Republic of the Philippines / ENERGY REGULATORY COMMISSION, - San Miguel Avenue, Pasig City if \ Hy RESOLUTION NO. "_, SERIES OF 2014 A RESOLUTION ADOPTING THE AMENDED RULES FOR THE APPROVAL OF THE SALE AND TRANSFER OF TRANSCO’S SUBTRANSMISSION ASSETS AND THE ACQUISITION BY QUALIFIED CONSORTIUMS WHEREAS, on October 17, 2003, the Energy Regulatory Commission (ERC) issued the "Guidelines to the Sale and Transfer of the TRANSCO’s Sublransmission Assets and the Franchising of Qualified Consortiums” (Subtransmission Guidelines); WHEREAS, on March 17, 2005, the ERC amended the said Guidelines in Resolution No. 03, Series of 2005, entitled “In the Matter of Amending the Guidelines for the Sale and Transfer of the TRANSCO’s Subtransmission Assets and the Franchising of Qualified Consortiums”, WHEREAS, on January 26, 2009, the ERC further amended the said Guidelines in Resolution No. 01, Series of 2009, entitled “A Resolution Adopting the Amendments to the Guidelines to the Sale and Transfer of TRANSCO's ‘Subtransmission Assets and the Franchising of Qualified Consortiums”, WHEREAS, on December 15, 2010, the ERC issued Resolution No. 27, Series of 2010 amending pertinent provisions of ERC Resolution No. 48, Series of 2006, entitled "A Resolution Summarizing the Applicable Legal Principles and Policies of the ERC on End-User Connections” which addressed the concerns of directly connected end-users; WHEREAS, on December 29, 2010, Manila Electric Company {MERALCO) and Philippine Electric Power Operators Association, Inc. (PEPOA) filed a joint petition docketed as ERC Case No. 2010-012 RM to amend the Subtransmission Guidelines; WHEREAS, on January 19, 2011, Davao Light and Power Company, Inc. (DLPC) and Davao Del Sur Electric Cooperative, Inc. (DASURECO) filed a “Petition to Initiate Rule-Making’ docketed as ERC Case No. 2011-001 RM to amend Section 2 (c) of the Subtransmission Guidelines; WHEREAS, on January 24, 2011, the ERC posted at its official website the instant petitions to solicit comments from interested parties not later than February 11, 2011; WHEREAS, on various dates, the National Grid Corporation of the Philippines (NGCP), MERALCO and Engr. Robert F. Maliilin filed their respective comments on the said petitions; IV raResolution No. 15. Series of 2011 ‘A Resolution Adopting the Amended Rules for the Approval of the Sale and Transfer of TRANSCO’s Sub-transmission Assets and the Franchising of Qualified Consortiums” Page 2 of 3 WHEREAS, after considering all the comments received from interested parties, the ERC issued a proposed “Amended Rules for the Approval of the Sale and Transfer of TRANSCO’s Subtransmission Assets and the Acquisition by Qualified Consortiums” (Amended Rules) and posted the said Amended Rules at its official website on April 20, 2011 to solicit comments from interested parties; WHEREAS, on April 25, 2011, the ERC issued an Order and Notice of Proposed Rule-Making consolidating the two (2) petitions inasmuch as they involve the same subject matter and setting the consolidated petitions for public hearing on May 20, 2011. In the said Order, the ERC again solicited comments on the consolidated petitions from interested parties not later than May 11, 2011; WHEREAS, on May 20, 2011, the ERC conducted a public hearing on the said consolidated petitions which was attended by various interested parties. In the said hearing, the ERC directed all those present to submit their comments on the proposed Amended Rules not later than June 3, 2011; WHEREAS, after considering the proposals of the petitioners as well as the comments of the parties, the ERC deems it necessary to amend the Subtransmission Guidelines incorporating the following: 1) the proposals of the petitioners in the consolidated petitions; 2) the amendments adopted by the ERC as embodied in its Resolution No. 1, Series of 2009, Resolution No. 18, Series of 2009 and Resolution No. 27, Series of 2010; and 3) the policy adopted by the ERC in ERC Case No, 2008 - 088 MC; WHEREAS, the amendments to the Subtransmission Guidelines include, among others, the following: 1. Definition and treatment of Consortium; 2. Extension of the deadline for disposition of subtransmission assets until December 31, 2011 pursuant to the policies adopted in Resolution No. 27, Series of 2010 and ERC Case No. 2008-088 MC; 3. Responsibility for the Right of Way (ROW) costs incurred before and after the signing of the Lease Purchase Agreement (LPA) or Contract to Sell; 4. Compulsory capitalization of deferred subtransmission charges for Electric Cooperatives (ECs) only; 5. Billing of directly connected end-users pursuant to Resolution No. 27, Series of 2010; and 6. Submission of required data in forming a consortium, such as a Memorandum of Agreement (MOA) and a policy on the treatment of existing and future connected end-user NOW THEREFORE, the ERC, after thorough and due deliberation, RESOLVED, as it hereby RESOLVES to ADOPT the “Amended Rules for the Approval of the Sale and Transfer of TRANSCO’s Subtransmission Assets and the