Asia Pacific Journal of Multidisciplinary Research

P-ISSN 2350-7756 | E-ISSN 2350-8442 | www.apjmr.com | Volume 2, No. 4, August 2014

__________________________________________________________________________________________________________________
14


Performance of Batangas II Electric Cooperative, Inc.
(Batelec II) in the Wholesale Electricity Spot Market

1
IAN JIM SANTOS LAQUI,
2
IMELDA L. AN
1
WESM Data Analyst, Batelec II, Batangas, Master in Business Administration, Graduate School, Lyceum of the
Philippines University, Batangas City
2
Dean, College of Education, Arts and Sciences, Lyceum of the Philippines University, Batangas City,
PHILIPPINES
1
[email protected]

Date Received: June 20, 2014; Date Published August 15, 2014

Abstract - In the face of electricity reformation, every electric cooperative needs a stable operation. The
operational stability of participation in the Power Industry reformation such as Wholesale Electricity Spot
Market (WESM) depends on the performance of any electricity provider and management of the problems
they encountered in new environment. The study aimed to determine the level of performance of Batelec II,
which will serve as basis of enhancing the energy trading transaction of Batelec II. Furthermore, it also
assesses to identify the problems encountered on the WESM to arrive at a specific action plan. The
descriptive method was utilized in the conduct of the study.
The study revealed that Batelec II distribute an uninterruptible flow of electricity among its member-
consumers. It also manifest that the price of electricity it serve were competitive enough. This was
due to the effort and strategy of Batelec IIs trading team. As part also of efficiency of the performance
of Batelec II, they manage to respond to the line trouble quickly. This gives Batelec II a good rating in terms
of operations and maintenance. It is noted that problems in the said matter was identified. These were the
transmission failure, generation facility outages and change in law. This aspect makes the electricity price
go high. In response to the problems identified, the researcher proposed an action plan for the board
directors and top management of Batelec II for implementation.

Keywords- Batelec II, Electric Company, Wholesale Electricity Spot Market

I. INTRODUCTION
Batangas II Electric Cooperative, Inc. (BATELEC
II) was organized and registered with NEA with a
primary purpose of providing electrical service to both
urban and rural areas. The Rural Electrification
Program has not faltered in serving people and
communities in far-flung areas and mountainous
regions. Hence, BATELEC IIs operation is not focused
solely on technical improvement. Relationship with the
member-consumers is likewise one of its primary
concerns. From being one of the distressed category D
in 2003, through the Cooperatives commitment and
determination, BATELEC II was classified as extra
large Electric Cooperative and categorized as Class A
Cooperative (www.batelec2.com.ph).
The experience in many countries makes it fairly
clear that successful implementation of liberalization
reforms is not easy and that there is a risk that costly
performance problems may merge when the
transformation is implemented incompletely or
incorrectly. California is a textbook case of reforms
gone badly, though it is not at all clear that the right
lessons have been learned from their experience.
Wholesale market with good performance attributes
have been slow to emerge in some countries. Even in
England and Wales, major changes were made in the
design of the wholesale market in 2001 (The Energy
Journal).
Similarly, Pita (2010) stressed out different
parameters that describe the performance level of
Batelec IIs efficiency. The paper indicates that there
are different levels of scores between the unit or branch
offices of Batelec II. Thus, it recommends that Batelec
II should reduce its labor force to attain more efficient
Asia Pacific Journal of Multidisciplinary Research | Vol. 2, No. 4| August 2014
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outcome. This study was made in the year 2010 using
2000 to 2008 data, the period where Batelec II is not yet
directly participating in the Wholesale Electricity Spot
Market (WESM). As part of performance enhancing
mechanism, the researcher conducted similar study with
different performance measures.
The researcher being the WESM Data
Analyst/Energy Trader handling the WESM operations
at Batelec II, considers this requirement as an excellent
venue to explore and discover expertise to have a better
understanding of energy trading in the Philippines, the
impact on market participants especially to the electric
cooperatives particularly Batelec II. This will also serve
as an eye-opener to fellow Batangueos especially
Lycean people to be well-verse in the power industry
evolution in the country.

II. OBJECTIVES OF THE STUDY
The study aimed to determine the overall
performance of Batelec II. Specifically, it has the
following objectives: to assess the performance of
Batelec II in participation to WESM; to identify
different problems encountered on WESM and to
propose a plan of action to enhance the performance of
Batelec II in the WESM.

