ERC adopts new rules on ancillary services procurement

The Energy Regulatory Commission (ERC) has released draft guidelines for the procurement, execution and evaluation of ancillary services procurement agreements (ASPAs) for the system operator.

“There were no specific rules for the ASPA review,” ERC chairperson Francis Saturnino Juan said.

“Now, we will adopt one that is aligned with the Department of Energy’s ancillary services procurement [ASP] competitive selection process [CSP] policy,” he said.

Ancillary services are those needed to support the transmission of capacity and energy from resources to loads while maintaining the reliable operation of the transmission system.

Under the draft guidelines, the lowest calculated bid will be subject to an AS price cap set by the system operator, the National Grid Corp. of the Philippines (NGCP).

The AS price cap, or the maximum price offer per kilowatt-hour, will not be disclosed to bidders until bids are opened. This is intended to ensure the system operator procures cost-effective and least-cost ancillary services.

The ERC said that in setting the cap, the system operator will consider, among other things, the actual and forecasted clearing prices in the reserve market for the specific reserve facility category.

Juan said the AS price cap is expected to “heighten competition among participants and discourage collusion among them to jack up their price offers.”

The ERC said all ASPAs are subject to its approval before implementation. The agreements will have a maximum term of five years, starting from the commencement of supply.

The commission said no cost recovery would be allowed for any ASPAs that are implemented but never filed with the ERC.

Any ASPA resulting from an AS CSP or direct negotiation will be reviewed to determine if it was conducted in accordance with the DOE’s AS CSP Policy and the new regulatory guidelines.

“In the event that the AS CSP or direct negotiation is found to be noncompliant with the DOE AS CSP Policy and these Guidelines, the application for the approval of the ASPA shall be dismissed forthwith,” the ERC said.

If a compliant ASPA results from a competitive selection process, the lowest bid will be deemed approved, and the ERC will review the non-rate-related terms and conditions.

For ASPAs resulting from direct negotiation, the regulator will review the reasonableness of costs, risk allocation and other terms to ensure the system operator’s compliance with its obligation to procure cost-effective and least-cost ancillary services.

To ensure a fair and transparent process, a third-party bids and awards committee will open the procurement proceedings and issue invitations to the DOE, ERC, National Electrification Administration and interested stakeholders.