Franchising of Qualified Consortiums", hereto attached as Annex “A” and made an integral part of this Resolution This Resolution shall take effect fifteen (15) days following its publication in a newspaper of general circulation in the Philippines.Resolution No.” Series of 2011 ‘A Resolution Adopting the Amended Rules for the Approval of the Sale and Transfer of TRANSCO’s Sub-transmission Assets and the Franchising of Quaiied Consortiums” Page 3 of Let copies of this Resolution be furnished the University of the Philippines Law Center-Office of the National Administrative Register (UPLC-ONAR), TRANSCO, NGCP, PEPOA and all distribution utilities. Pasig City, July 6, 2011. Goce G. ls fies Chairperson Aude RE, _ fever { RAUF A. TAN ‘aT EJANDROZ. Commissioner Commiésioner (On Leave) fe MARIA TERESA A.R. CASTANEDA JOSE/. REYES Commissioner ConffnissionerANNEX “A” AMENDED RULES FOR THE APPROVAL OF THE SALE AND TRANSFER OF TRANSCO’S SUBTRANSMISSION ASSETS AND THE ACQUISITION BY QUALIFIED CONSORTIUMS Pursuant to Sections 7 and 8 of Republic Act No. 9136 or the Act and Rule 6 of the implementing Rules and Regulations (IRR) of the Act, the Energy Regulatory Commission (ERC) hereby adopts and promulgates this Rules to a) Set the standards to distinguish the National Transmission Corporation's (TransCo's) or NGCP'S transmission assets from its subtransmission assets; b) Establish an approval process prior to the final sale and transfer of subtransmission assets to distribution utilities; and ©) Govern the granting of a franchise to the consortium or juridical entity to operate sublransmission assets. ARTICLE | GENERAL PROVISIONS This Rules shall have the following objectives: a) To ensure continued quailty, reliability, seourity and affordability of electric service to end users; b) To ensure the transparent and reasonable prices of electric service in @ regime of free and fair competition and to achieve greater operational and economic efficiency; c) To enhance the inflow of private capital and broaden the ownership base of subtransmission assets; and 4) To provide for the orderly and transparent sale and transfer of subtransmission assets of TransCo or NGCP to qualified buyers.ARTICLE Il SCOPE AND DEFINITION OF TERMS Scope — This Rules shall apply to the following entities: a) TransCo; b) NGCP; and c) Any qualified buyer that intends to or shall acquire and assume responsibility for operating, maintaining, upgrading, and expanding a subtransmission asset of the TransCo or NGCP. This Rules shall not apply to assets owned by entities other than the TransCo or NGCP. Section 2, Definition of Terms - As used in this Rules, the following terms shall have their respective meanings: a) “Acf’ unless otherwise stated, shall refer to Republic Act No. 9136, otherwise known as the “Electric Power Industry Reform Act of 2001"; b) “Concessionaire or NGCP" shall refer to the qualified party awarded the sale agreement or concession contract for the transmission assets: ©) “Consortium” shalt refer to a juridical entity or an association formed by and composed of two or more distribution utilities each of whom is connected to one or more subiransmission assets in common with one or more other distribution utilities. The consortium or juridical entity shall be granted a franchise to operate the subtransmission asset by the ERC: 4) “Directly Connected Entity” shall refer to each end-user, person or entity other than a qualified buyer that is directly connected to the subtransmission assets’ e) “Directly Connected Generators” shall refer to those generating facilities that normally supply electricity to the grid and where electricity normally flows from the generator to the grid; 1) “Distribution Utility" shall refer to any electric cooperative, private corporation, government-owned utility or existing local government unit which has an exclusive franchise to operate a distribution system in accordance with its franchise and the Act; q) “Distribution Utility Transition Distribution Charge (DUTDC)” shall refer to the charges of the DU to the former directly connected 2end-users for the period following the DU’s acquisition of the STAs ‘and until ERC approves/tesoives the application for the approval of @ mutually acceptable rate between the DU and the former directly connected end-user or the application for dispute resolution: h) “End-User” shall refer to any person or entity requiring the supply and delivery of electricity for its own use: i) “Energy Regulatory Commission” or “ERG” shall refer to the regulatory agency created by Section 38 of the Act: j) “Entities duly authorized by PEZA to operate within the EZs” shall refer to entities which have been granted by PEZA, pursuant to the provisions of Republic Act No. 7916 (The Special Economic Zone ‘Act of 1995), a certificate of registration as an ecozone utilities enterprise authorized to install and operate power distribution facilities exclusively within the proclaimed ecozone area,” k) “Former Directly Connected End-User” shall refer to each end- user, person