DOE's Demand Aggregation and Supply Auctioning Policy

As a fan of the DOE website, I saw this post about the Demand Aggregation and Supply Auctioning Policy (DASAP) draft Department Circular. Upon reading, I noted the following features:

• It reiterates the provision in the Electric Power Industry Reform Act (EPIRA) that distribution utilities (DUs) have the responsibility of supplying electricity in the least-cost manner to its captive market (i.e., its customers);
• It shall be the platform to allow a yearly venue to auction the baseload and peaking requirements of DUs
• DUs will be required to aggregate their power requirements, which will then be auctioned to independent power producers (IPPs) for comparatively longer term (i.e., in contrast to sourcing it from WESM); and 
• Promote price stability. 

To understand DASAP, let's look at concrete examples.

According to this article, Meralco usually sources 90% of its power requirements from power supply contracts. Power supply contracts provide Meralco with constant supply of electricity which Meralco sells to its customers. Aside from reliable supply of electricity, power supply contracts allow Meralco have stable cost of electricity - from these power supply contracts. 

The remaining 10%, Meralco sources from WESM, or the Wholesale Electricity Spot Market. 

For consumers in Meralco area, the 90% sourcing of electricity from power supply contracts is a boon. This means that 90% of their electricity consumption is sourced from a provider that has a stable cost.Only the remaining 10% is sourced from WESM, which offers fluctuating price at every hour.

However, for some other distribution utilities, their power supply contracts only account for less than 50%, which means that more than 50% is sourced from the price-volatile WESM.

DUs would most probably want power supply contracts with IPPs, however, IPPs, businesses as they are, want to have proof that they can pay at the end of their billing period. This "proof," is a big amount of money or assets, which poorer distribution utilities cannot afford. Unfortunately, this situation drives the DUs to source their power requirements from WESM, driving the cost of their electricity up. 

(WESM also requires proof, called "prudential requirements." However, it is not as demanding as that for long-term power supply contracts with IPPs. )

To allow (or require? but also provide a supporting environment) these DUs to enter into power supply contracts, even if they may not have financial state required by IPPs, DASAP will aggregate all the uncontracted power supply requirements of the DUs, and then auction them to IPPs. 

The primary concern of DASAP is supply of electricity of DUs. However, as supply is addressed, price of electricity is expected to become more stable. With DASAP, DUs will no longer source so much electricity from the price volatile WESM, Instead, they will have like two power supply contracts: first, for longer term (e.g,. 5 years or more), and second, for shorter term power requirements, like annual projected requirements, The regular power supply contract, for example, may provide the baseload demand, while DASAP will  take care of the peak demand requirements.  Only very small power demand not projected by the DUs will be sourced from WESM, which is the primary cause for price fluctuation.