III. REVIEW OF LITERATURE
Electric systems around the world are physically
and operationally very similar. The physical functions
of the industry are generation (production), system
operations, transmission, and distribution. The merchant
functions are wholesaling and retailing. Transmission
and distribution are transport functions the
transmission wires are networked and serve large areas;
the distribution wires are local. The typical organization
of the industry prior to deregulation was vertically
integrated companies, incorporating all these functions.
According to Oguz (2010), a fundamental question
facing the regulatory and competition authorities is
whether to delegate competition policy issues of utilities
to regulatory agencies or competition authorities.
While, some countries prefer 'light handed regulation'
by competition authorities, others grant substantial
power to independent regulatory agencies. Turkey
followed the liberalization wave in electricity with a
regulatory reform in 2001.
Goksu (2010) observed that Turkey is still highly
dependent on foreign energy resources and the supply
of electricity is still not sufficient to meet current
demand. Therefore, attracting local and foreign
investments is vital in order to ensure supply security
and establish a competitive and transparent market in
the future.
In the USA, deregulation of the electric power
sector started with Public Utility Regulatory Policies
Act in 1978. This act facilitated the creation of new
electric power generators called Non-Utility Generators,
which were not considered electric power generation
utilities. The existing electric power utilities were put
under an obligation to purchase excess electricity from
renewable energy businesses and cogeneration
businesses. Federal regulations and directives such as
EPAct (Energy Policy Act) and FERC Order No. 2000
promoted the development and liberalization of the
electricity wholesale sector. In 1997, liberalization of
the retail sector was undertaken by each state. Several
states have now introduced retail choice for the
consumer and many regions have established
independent system operators or ISOs (Nagayama,
2006).
The electric power industry in many countries all
over the world is moving from a centralized operational
approach to a competitive one. For instance in Iran,
generating companies (GENCOs) submit generation
bids and their corresponding bidding prices, and
distribution companies (DISCOs) do the same with
consumption bids. The market operator (MO) uses a
market-clearing tool to clear the market. This tool is
normally based on single-round auctions. The pricing
mechanism is an important issue, in the electricity
markets. It can be either uniform pricing (UP) or pay-
as-bid (PAB) pricing. In these markets, the maximum
accepted bid block sets the market-clearing price
(MCP). Under the UP structure, MCP is paid to every
winning block. In the PAB structure, every winning
block gets its bid price as its income.
Therefore, proper bidding strategy is critical in
profit maximizing in the electricity markets and so the
bid blocks should be generated regarding the market
price indices. Usually, there is limited information
about market indices. Therefore, producers and
consumers rely on price forecast information to prepare
their corresponding bidding strategies. If a
producer/consumer has a good forecast of next-day
MCP's, it can establish a bidding technique to achieve
its maximum benefit. This requirement is highlighted
more as the exchanged energy in the market
experiences hourly, daily and seasonal oscillations
which are related to calendar, climate and other reasons
such as petrol cost. This property and the required
balance between generation and load cause volatility
and even spikes in electricity price. The nature of this
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volatility is directly related to the degree of
predictability of the price and is the main reason of lack
of accuracy in price forecasting as well (Bigdeli &
Afshar, 2008).
In the Philippines, same nature of energy trading
transaction with regards to GENCOs is implemented
(demand bidding). However, with regards to DISCOs
like Batelec II and Meralco, demand bidding is absent.
DISCOs trade in the marketplace by submission of
Bilateral Contract Quantity (BCQ) Nomination to its
bilateral supplier (GENCOs). Their power suppliers
(GENCOs) are the one declaring its BCQ Nomination
to the market operator (WESM). BCQ Nomination is
the amount of energy a certain DISCOs require to its
bilateral power supplier. It is expressed in kilowatt-hour
(kwhr). Of course, this Bilateral Contract incurs cost.
This could be settled by DISCOs to its supplier by
means of bilateral contract price. Bilateral contract price
is expressed as peso per kilo watt hour (php/kwhr). By
principle, any shortage of BCQ Nomination nominated
by Batelec II to its power supplier (BGI-Bac-Man
Geothermal Inc.) will be automatically source out
(WESM Purchase) from the WESM. Shortage in BCQ
can be determined if the Metered Quantity (MQ) is
higher than the BCQ. Metered Quantity is the amount
of energy that can be read in the DISCOs metering
point. It is expressed also kilowatt-hour (kwhr). Any
excess of BCQ Nomination will be automatically sold
(WESM Sales) to the WESM. When we net out the
WESM intake and injection of energy in the WESM it
is termed as the Total Trading Amount. Thus: If BCQ >
MQ: WESM Sales; If BCQ < MQ: WESM Purchase
(WESM Rules Market Manuals, 2006).
In the last twenty years, a large number of
developed and developing countries have introduced
major electricity sector reforms which have altered
significantly the sectors market structure and
institutional framework. Although the approaches to
reform have varied across countries, the main objective
has been to improve the economic efficiency and
growth of the sector by introducing private capital,
liberalizing markets and introducing new regulatory
institutions. In developing countries, the driving force
of reform was the persistently poor economic and
financial performance of the publicly owned electricity
utilities, which governments and international donors,
such as the World Bank, were no longer able or willing
to support.
In the paper of Da Silva (2006), under the
deregulated framework of the electricity industry, the
activity of providing transmission service has been
considered as a regulated monopoly. When transmission
service is offered separately from the system operation,
regulatory agencies usually define a basic payment for
each transmission facility, which is defined by means of
using performance indexes that will ultimately establish
the value paid for the service. A possible approach to
promote the maximization of each transmission
facility's availability is to reduce the payment to the
transmission provider whenever specific outages occur.
Finger (2007) states that Risk evaluation and
strategic choice has become very complex for power
providers, because of the growing number of uncertain
parameters involved, such as energy market prices,
water inflow, and demand. The lack of information and
the absence of the decision maker's perception are just
some of the many elements that must be accounted for.
In a simultaneous study, Estache et al. (2008) proved
that the combination of labour and capital in South
Africa has not been used more effectively to generate
increased electricity, while the technological
opportunities have been better utilized to increase the
volume of electricity generated, thus reaching more
customers and improving sales significantly over a 6-
year period.
Nakano and Managi (2007) conducted a study in
Japan which presented a positive effect of regulatory
reforms on productivity. Productivity growth was a
fundamental source of improvement of economic
welfare and there has been a keen interest in correctly
analyzing productivity, especially total factor
productivity (TFP). Companies which have the ability
to shift frontier upwards have the possibility of
receiving greater benefit from regulatory reforms.
Furthermore, Hess and Cullman (2007) focused
their studies on the robustness of structural difference of
technical efficiency scores between East German and
West German electricity distribution companies.
Results of all Data Envelopment Analysis (DEA) model
specifications showed variability in the Technical
Efficiency (TE) levels apart from a robust efficiency
gap under return to scale (CRS) Technology. In the
variable returns to scale (VRS) case, the outcome looks
different: The separate treatment of aerial lines and
cables leads to a reduction and additional consideration
of various customer services, even showing that the
West German distribution system operators (DSOs) are
more efficient.
In Hunt (2002), Performance-based ratemaking
(PBR) for Distcos or electric cooperatives in general is
a good idea because it provides incentives for those who
expand, operate, and maintain the distribution system to
Asia Pacific Journal of Multidisciplinary Research | Vol. 2, No. 4| August 2014
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increase efficiency (and their profits). Based from the
paper of Wang (2008), there have been significant
expansions of the wholesale electricity market where a
utility can sell its excess power day-ahead or real-time.
In spite of these expectations, traders still in practice
make often subjective and haphazard trading decisions
based on their experiences and intuitions on profits and
financial risks. In the article of Abbott (2010), one of
the most important reforms was the restructuring of
the electricity industry.
While study of Gianfreda (2012) says that, in the
last few years it was observed the deregulation
in electricity markets and an increasing interest in price
dynamics had been developed especially to consider all
stylized facts shown by spot prices. Only few papers
have considered the Italian Electricity Spot market since
it has been deregulated recently.
Based from Jocko (2006), market power is a
significant potential problem in electricity markets, but
the cure can be worse than the disease, trying to deal
with potential market power structurally ex ante rather
than ex post. The potential for market power to be a
particularly severe potential problem in electricity
markets was recognized many years ago and was
reinforced as the reforms in the UK were implemented
in 1990 and those in California in 1998. Generator
market power was a serious problem for several years
following the launch of the privatization, restructuring
and competition program in the UK.
Another problem identified was discussed in the
paper of Toba (2007), the crisis followed the
Governments substantial steps to strengthen National
Power Corporation both operationally and financially.
Moreover, because its existing capacity was considered
sufficient to meet projected increases in demand
through to about 1991, although NPC did have
sufficient lead time to implement least cost additions to
its generating capacity; it did not make use of the time
to invest in new capacity.
Also, in the paper presented by Mendoza (2008),
she implies some issues and concerns related to WESM
and industry reforms. She stated that these may enable
consumers to choose their electricity supplier,
distributor, or generator and reduce the number in the
captive market. However, unlike telephones, for
example, electricity cannot be held and stored, or
considered a unit. The spot market may introduce
competition as more players may participate in the
buying and selling of electricity.
Furthermore, Oggioni and Smeers (2012) stated on
their study that cross-border trade remains a contentious
issue in the restructuring of the European electricity
market. Their paper analyzes the cross-border trade
problem through a set of models that represent different
degrees of coordination both between the energy and
the transmission markets and among national
Transmission System Operators (TSOs). Institutional
difficulties related to congestion management in Europe
have been particularly acute and long lasting. They
concentrate on the organization of cross-border trade
among Member States, a problem that stakeholders
have now been discussing since 1998.