or entity other than a qualified distribution utility or the memibers of consortium or juridical entity that is directly connected to the sub-transmission assets that have been purchased and now ‘owned and operated by @ qualified buyer 1) “Grid” shall refer to the high voltage backbone system of interconnected transmission lines, substations and related facilities. located in each of Luzon, Visayas and Mindanao, or as may otherwise be determined by the ERC in accordance with Section 45 of the Act; m) “Independent Power Producer” or “IPP” shall refer to an existing generating entity which is not owned by NPC as the effectivity of Republic Act No. 9136 (EPIRA): n) “Juridical Entity” shall refer to any juridical persons as defined by law; 0) “National Power Corporation” or “NPC” shall refer to the goverment created under Republic Act No. 6395, as amended: p) “National Transmission Corporation” or “TransCo” shall refer to the corporation organized pursuant to the Act to acquire all the transmission assets of the National Power Corporation (NPC); 4) “Qualified Buyer” shall collectively refer to a qualified distribution utility, qualified consortium or juridical entity, or entities duly authorized by PEZA to operate within the economic zones. *) “Qualified Consortium” shall refer to a consortium of distribution Utilities whose combined qualifications meet the technical and financial criteria established in Article 1V hereof:s) “Qualified Distribution Utility” shall refer to a distribution utility that meets the technical and financial criteria established in Article IV hereof; 1) “Subtransmission Assets” shall refer to facilities classified as subtransmission assets based on functional standards established in ‘Article I hereof, including but not limited to step-down transformers used solely by load customers, associated switchyard/substation, control and protective equipment, reactive compensation equipment to improve customer power factor, overhead lines, and the land where such facilifies/equipment are located. These include NPC andjor TransCo assets linking the transmission system and the distribution system, which are neither classified as generation nor transmission; u) “Successor Generating Company” or “SGC” shall refer to National Power Corporation (NPC) Successor Generating Companies; and V) “Transmission Assets” shall refer to the grid-wide electrical infrastructure through which electricity flows in large quantities between generators or generating plants consisting of several units or blocks of generators and the many more dispersed load centers Transmission assets are typically characterized as long distance lines, high capacity switching and transformation stations, high degree of meshing of lines, stations that provide path diversity, and sophisticated protection schemes that ensure security against grid- wide disturbances. ARTICLE Ill CRITERIA TO DISTINGUISH TRANSMISSION ASSETS FROM SUBTRANSMISSION ASSETS Section 1. Removal of References to Specific Voltage Levels — In classifying assets into subtransmission assets and transmission assets, all teferences to voltage levels as provided in Section 7 of the Act and Section 5, Rule 6 of the IRR shall not apply following the effectivity of these Rules. The assets shall be classified based on the technical and functional criteria specified in Section 2 that follows. Pending disposal in accordance with this Rules, assets currently classified as subtransmission assets are deemed transmission assets only for the purpose of necessary and justifiable upgrade and expansion in accordance with Section 8 of the Act. Section 2. Technical and Functional Criteria ~ The assets shall be classified based on the technical and functional criteria enumerated in Sections 4 and 6, Rule 6, Part Il of the IRR of the Act, including, but not necessarily limited to, the followin dda) Directly Connected Generators Lines, power transformers and other assets held by TransCo or NGCP, which allow the transmission of electricity to a gric from one or more directly connected generators. shall be classified as transmission assets ») Directly Connected End-Users Radial fines, power transformers. related protection equipment, control systems and other assets held by TransCo or NGCP which directly connect an end-user or group of end-users to a grid and are exclusively dedicated to the service of that end-user or group of end- users shall be classified as subtransmission assets c) Directly Connected Load-End Substation Radial lines. power transformers, related protection equipment at the secondary of the power transformers and other assets held by TransCo or NGCP which directly connect a load-end subsiation of one or more distribution utilities to a grid but no directly connected generators shail be classified as subtransmission assets. Dedicated point-to-point limited facilities of a generation company or connection assets for generators are not classified as subtransmission assets Section 3. Change in Asset Classification ~ Subtransmission assets connecting two