The Market Testing of Power Supply Agreements: Rationale and Design Evolution in the Philippines

This resolution, however, remained unsigned and was eventually superseded by DOE Circular No. DC2015-06-0008, signed on June 11, 2015. The circular mandated all DUs to undergo the CSP when securing Power Supply Agreements (PSAs). The CSP aims to address several market failures, including connected dealings with proprietary GENCOS, lack of incentives for DUs to procure at the lowest cost, and abuse of market power by large GENCOS in certain localities. The principal features of the DOE Circular No. DC2015-06-0008 include the mandatory auction of un-contracted demand of small DUs, mandatory participation of DUs in the auction, and the use of one PSA contract template for auctions. The Enabling Power Industry Reform Act (EPIRA) of 2001 supports the DOE circular. EPIRA aimed to completely open the power sector to market forces, privatize NPC assets, and introduce retail competition. The power industry structure envisioned by EPIRA is partially unbundled, with generation as a competitive sector. The generation charge constitutes an average of 48% of the total charge per kilowatt to consumers. An example of the power purchase profile and generation cost breakdown is that of the Manila Electric Company (Meralco) for April 2015. The principal features of the power purchase profile include the dispatch of power from various power plants, including SEM-Calaca, Masinloc, and Therma Luzon. The generation charge for captive customers is computed based on the power purchase profile and generation cost breakdown. The Wholesale Electricity Spot Market (WESM) is another source of power supply for Meralco. The WESM is a spot market for power, where power is traded at the prevailing market price. The generation charge for captive customers also includes other charges, such as pilferage recovery, compensation for deloaded kWhs, and high load rider. The generation charge for captive customers is adjusted based on the load factor and plant availability. The power industry structure post-EPIRA is characterized by a partially unbundled industry, with generation as a competitive sector. The industry is regulated by the Energy Regulatory Commission (ERC), which ensures that the industry operates in a fair and efficient manner. The CSP aims to address several market failures and promote competition in the power sector. The CSP is a key component of the DOE circular, which aims to promote competition and promote competition in the power sector.