III. METHOD

Research Design
The study used a descriptive method to measure the
efficiency performance of Batangas II Electric
Cooperative, Inc. (BATELEC II) in the participation in
the WESM. Descriptive research is concerned with the
description of data and characteristics about a
population. The goal is the acquisition of factual,
accurate and systematic data that can be used in
averages, frequencies and similar statistical
calculations.

Participants
The respondents of the study are the contestable
market customers of Batelec II and its captive market
customers. Contestable market customer means
customer of Batelec II who has a twelve (12) months
average demand of one (1) mega-watt. Technically,
there are nine (9) contestable customers of Batelec II.
These are Nestle, Ingasco, SM City Lipa, Robinsons
Place Lipa, PKI, Walter Mart, CDO, San Miguel
Purefoods and PLBSC. On the other hand, captive
market customer pertains to below one (1) mega-watt of
demand. For the captive market customers, the
proposed participants are 50 residential customers at the
2 cities of Lipa and Tanauan plus 2 municipalities of
Malvar and San Jose, Batangas. This would constitute
200 residential customers as participants of the study.
These areas are selected among the franchise areas of
Batelec II because these are the locations as well of
their contestable market customers are located.
In addition, from the total population of residential
communal of 90,711 from the four area of Tanauan,
Malvar, San Jose and Lipa, a total of 208 were the
sample of the study using 7 percent margin of error. The
respondents are selected at random and chosen using
stratified proportional allocation.