or more distribution utilities which have not been sold, disposed or filed with the ERC for approval of sale by December 31, 2011 shall be rectassified as transmission network assets and reverted back to TransCo/NGCP Regulatory Asset Base (RAB) to be recovered consistent with the Open Access Transmission Service (OATS) Rules. Further, jines which by definition fail under subtransmission asset but have considerable length or such asset are required for transmission reliability may be subject to further review by the Commission.ARTICLE IV CRITERIA FOR QUALIFIED BUYER Section 1. Technical Capability Criteria - The technical criteria for qualification shall include but not be limited to the following: a) Should have experience in the operation and maintenance of a line with voltage level equivalent to that of the subtransmission asset to be acquired. A distribution utility without the necessary experience should undergo at least a one-month training program from TransCoINGCP at its own expense. b) Should have inventory of materials used for immediate replacement during emergency repair and maintenance of the assets being purchased. c) Should have experience in the operation and maintenance of substation facilities and have qualified personne! for metering, protection and instrumentation, transformer testing and evaluation. A distribution utility without the necessary experience should undergo at least a one-month training program from TransCo at its own expense. 4) Should have an annual SAIFI of not more than 20 times and SAIDI of not more than 45 hours prior to the signing of LPA or contract to sell ©) Should have submitted to the ERC its statement of compliance and compliance plan to the Philippine Grid Code and Philippine Distribution Code and its corresponding annual compliance report. The distribution utility may submit other relevant information to be considered by the ERC in determining its technical capability. A qualified distribution utility should be connected to TransCo'sINGCP's existing subtransmission assets in order to acquire the said assets. For subtransmission facilities directly serving end-users and no DU is connected to the same facilities, the DU who holds the franchise where the end-user is located shall be the only party qualified to acquire such facilities. A distribution utility who fails to meet any of the criteria above-prescribed may, in the allerative, submit an operation and maintenance contract with TransCo/NGCP or another qualified buyer or qualified service provider for the, operation of the subject subtransmission asset/s. The said contract shall be included in the application for consideration by ERC during the hearing and evaluation of the case.Section 2. Financial Capability Criteria - The financial criteria for qualification shall include but not be limited to the following based on the most current audited financial statement: a) Current on all financial obligations related to all contracts with suppliers of inputs necessary for the distribution utilty’s provision of electricity service to its end-users: b) Current on all financial obligations related to outstanding debt Provided, that the ERC may grant exceptions in the case of pending debt restructuring: ) A current ratio of not less than 0.70:1 or a quick ratio of not fess than 0.60:1. The current ratio shall be calculated as the ratio of the current assets to current liabilities. The quick ratio shall be calculated as the ratio of the current assets less inventory to current liabilities; d) A debt ratio of not more than 80%. The debt ratio shall be calculated as the ratio of total liabiliies to total assets; ) An average collection period of not more than ninety (90) days. The average collection period shall be calculated as the ratio of average receivables to daily sales. The average receivables shall be determined using the average of the receivables at the beginning and end of the year. The daily sales shail be computed by dividing sales by 365 days; and f) A positive net profit margin and return on assets. The net profit margin shall be calculated as the ratio of net profits after taxes to sales. The net profits after taxes shall be computed as eamings before interest and taxes minus tax (EBIT - Tax). The retum on assets shall be computed as the ratio of earnings before interest and taxes minus tax (EBIT ~ Tax) to the average total assets, The distribution utility may submit other relevant information to be considered by the Commission in determining its financial capability A distribution utility who fails to meet any of the criteria above-prescribed may, in the altemative, submit to the ERC a letter-guarantee from an entity acceptable to TransCo or a written waiver from TransCo that it is willing to sell the subject subtransmission asset despite the DU not meeting the prescribed financial criteria, Section 3. Determination of Qualified Consortium — Each distribution utility comprising a consortium or juridical entity need not meet all the Qualification criteria specified in sections 1 