While it has been allowed to implement the unmodified Visayas Supply Augmentation Auction (VSAA), administrator Philippine Electricity Market Corporation (PEMC) got a firm directive from the industry regulator that it must first draw up price and bid caps, penalty scheme and dispute resolution mechanisms to prevent formidable abuses in the program’s enforcement.

The Energy Regulatory Commission (ERC) in a 15-page Order indicated that “mitigating measures such as price cap/bid caps are not yet in place”, further stressing that the absence of such may “open doors to market abuse.”

The regulator added that price caps and proposed ceiling for bids “must be formulated by the PEMC to ensure the success of the VSAA program.”

The other area that ERC wants to be addressed is on instituting penalty regime to subvert potential market violations in the implementation of the supply program that is primarily intended to address deficiency of power supply in Visayas.

The regulator emphasized that under PEMC’s application for the program, “there is no clear penalty regime for non-compliance of VSAA market participants.” and there are also no procedures on how to treat participants violating prescribed rules and procedures.

Hence, the ERC cautioned that “this can lead to abuse and give rise to endless disputes which are detrimental to the success of the VSAA program.”

By the same token, the regulatory body directed PEMC to establish clear dispute resolution procedures to address any form of conflicts that may arise from transaction processes at the VSAA.

It noted that the provided statement in the VSAA application had been “vague and too general”; that it can easily be subject to fierce questioning by contesting parties when a disputable circumstance so arises.

For this particular mandate, PEMC is being given 30 days from the receipt of the ERC Order to “develop dispute resolution mechanisms as well as enforcement and corresponding penalty mechanisms to govern the VSAA.”

The market operator, which shall act as VSAA administrator, has likewise been tasked to formulate mitigating measures for the program “to address irregular market behavior on the part of the participants.”

Similarly, PEMC was directed to submit to the regulator monthly assessment reports relative to the supply augmentation program’s implementation.

And at the end of the three-month period when the program has been in force, PEMC must submit to the Commission its assessment of whether or not there is a need to continue the VSAA given prevailing circumstances and conditions at the aforesaid timeframe.