Asia Pacific Journal of Multidisciplinary Research | Vol. 2, No. 4| August 2014
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Instrument
The researcher used a questionnaire primarily to
collect responses and/or vital information from the
member consumers satisfaction on BATELEC II
electricity service, electricity rates and choice of
electricity supplier. The questionnaire was prepared and
modified by the researcher patterned from the Key
Performance Indicator (KPI) set by the National
Electrification Administration (NEA) as a standard for
all the electric cooperatives in the country.
For the purpose of data validation, the researcher
conducted validation of the questionnaire by securing a
reaction position of the researchers immediate division
head. Attached herewith is the documented paper for
reference.
In addition to the foregoing, the researcher
undergone a reliability test of the questionnaire with the
schools statistician. Ten (10) questionnaires were
distributed as part of validation of the survey. The
sample results were run using statistical method and
based from the Cronbach alpha result of 0.882, it was
observed that it is reliable and the items are accepted.
However, item 1 on the performance need to be
modified since the corrected item total correlation is
small same with items 8 and 10 on the problems
encountered. In response to item 1 of performance
questionnaire and items 8 and 10 of problem
questionnaire, the researcher revised the questions and
proceeded to the execution of the distribution of the
questionnaires. Moreover, the retrieval of the
questionnaires was within the day.

Procedure
The distribution of the questionnaires was
personally conducted by the researcher and some
trained personnel of Batelec II. To be able to distribute
the questionnaire to the target respondents, who are the
member-consumers, the researcher asked permission
from the top management of Batelec II through a formal
letter.
The target time frame for the accomplishment of the
questionnaire for the employees is at most 1 week and 2
weeks for the member-consumers. The questionnaires
are pre-numbered to be able to account for any missing
questionnaire.

Data Analysis
All data gathered were tallied and interpreted using
descriptive statistics, where weighted mean was the
main statistical tool used. A four point Likert Scale
was also applied to further analyze the results and
supported using PASW version 18.

IV. RESULTS AND DISCUSSION

Table 1. Performance of Batelec II in Participation in the WESM (N = 208)
Performance of Batelec II
Batelec II
WM SD VI
1. is providing reliable means (consistency of electric service without blackouts,
power surges or periods of low power) of electric service.
4.27 0.627 Very Good
2. supplies energy in economical costs. 4.24 0.579 Very Good
3. quickly responds on line trouble especially during Force Majeure event. 4.19 0.673 Very Good
4. supplies energy with high security and safety. 4.11 0.620 Very Good
5. engages in I.T. developments in order to improve their service especially for
power supply delivery and trading of energy.
4.10 0.614 Very Good
6. rebuilds its labor work force as part of reformation in the power industry such
as WESM.
4.05 0.650 Very Good
7. gives discount to customers on their power bill because of Collection
Efficiency/Prompt Payment Discount and other rate reduction as per ERC
orders.
3.93 0.644 Very Good
8. conducts information drive to have updates on power industry. 3.87 0.703 Very Good
9. Batelec II has a proper coordination with regards to scheduled and
unscheduled power interruption.
3.69 0.675 Very Good
10. allows consumers a choice of electricity suppliers which ensures competitive
rates.
2.95 1.018 Good
Composite Mean 3.94 0.3689 Very Good
Legend: 4.50 = 5.00 = Excellent; 3.50 4.49 = Very Good; 2.50 3.49 = Good; 1.50 2.49 = Fair; 1.00 1.49 =
Poor
Asia Pacific Journal of Multidisciplinary Research | Vol. 2, No. 4| August 2014
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As seen from the table, the over-all performance of
Batelec II in WESM was very good with composite
mean of 3.94.
Among the items mentioned, Batelec II is very
good in providing reliable means (consistency of
electric service without blackouts, power surges or
periods of low power) of electric service which ranked
first with mean value of 4.27 and followed by supplying
energy in economical costs (WM=4.24), ranked second
and quickly responding on line trouble especially during
Force Majeure event, (WM=4.19) and ranked third.
It can be noted that providing reliable means of
electric service to its member-consumers means
consistency of service without brownouts or power
surges.
This was also the feedback of the respondents due
to their own experience in the consumption of electric
supply. WESM is a product of power industry
regulatory reforms such as implementation of the
commercial operation of WESM in the Philippines,
having a positive effect.
This is justified in the paper conducted by Nakano
and Managi (2007) when a positive effect of total
productivity factor of a certain distribution utility
resulted from total factor productivity (TFP).
Establishment of WESM in the Philippines is a
product of EPIRA Law. Batelec II starts participation in
the WESM on March 2010. Since EPIRA Law has
many challenges, Batelec II manages first its wires
business operation before entering in WESM
commercial operation. This was the direction
envisioned by Batelec IIs Board of Directors together
with the top management and results to a continuous
flow of supply of electricity in its coverage areas. Thus,
makes Batelec II reliable in providing electric service.
In relation to the above statements, Batelec II
demonstrates accomplishments through various projects
such as Relocation of 5MVA Mabini sub-station
(2009); Installation of AVR in Malvar sub-station for
Walter Mart feeder voltage correction (2010);
Construction of 10MVA Padre Garcia sub-station
(2010-2011); and other projects for
rehabilitation/revamp/upgrading projects. These
activities are only few of the tasks performed by Batelec
II in order to provide reliable electric service to its
member-consumers (Batelec IIs 2011 Annual Report).
Batelec II is providing value to its member-
consumers by supplying an economical generation rate.
The result entails that Batelec IIs member-consumers
are satisfied with the cost of the electricity they
consumed. To best see the rate reduction, it could be
conceptualized by looking at Batelec IIs monthly
trading report. Below is the rate impact analysis that
was expressed in table form for the December 2012
billing month.