and 2 hereof for the consortium or Juridical entity to be qualified. If the combined qualifications of the distribution uiilities outweigh the inadequacies of any unqualified distribution utility in the consortium or juridical entity, the same shall be qualified: Provided, that atleast one (1) distribution utility in the consortium complies with all criteria in sections 1 and 2 hereof. Moreover, @ qualified consortium or juridical entity must have a valid franchise and Certificate of Public Convenience and Necessity (CPCN) to be secured from the ERC. ARTICLE V PROCEDURES PRIOR TO FINAL SALE AND TRANSFER OF SUBTRANSMISSION ASSETS. Section 1. Negotiation of the Sale and Transfer Agreement —TransCo shall negotiate a sale and transfer agreement for assets classified as subtransmission assets based on the criteria established in Article Ill hereof, to all interested qualified buyer connected to such subiransmission facilities. The qualified buyer interested in purchasing subtransmission assets shall Negotiate to acquire all subtransmission assets to which they are connected. In agresing to the terms of payment for such sale, TransCo shall grant concessional financing to electric cooperatives (ECs), subject to but not limited to the following conditions: a) Payment shall be for a maximum period of twenty (20) years or the remaining life of the subject asset, whichever comes earlier; b) No down payment shall be required; and ¢) Interest shall be based on the Philippine Dealing System Treasury Reference Rate (PDST-F), at the date the parties execute and implement a deed of conditional sale or transfer of possession or similar documnents over the sale of the sub-transmission asset after the ERC's approval of sale. ‘The ECs may source the funds for buying the asset as well as the cost of Right-of-Way (ROW) acquisition from their corresponding Reinvestment Fund for Sustainable Capital Expenditure (RFSC) while the cost of operating and Maintaining the same shall be sourced from their © & M expense accounts. For Private Utilities (PUs), the cost of buying said asset as well as the Cost of ROW acquisition may be considered in their reset applications under the “Rules for Setting Distribution Wheeling Rates (ROWR)" or in their applications for rate adjustment filed prior to their entry to the ROWR. TransCo shall prepare a definitive list of the subtransmission assets and all the components thereof which will be sold and transferred to qualified buyers. TransCo shall furnish copies of the list to qualified buyers the list of subtransmission assets sought to be acquired within sixty (60) days from the \effectivity of this Rules and the qualified buyer shall be given the opportunity to submit to TransCo its own list of subtransmission assets sought to be acquired within thirty (30) days from receipt. In case of disputes regarding the inclusion or exclusion of certain items from the list of subtransmission assets, the matter shall be referred to the ERC to resolve such issues. TransCo, NGCP, NPC and concemed SGC/IPPs shall provide the qualified buyer with all necessary documents and other information necessary for the operation and maintenance of the facilities, such as, but not limited to the following: a) rights-of-way and land titles of the subtransmission assets, if available: b) complete and updated single-line diagrams and as-built drawings of substation and line facilities; ¢) metering information; d) billing information; e) list of directly connected end-users; f) latest monthly historical data on the energy consumptions, peak demand and other billing determinants of each connected end-user for a 12-month period: 9) expiration dates of power supply contracts of each connected end- user, h) other technical and contractual information about end-users directly connected to such asset subject of sale; i) historical maintenance and repair records; and j) historical trouble and outage records. TransCo and the qualified buyer shall endeavor to enter into a mutually acceptable arrangement on issues regarding right-of-way. Such agreement shall form part of the application ROW costs that are incurred or become certain after the signing of the “contract to sell” or “lease purchase agreement’ shall be borne by the qualified buyer acquiring the subtransmission assets, who may apply for fecovery of such costs, to the extent of what are just and reasonable, in its future rate filings and inclusion of such ROWS in its regulatory asset base (RAB). ROW incurred before the signing of the “contract to sell” or “lease Purchase agreement’ shall be borne by the National Transmission Corporation (TransCo) in order to avoid operational problem and diminution of service, no continuous line shall be sold in portion unless it is the end portion of the said continuous line.Section 2. Asset Valuation — The subtransmission asset shall be valued as follows: a) If the contract was entered into before June 13, 2006, the subtransmission asset shall be valued at the agreed price between the DU and TransCo; b) If the contract