DoE to assume 'vast powers' in WESM’s independent market operation

Manila Bulletin
By MYRNA M. VELASCO
January 5, 2012, 3:09am


MANILA, Philippines — With the much-anticipated institutionalization of an independent market operator (IMO) that shall oversee the Wholesale Electricity Spot Market (WESM), the Department of Energy (DoE) will assume vast powers in the approval of market rule changes and in the appointment of board memberships.


The current operation of the WESM under Philippine Electricity Market Corporation (PEMC) is government-sanctioned via the supervision of the energy department. A two-year transition to IMO structure has been proposed, but Energy Secretary Rene Almendras prefers a shorter one.


In the IMO governance and structure drawn up by the Asian Development Bank (ADB) consultants, it has been emphasized that the DoE will have “the final approval decision with regard to rule change proposals” that will be recommended by the WESM’s market committee.


“It is envisaged that the DoE will be given the authority and discretion to request the IMO Board to reconsider proposals that are rejected by the IMO Board on its own account or if the Market Committee makes a request to the DoE for it to reconsider rejected proposals provided that the DoE considers the request is reasonable and satisfies the overall objectives of the WESM,” the IMO-consultant report has noted.


The recommended IMO model will be a two-tiered governance structure, entailing that aside from overseeing market operations via the established Board, it will also exercise powers in the approval of market rules.


“The IMO structure is designed to employ a two-tiered governance model to assure that it operates neutrally and independently in managing the electricity grid and markets,” the report added. Nevertheless, the management of “electricity grid” being set as a function of the IMO may trigger some conflicts because system operation is currently placed under the charge of the National Grid Corporation of the Philippines.


And while there are proposals to appoint an independent system operator (ISO), the parameters have not been defined yet as to which entity shall assume that.


In the appointment of the five-member IMO Board for the WESM, the energy department will also be playing a crucial role, including in the screening of the candidates for the initial batch. Onward, the DoE will still be choosing at least two of the board’s membership.


As proposed, those to be named in the IMO board shall not have affiliations with company-members of the WESM two years before and after their appointments to the body.


The President of the IMO, which shall also be serving as the Executive Director, will be installed as automatic member of the Board. The four others will go through the selection processes of the DoE and the WESM’s market committee.


“The DoE will select the initial member of the IMO Board … there will be at least five members on the Board, including the President as a permanent member. Of the four non-permanent members, one member rolls off each year. Thus, on an annual basis, there would be one new Board member,” the IMO report stressed.


Qualifications-wise, it has been stipulated that at least two members of the IMO Board shall have “expertise and experience in corporate leadership at the senior management or board of directors’ level, or in the professional disciplines of finance, accounting, engineering or utility laws and regulation.”