Table 2. Rate impact analysis for the December 2012 billing month
Particulars Qty (kwhr) Amount [php]
Gen. Rate
[php/kwhr] Remarks
BCQ

60,988,500

291,310,173

4.7765 Basic Energy as per BGI's Invoices
AMQ

59,627,446

244,097,526

4.0937 if 100 % AMQ [no WESM]
MQ 58,612,678

247,798,932

4.2277 if 100 % NGCP [no WESM]
WESM
Purchase

1,276,290

7,164,230 n/a
WESM
Sales

2,637,344

20,352,500 n/a
WESM Net

(1,361,054)

13,188,270 n/a
BCQ +
WESM

59,627,446

278,121,903

4.6643 exclusive of VAT and other adjustments

Based on the table 2, Batelec II sell-off
1,361,053.84 kWh with a net settlement amount of P
13,188,270.00 to the spot market. The amount to be
received from PEMC was applied as reduction in the
coops generation rate computation for the month.
Asia Pacific Journal of Multidisciplinary Research | Vol. 2, No. 4| August 2014
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Similarly, the finding supports Steiners (2000)
claim that market liberalization led to lower prices and
that capacity utilization was higher under private
ownership and vertical unbundling.
The introduction of economical generation rate to
Batelec IIs member-consumers is by the form of rate
reduction. This is achieved primarily by having trading
strategy of Batelec IIs trading team. They manage to
forecast the precise load profile and price behavior in
the spot market by constantly monitoring the aspect or
determinants that affects the price movements. The
areas that trigger prices movement are the weather,
economic activities, fuel and oil costs, foreign exchange
rates and many more.
The data gathered from different sources was then
contemplated to determine amount of energy that must
be source out from WESM and from the power
suppliers. Generally, Batelec II source out electricity
during the off peak hour from the WESM and
conversely purchase energy from their bilateral contract
during peak hour. Off-peak hour is from 11p.m. to 9
a.m. where there is low consumption of electric
activities. Peak-hour however, is from 10 a.m. to 10
p.m. where there are many consumption activities.
Historically, during off-peak hour the energy prices
in the spot market are lower than bilateral contract
price. In this scenario, it is better to source power from
WESM. Consequently, during peak hour the energy
prices in the spot market are higher compared to
bilateral contract price. Logically, it is better to source
energy from power supplier.
Findings also indicate that Batelec II quickly
responds on line trouble. This is an indication of the
competitiveness of the performance in terms of
attending to consumers complaints about power
supply. One of the measures that Batelec II achieved is
the rehabilitation and clearing operation of distribution
lines in some coverage areas. Batelec II also managed
to install additional sub-station in two of their franchise
areas to address line congestion and overload of
capacity. With such development, less brown-out and
more accurate trading task are gained through this
outcome.
The following indices are the System Average
Interruption Frequency Index (SAIFI), System Average
Interruption Duration Index (SAIDI) and Momentary
Average Interruption Frequency Index (MAIFI). SAIFI
shall be defined as the total number of sustained
Customer power interruptions within a given period
divided by the total number of Customers served within
the same period. SAIDI shall be defined as the total
duration of sustained Customer power interruptions
within a given period divided by the total number of
Customers served within the same period. MAIFI shall
be defined as the total number of momentary Customer
power interruptions within a given period by the total
number of Customers served within the same period.