was entered into after June 13, 2006, the subtransmission asset shall be valued in reference to the Sinclair Knight Merz (SKM) valuation or any subsequent valuation as approved by the Commission, subject to adjustment to include depreciations and improvements; and ©) In the absence of the SKM valuation of certain subtransmission assets for sale, the agreed price between the DU and TransCo shall be considered. The DU shall endeavor to enter into an agreement to the advantage of its consumers. The abovementioned, however, should not be considered as a limitation to the capability of the DUs to negotiate for better terms and conditions in the agreement for the benefit of their end-users. Section 3. Approval by ERC — Prior to the final sale and transfer of such subtransmission assets by TransCo to qualified buyer the parties shall jointly file with ERC an application for approval on each of the following: a) The assets meet the technical and functional criteria for subtransmission assets established in Article III hereof, and 5) The distribution utility or consortium or juridical entity meets the qualifications criteria established in Article IV hereof. To facilitate the review and approval of the proposed sale and transfer of Subtransmission assets by TransCo to the qualified buyer shall submit the following documents, if applicable, upon filing of the application: ) Description of the franchise area being served; b) Description and electrical diagram of the lines, power transformers and other subtransmission assets; ©) Complete listing of any directly connected entity connected to the subtransmission assets including the contact details for each directly connected entity, 4) Complete listing of all distribution utilities and any directly connected entity connected to the subtransmission assets; ©) Resolution of the board of directors of the respective parties authorizing the sale and purchase of subtransmission assets; 10f) Report indicating that assets intended for sale meet criteria for subtransmission assets; g) Report indicating that the distribution utility or the consortium or juridical entity of distribution utilities intending to purchase subtransmission assets comply with the technical and financial standards prescribed in Article IV hereof; h) All billing determinants that may be used as part of the rate proposal; i) Draft agreement between parties to the sale and purchase of subtransmission assets; i) All other supporting data, documents, and analysis that may be needed by the ERC in the course of the review; and k) Appraisal report including the appraiser's estimate on the remaining life of the subtransmission assets, Section 4. Power Supply Contracts and Generation Rates — Upon acquisition of the subtransmission assets by the DU, former directly connected end-users shall continue to source their power requirements from NPC or SGCs/IPPs during the effectivity of their power supply contract (PSCs). NPC and SGCs/IPPs should continue to bill the former directly Connected end-users until the expiration of their PSCs and shall provide the DU a list of their directly connected end-users, their historical data on the energy consumptions and the respective expiration dates of their power supply contracts at least twelve (12) months prior to their expiration, The billing and collection transactions of the generation charge during the effectivity of the PSC shall be between NPC/SGCs/IPPs and the former directly connected end user. The DU shall be responsible for procuring the energy requirements of the former directly connected end user (unless contestable) should the PSC of the former directly connected end-user expire. The generation rate to be charged by the DU to the former directly connected end-user shall be the blended generation charge or the rates under the special programs of the DU, e.g, time-of-use, if the said end user is qualified, The DU shall also charge the end user all other charges, e.g. VAT and local franchise taxes, associated with the above generation charge. The billing and collection transactions of the generation charge after the expiration of the PSC shall be between DU and the former directly connected end user, Hence, there should be no need for the approval of ERC for the Collection of the blended generation charge. uSection 5. Transmission Service Agreements (TSAs) - The TSA between a former directly connected end-user and TransCo/NGCP shall remain enforceable and binding between the parties for purposes of billing the other charges such as the power delivery service (PDS), system operation, metering service and ancillary services in accordance with their TSAs. Section 6. TransCo/NGCP’s Uncollected Deferred Connection Charge and Residual Subtransmission Charge — For acquiring electric cooperatives, any uncollected TransCo/NGCP's Connection and residual charges resulting from the deferred charges as approved by the ERC shall be capitalized or included in the acquisition cost of the subject assets. The amount shall be based on previous year's charges. For