, among others, the following:

a. The RM shall adopt the Interim Relief for the PDM for the full commercial operations of
the Reserve Market until the final approval by the ERC of the said PDM;

b. All stakeholders shall comply with the Supplemental Operating Guidelines for the
Commercial Operations of the Reserve Market;

c. The Supplemental Guidelines on the Submission of Offers with Mode of Operations shall
be effective only until the MMS Scheduling Enhancements are integrated into the Reserve
Markets Commercial Operations;

d. The Guidelines on the Interim Monitoring and Reporting of Non-Compliance to Timely and
Accurate Provision of AS shall be effective only until the approval of the WESM Manual
on AS Monitoring; and

e. The GA and the MO shall temporarily implement the PhP32,000/MWh Offer Price
Cap and PhP0/MWh Offer Price Floor until the ERC’s promulgation of a new Offer
Price Cap/Floor applicable for the RM.

On 30 January 2024, DOE issued an Advisory 2024-01-002-SEC directing the MO and the GA to
immediately implement an Interim Pricing Guidelines for Reserves following the MO’s
observation on the significantly high prices for Regulation Down during the first few days
of the implementation of the Reserve Market.

Attached are the copies of the DOE Department Circulars and Advisories.
3. Ancillary Services Cost. As provided in the DOE Department Circular No. DC2021-03-0009,
entitled, “Adopting a General Framework Governing the Operationalization of the Reserve Market
in the Wholesale Electricity Spot Market and Providing Further Policies to Supplement DC2019-
12-0018” , the costs of AS sourced from the Market shall be collected by NGCP from the electric
power industry participants in accordance with the ERC-approved Ancillary Services Cost
Recovery Mechanism (AS-CRM). Corollary, NGCP has incorporated in its computation of AS
Rates for February 2024 Billing Period the costs of Regulation Up/Regulation Down (Regulating
Reserve), Fast Contingency Raise (Contingency Reserve), and Delayed Contingency Raise
(Dispatchable Reserve) sourced from the Market, on top of the AS contracted by NGCP through
the ASPA.

The graphs below show the cost of AS procured under ASPA and those that were sourced from
the Market (based on the Preliminary Billing Statement from IEMOP), in PhP, for the February
2024 Billing Period:

Notably is the huge difference in the Contingency Reserve between the costs under ASPA
vs ASRM, i.e., PhP2.16Bn (862.95% higher), PhP137.85Mn (185.98% higher), and
PhP62.71Mn (130.88% higher) for Luzon, Visayas, and Mindanao, respectively.

4. Reserve Quantity and Average Price. From the February 2024 IEMOP Preliminary Statement
issued to NGCP, the following are the Spot Reserve Quantity, in MWh and the computed average
ASRM Price, in PhP/kWh, for the February 2024 Billing Period:
The graphs above show a high volume of Spot Reserve Quantity in Contingency Reserve
with an average ASRM Price of PhP11.84/kWh, PhP14.55/kWh, and PhP3.38/kWh for the
Luzon, Visayas, and Mindanao Grids, respectively.

On the other hand, the following are the scheduled Capacity, in MWh, and the computed average
AS Price, in PhP/kWh, for the February 2024 Billing Period procured under ASPA:
 For comparison with the Contingency Reserve Average Price, the Contingency Reserve
under ASPA is at PhP1.54/kWh, PhP1.46/kWh, and PhP1.31/kWh for Luzon, Visayas, and
Mindanao, respectively. ASPA prices are significantly lower than that of the prices under
the Reserve Market.

5. Ancillary Services Rates. The AS Rates for the February 2024 Billing Period have increased
from the January 2024 Billing Period following the full commercial operations of the Reserve
Market on 26 January 2024.

The graphs below show the January 2024 vs February 2024 Billing Period AS Rates in PhP/kW-
month:

With the high amount of Contingency Reserve in the Market, significant increase in
Contingency Reserve Rates were passed-on to the Transmission Customers, i.e, Luzon -
508.92%, Visayas - 320.28%, and Mindanao - 173.95%.

AS is a pass-through charge and NGCP does not derive any earnings or compensation
from AS transactions as these are revenue of the generators providing AS, whether this
be procured through contracting or through the RM.

6. Average Transmission and AS Rates for January and February 2024 Billing Period.
Following the first month of implementation of the RM, AS rates significantly increased and now
dominantly comprises the average transmission rates billed to Transmission Customers at 54%
based on the Philippine average for February 2024.

From the previous share of AS in January 2024 of 31.5% which translates to about
PhP0.2555/kWh (equivalent), AS rates has now gone up to about PhP0.6468/kWh
(equivalent) or 51.96% which already exceeded the average rate translation of the level of
 charges that NGCP bills based on the revenue levels approved by the ERC for its own
recovery.

For Luzon, Visayas and Mindanao, AS rates now comprise 54.7%, 58.7% and 43.7% of the
Transmission Customers’ average transmission charges, respectively.

Average Transmission and AS Rates for January 2024 Billing Period, PhP/kWh

Average Transmission and AS Rates for February 2024 Billing Period, PhP/kWh

This Customer Bulletin was prepared by the Revenue Management Department (RevMD) of the Revenue and Regulatory Affairs
(RRA). For any questions/inquiries, you may send an email to gtpena@ngcp.ph