Based from the table above it can be noted that
reliability of electric service for Batelec II is improving
from 28.52 of 2009 to 8.45 of 2012 for SAIFI and so
on. This is also an indication that Batelec II quickly
responds to power trouble given the above figure of
indices. These data shall be submitted to Energy
Regulatory Commission (ERC) as part of the
compliance to the regulator. This as well is in
accordance with Republic Act 9136 Distribution Code
section 3.3.
However, allowing consumers a choice of
electricity suppliers which ensures competitive rates
ranked the least with 2.95 and the only item interpreted
as Good. This was the major response of the member-
consumers since the choice of electricity depends on the
trading strategy of Batelec IIs trading team and not yet
for the part of member-consumers.
As of now, the choice of electricity among end-
users is done through energy trading. Batelec II energy
traders may source electricity from WESM or to power
Year 2009 2010
SAIFI SAIDI MAIFI SAIFI SAIDI MAIFI
Total 28.52 2100.21 58.69 19.13 863.9 52.37
Year 2011 2012
SAIFI SAIDI MAIFI SAIFI SAIDI MAIFI
Total 14.2132 494.241 47.9523 8.45 390.24 39.78
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supplier whichever is lower. In this manner, choice of
electricity can be gained. However, Batelec IIs trading
team is doing it for the end-user. Sooner member-
consumer will be the one to source out directly to the
WESM when Retail Competition and Open Access
commences in full commercial operation. This is the
reason why the item number 10 is the least in the rank
being interpreted as Good.
The establishment of the WESM will facilitate a
transparent and competitive electricity market for the
country. It will serve as an efficient venue for the
trading of electricity to ensure that generation is
balanced with the ever-changing demand for electricity.
The WESM is designed to encourage competition
in generation while at the same time providing
incentives for the effective operation and development
of the transmission networks, coupled with locational
price signals to encourage the economically correct
geographic placement of any future planned generation.
With competition as the key driving factor,
efficiency gains are expected to arise in the short and
long term. In the short-term, efficiency gains will result
from pressures on electricity businesses to reduce costs,
align prices and tariffs with costs, and use of assets
more efficiently. In the longer term, as new competitors
emerge in wholesale power generation, the efficiency
gains are likely to be more substantial.
The spot market provides economic price signals to
generators, customers, and network service providers to
assist them in their alternative investment options for
new generation capacities, demand side management
(e.g. consumption curtailment in response to high
prices), and network expansions. These price signals are
also important in terms of the signals they provide to
competing energy sources (www.wesm.ph).

Table 3. Problems Encountered by Batelec II in Participation to the WESM (N = 208)
Problems WM SD VI Rank
1. Volatility of prices in the Spot Market 3.40 0.590 Often 4
2. Change in law that affects existing contract/s [ex. Amendments on the
WESM Rules and other directives of ERC]
3.41 0.574 Often 3
3. Generator/Plant Outages/Maintenance: When a certain power plant of
a certain power supplier is on shutdown especially here in Luzon - -
rotating black-outs occur
3.54 0.563 Always 2
4. Transmission Facility/Maintenance: When the transmission facility of
the system operator (NGCP) is under maintenance, rotating black-outs
occur.
3.57 0.602 Always 1
5. Foreign Exchange fluctuations contribute to increase in power rates 3.31 0.576 Often 5
6. Fuel Cost: Oil price increase result to higher power cost thus making
the power bill higher
3.25 0.560 Often 6
7. Anti-competitive behavior of power supplier transpired by holding the
electricity supply -- result to high electricity rates
3.13 0.638 Often 7
8. Lower collection efficiency percentage results to zero discounts for
Batelec IIs member-consumers. Thus, makes financial settlement to
the WESM delayed. [ex. Delayed payment of SM and Waltermart]
3.01 0.625 Often 8.5
9. Cross-ownership of a certain business entity between generation
facility and distribution utility results to conflict of interest [ex.
Meralco owns the generation facility as well as the distribution
facility]
2.94 0.579 Often 10
10. Political risk/pressure from a certain public office especially during
election period contributes to inefficiency of any electric cooperative
here in the country
3.01 0.752 Often 8.5
Composite Mean 3.26 0.349 Often
Legend: 3.50 4.00 = Always; 2.50 3.49 = Often; 1.50 2.49 = Seldom; 1.00 1.49 = Never