sale of subtransmission assels prior to this amendment, wherein the deferred charges were not yet capitalized, TransCo may continue to bill and collect the connection and residual charges resulting from the deferred charges as approved by the ERC. For acquiring DUs other than electric cooperatives, the following are the payment options: a) To pay any uncollected connection and residual subtransmission charges upon transfer of possession of the subtransmission asset. The amount shall be based on previous year's charges. b) For the DU and directly connected end-user to pay any uncollected connection and residual subtransmission charges for a period of one (1) year from the date the parties execute and implement a deed of Conditional sale or transfer of possession or similar documents over the sale of the subtransmission asset after the ERC's approval of sale. Section 7. DU Rates for Directly Connected End-users ~ Within six (6) months from the date the parties execute a deed of conditional sale or transfer of possession or similar documents over the sale of the subtransmission asset or from the effectivity of this Rules, whichever comes later, the DU and the directly connected end-user shall endeavor to come up with @ mutually acceptable rate to be stipulated in the distribution wheeling Services agreement or connection agreement commensurate to the Subtransmission assets acquired by the DU and jointly file the said agreement with the ERC for approval. If the mutually acceptable rate between the DU and the end-user is the existing regulated rate of the DU as approved by the Ges @ written notice to the ERC in lieu of a formal filing for approval would suffice While the DU and the former directly connected end-users are negotiating for a mutually acceptable rate, the applicable DU rates that shall be billed to the former directly connected end-users for the use of the STAs are as follows:2) Distribution Utility Transition Distribution Charge (DUTDC) shall be equal to TransCo's/NGCP's latest approved CC/RSTC for that particular STA prior to its sale, for @ period not exceeding six (6) months. b) While the DU is undertaking the negotiations for the filing of the application for the approval of the istribution wheeling services agreement and/or a connection agreement, which contain, among others, the mutually acceptabie rate and has filed a dispute resolution application within the said six (6) months, the DU shall be allowed to continue charging the above DUTDC rate until the ERC approves the agreements or resolves the dispute. ¢} After the resolution of the ERC of the filed distribution wheeling services agreement or connection agreement, the DU should charge the ERC-approved rate The said period may however be extended for another six (6) months Provided that the parties jointly manifest before the ERC that negotiations for @ mutually-acceptable rates are on-going . otherwise, the DU could not continue charging the DUTDC. An application for approval of the mutually acceptable rate to be stipulated in the distribution wheeling services agreement or connection agreement shall be filed with the ERC in accordance with the ERC Rules of Practice and Procedure. The rules governing the filing of a rate case shall apply if the subject subtransmission asset is made part of the distribution network while the rules governing miscellaneous cases shall apply if the subject subtransmission asset is dedicated to the former directly connected end-users, Section 8. Other DU Charges ~ After ERC approval of the Connection and Distribution Wheeling Agreements between the DU and the former directly connected end-users, the DU should charge the following: a) system loss charge if the NGCP meter has been transferred to the new delivery point between the transmission system and the STA now owned by the DU. If two or more former directly connected end- users are connected to the STA, the system loss shall be based on the ERC approved system loss charge; b) lifeline subsidy charge; ©) value-added taxes; d) local franchise tax if applicable; and 8) all other charges applicable to regular customers (e.g. Senior Citizen Subsidy)Section 9. Transfer of Operation and Maintenance of Subtransmission Assets — Upon approval by the ERC of the sale and transfer, TransCo/NGCP shall facilitate the orderly transfer of the operation and maintenance of the subtransmission assets to the DU. In cases wherein the subtransmission line's circuit breaker protection and control remain within TransCo's/NGCP’s control house, TransCo/NGCP shall continue to operate and maintain the said protection and control upon the DU's request, until such time that the DU has transferred the same to its own contro! house. Upon the consummation of the sale of the subtransmission assets, TransCoINGCP and the DU shall provide their respective metering facilities at the new asset boundary. While NGCP's end-user's metering facilities have not been replaced by those of the DU or an NGCP meter has not been installed at the asset boundary, TransCo/NGCP