Based on the table, the respondents often
experience problem in their participation to WESM as
revealed by the composite mean of 3.26. Transmission
Facility/Maintenance explains that when the
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transmission facility of the system operator (NGCP) is
under maintenance, rotating black-outs occur. It is
always their problem since it obtained the highest mean
of 3.57, followed by a problem in a Generator/Plant
Outages/Maintenance. When a certain power plant of a
certain power supplier is on shutdown especially here in
Luzon - - rotating black-outs occur. It established a
weighted mean of 3.54 and verbally interpreted as
always a problem, followed by Change in Law that
obtained 3.41 weighted mean.
Specifically, the Transmission Failure was the main
problem of Batelec II in the participation in the WESM.
Transmission failure happened when facility of the
transmission company is on shutdown or in
maintenance.
There are two kinds of transmission failure. This
can be categorized as scheduled and unscheduled
maintenance. The scheduled maintenance is planned
and conversely, unscheduled maintenance is unplanned
or those emergency situation that occurs especially
during weather disturbance. This also includes volcanic
eruption activities, rebellion, acts of war, labor disputes
and other unpredictable thing thats Force majeure in
nature. On the other hand, scheduled maintenance is
those activities or task that is included in the
development plan of NGCP. It may vary from weekly
to monthly to annually work plan depending on the
economic and political activities of a certain areas. For
instance, year 2013 has upcoming national and local
elections, with this its only logical to have a scheduled
maintenance during the first quarter of 2013 to avoid
power interruption in the month of May elections
period. This was also in accordance with the directives
of the Department of Energy.
It results to black outs that most of member-
consumers do not want. Through this transmission
failure, trading strategy of Batelec IIs trading team
automatically commits large percentage of margin error
because the energy forecast for delivery of generation
facility to a certain distribution utility like Batelec II
and Meralco is not realized due to this Force Majeure
Event.
Since transmission facility is owned by National
Grid Corporation of the Philippines (NGCP),
transmission failure is beyond the control of Batelec II.
Furthermore, this technically results to line
congestion; thus, results to high prices in the WESM.
With these, there is a need for Batelec II to address this
issue to the top management for appropriate actions.
The generation failure was the next problem in the
WESM transactions. This likewise elevates the
electricity market prices in the spot market. This is
related to the study of Murray (1998). He discussed that
less generation supply would not align the demand of
the consumers that would result to shortfall of supply.
Given the untoward incident, it clearly manifests non-
competitive electricity rates in the country.
Specifically, generation outages would not result to
outright black-outs. Even though there are inadequacy
of supply in the Luzon grid, there is still power because
some generators are scheduled for energy reserve that
can be called by the system operator to run whenever
there are shortage in the supply. In this view, it became
the second in rank because most of the respondents do
not feel the effect physically compared to transmission
failure wherein an outright black-outs will occur.
The third in rank is the Change in law that affects
existing contracts. This problem arises due to fact that
power industry evolution entails law amendments.
Compared to other countries, energy industry in the
country has just begun. Therefore, the respondents are
aware that many things will change when certain law
has passed. For example, the Feed in Tariffs for the
renewable energy sources has not yet been in place. But
sooner or later it will be fully implemented and the rate
structure will be affected also.
Relative to the above concern, Goksu (2010)
manifest in his paper that Turkish electricity market is
on in its way also for industry reformation. In this
respect, fundamental regulatory changes have been
made in the Turkish electricity market, previously
dominated by the state. However, Turkey still lacks a
sufficiently attractive energy market for foreign and
local investors. It is the duty of the Turkish government
to render attractive energy market conditions and
regulatory environment for investors. This article looks
into the structure of the Turkish electricity market.
Various issues under the current system which may
facilitate or hinder investors will also be evaluated,
along with recommendations to improve the
current market conditions.
Contrary to the situation here in the Philippines, the
power industry is not yet on its maturity stage, thus the
response of the participants to the table of Problems
Encountered on the WESM directs to Change in Law.
In order for the market to be attractive to foreign
investors is for the Law to be stable and not
unpredictable.
In response to this scenario, Batelec II does regular
conversations with its stake holder both power supplier
and customer to address such issues in the Change in
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Law. In this regard, all parties will be in win-win
situation.
Consequently, Mendoza (2008) says that Electricity
reforms or Change in Law will not translate to
competition overnight especially in countries like
Philippines which have been used to monopoly
provision and distribution of power supply. But these
reforms are slowly inching their way in institutions and
stakeholders, through regulatory and competition
frameworks, processes and systems promulgated and
implemented.
Generally, the results of these reforms are in laying
the groundwork for competition, e.g., an industry that
was restructured into four sectors, functions of industry
players that were redefined, new institutions were
established to shepherd competition like WESM and the
ERC, rules for privatization, deregulation and open
access developed and promulgated.
On the other hand, lower collection efficiency
percentage results to zero discounts for Batelec IIs
member-consumers. Thus, makes financial settlement to
the WESM delayed. [Ex. Delayed payment of SM and
Waltermart] (3.01), political risk/pressure from a certain
public office especially during election period
contributes to inefficiency of any electric cooperative
here in the country (3.01) and cross-ownership of a
certain business entity between generation facility and
distribution utility results to conflict of interest [ex.
Meralco owns the generation facility as well as the
distribution facility] (2.94) were the least among the
problem/s encountered.
The reaction of the respondents to cross-ownership
is the least among the problem. Batelec II is owned by
the member-consumers it serves. It is a non-stock non-
profit organization and has no capability of owning a
generation facility. This was by the virtue of
Presidential decree # 269 signed by President Ferdinand
Marcos with the aim of total rural electrification in the
country. Thus, makes the problem least among the set
of questions and easy to manage.

Proposed Action Plan to Enhance the Performance
of Batelec II in the WESM
The preceding table presents the proposed action
plan where Batelec II must manage the technical aspect
of the problem. The researcher gives main emphasis on
the first three problems as the result of the statistical
survey ranking. The three problems are relatively
connected to each other. This could be done
specifically, by reconfiguring the power distribution
design of its network system so that when unavoidable
NGCP-transmission failure occurs in a certain delivery
point area, they can manage to divert the affected areas
of black-outs to the delivery point that has no
transmission failure. In this way, affected areas of
power interruption will be lesser.
However, this technical task entails financial
attention. The modification will be costly but will
assure boost of reliability performance of Batelec II. To
be able to realize the goal, Batelec II must first include
the work plan to have budget allocation on the said
matter.
The next activity that should be considered to
address the issue on the Transmission facility is the
acquisition of sub-transmission assets of NGCP. Based
from the EPIRA Law, it is not in the mandate of NGCP
the maintenance of sub-transmission asset in the Luzon
regions. NGCP main focus is the transmission asset that
was then deployed by National Power Corporation
(NPC). The sub-transmission asset/facility was
technically categorized as the power lines with 115kv
and below capacity while transmission asset/facility
were categorized as the power lines above 230 kV lines.
Again, this task would entail cost and need to have a
financial budget on it.
Geographically, the sub-transmission asset of
NGCP that must be disposed through different capable
stakeholders such as Meralco and Batelec II lies along
the franchise area of Batelec II and Meralco. Detailed
discussion and concerns with different stakeholders
must be legally resolved before possible dispute occurs.
Moreover, this agreement is subject for the approval
of the special government agency that acts as a
regulator of energy in the country. The Energy
Regulatory Commission (ERC) as the regulating body
will conduct a public hearing as compliance for the
approval of such acquisition. Upon the approval of the
ERC, Batelec II may start upgrading all problematic
sub-transmission facilities to avoid power interruption.
Thus, it would lessen line congestion from the Luzon
grid that results to electricity price volatility.
Upgrading of sub-transmission asset is not the end
of the task of the any public or private electricity
provider in the country. Regular check-up and
monitoring of its capacity must be done to see condition
of the facility. Relative to this, clearing of lines such as
cutting of nearby trees branches must be done in order
to avoid possible power surges especially in the rainy
season.
Another dimension of problem that must be given
an emphasis is the Generator/Plant Outages/
Maintenance. Because the prices in the WESM and
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other electricity market in the world is demand driven,
it is in nature that once a certain power plant is on
shutdown, the tendency is the prices to go up. This
corresponds to the law of supply and demand that
clearly states the behavior of prices of product and
service or commodity such as electricity.
Naturally when a certain power plant is not online
the prices in the spot market rises. In this regard, it is
only better for Batelec II to purchase electricity from its
power supplier rather than sourcing out from the
WESM. Consequently, if the prices in the spot market
drop, Batelec II should take the full advantage of the
low prices. This trading strategy is for the benefits of
Batelec IIs member-consumers.
Batelec II may have one or more bilateral contract
depending on the capacity offer of the various power
suppliers in the country and depending on the power
demand of Batelec II. Currently, it has fifteen (15) years
duration of term contract with GNPower Mariveles
Coal-Fired PowerPlant, Ltd. (GMCP). Batelec II may
add up additional contracted capacity with GMCP if it
has available capacity. Batelec II may either contract
out to other power supplier such as Aboitiz Power,
SMEC and FirstGen. This power contracting is very
essential because it shields Batelec Ii from the volatile
prices in the WESM.
Nevertheless, Batelec II should first select the best
power supplier that could give a most responsive offer
through a competitive selection. In here, different term
sheet offer must be reviewed in order to arrive at the
best one. Financial and technical aspect should be
considered. Rate simulations must compute in order to
find out the most financial responsive offer. Likewise,
in order to have technically viable power supplier,
Batelec II may physically visit the power plant of every
generators in order to have a technical inspection of the
capacity or the condition of the plant.
Negative effects of Transmission failure and
Generation/Plant Outages results to spikes in electricity
market prices. This could be avoided by stipulating a
provision in the power supply contract/bilateral contract
that during this event, energy trading transaction may be
revised if wish by the requesting party.
There must be a Change in Law clause in the
contract in order address reformation in the power
industry. In this way, both parties can adjust to the new
environment brought up by changes in law.
Volatility of prices in the spot market is one of the
issues in the participation to WESM. Having exposed
on the market is very risky because its quite hard to
predict the prevailing market clearing price. So in order
to minimize the risk in the WESM, the researcher
strongly recommends entering a bilateral contract with
Batelec IIs full power requirement. In this way, Batelec
II will have a shield on the volatility of prices in the
WESM. Thus, will avoid high rates of electricity and
will as well address other problems in the WESM be
resolved.
As part of marketing strategy, Batelec II may
engage also in strategic alliance with its power supplier.
This will lead to competitiveness and strengthen its
marketing arm.
There is also a need to educate the respondents on
the changes on the power industry. This will serve as an
orientation for them to be knowledgeable in the proper
usage of electricity. Likewise, it will as well address the
safety and security aspect of it.
In order for Batelec II to give discount to its
member-consumers, Batelec II must first enhance its
collection efficiency. This could be done by adding up
more bayad-centersin every franchise area. In this
way, collection transaction will be fast track. Another is
to reduce its meter reading and billing cycle business
process. This could be done by injecting right
technology to eliminate manual and redundant task of
each labor work force.

CONCLUSIONS AND RECOMMENDATIONS
Batelec II performs very well in the Wholesale
Electricity Spot Market. Batelec II encounters problems
in transmission maintenance and generator/plant
outages/maintenance. The proposed plan of action is
formulated to enhance the performance of Batelec II in
the WESM.
Batelec II may continuously maintain the
performance in rendering quality service through
WESM. Batelec II may submit development plan to the
system operator to address the identified problem. The
proposed action plan may be discussed for possible
implementation and evaluation. Future research may
be conducted about WESM using other variables.

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Wholesale Electricity Spot Market Rules; R.A.9136
Electric Power Industry Reform Act of 2001