shall provide the DU with metering data to allow the DU to bill and collect the applicable subtransmission charges. The energy loss in the acquired subtransmission assets shall be treated as distribution system loss. If the metering facilities cannot be installed as close as possible to the Connection Point or in the interface of the transmission and subtransmission assets due to system's design construction or for other reasons, the metering shall be installed as clase as possible to the Connection Point. In this case, a procedure shall be established to account for the energy loss between the Connection Point and the point of metering, Section 10. Procedure for Filing with ERC ~ Any petition, application or action to be filed herein shall be governed by the ERC Rules of Practice and Procedure, the pertinent provisions of the Act or its IRR and other related laws Failure on the part of the applicant parties to submit any of the required detail/information within the prescribed period shall be a ground for the dismissal of the application. Section 11. Dispute Resolution — In case of disagreement in valuation procedures, ownership participation and other issues, the TransCoiNGCP or a qualified buyer may file with ERC a petition for dispute resolution All costs arising from. incidental to or otherwise attributable to the resolution of any petition for dispute shall be borne equally by the concerned parties.ARTICLE VI APPLICATION BY CONSORTIUM OR JURIDICAL ENTITY TO OWN AND OPERATE THE SUBTRANSMISSION ASSET Section 1. Eligible Applicants ~ A joint application for franchise to operate a subtransmission assets and a CPCN shall be filed with the ERC by the consortium or juridical entity. The franchise will be granted to each of the applicants or to both or all of them as one juridical entity. This notwithstanding, the customers within the respective franchise areas of the members of the consortium or juridical entity shall remain to be billed separately by the said members having authority to serve them under their franchises. Provided further that if the acquisition of subtransmission assets include two (2) or more existing subtransmission assets which are not connected with each other, the consortium or jutidical entity shalt submit a concreie plan in its petition that will interconnect all common existing subtransmission assets for reliability purposes For DUs connected to subtransmission assets that traversed another DU's franchise area with no connected load, the connected DU shall file an application for @ franchise and a CPCN to operate the said subtransmission assets. Section 2. Subscription Rights - The subscription rights of each DU involved shall be proportionate to their load requirements unless otherwise agreed by the parties. Load requirements shall be based on the average demand recorded for the last twelve (12) months. Any share adjustment in the future shall be in accordance with the organizational framework (ie. Articles of Incorporation) of the consortium or juridical entity. For subtransmission assets that traversed another DU’s franchise area and the said DU has no connected load, the said DU will be given subscription rights in the event that a load will be connected in its franchise area Section 3. Submission of Required Data — Upon filing of an application for a franchise, the consortium or juridical entity referred to in the immediately preceding section shall submit the following documents to facilitate the evaluation of the application for a franchise ‘@) Memorandum of agreement executed by and between the parties forming the consortium or juridical entity on how to operate, maintain and develop the subtransmission assets to be acquired; 5) Policy on the treatment of existing and future connected end-user, ©) Legal personality;4) Description of the franchise area served by each party to the application; e) Resolution of the board of directors of the respective parties authorizing each party to the application to form a consortium or juridical entity with the other parties to the application; f) Description and electrical diagram of each subtransmission asset to be acquired by the parties to the application; 9) Resolution of the board of directors of the respective parties authorizing each party to the application to acquire each subtransmission asset; h) Complete listing of any directly connected entity other than the parties to the application, connected to each subtransmission asset: i) Agreement on subscription rights of each party to the application; and i) Other documents that may be needed by the ERC in the course of the evaluation. Section 4. Procedure for filing with ERC - Any petition, application or action to be filed herein shall be governed by the existing ERC Rules of Practice and Procedure, the pertinent provisions of the Act or its IRR and other related laws. Failure on the part of the applicant parties to submit any of the required detail/information within the prescribed period shall be a ground for the dismissal of the application. ARTICLE Vil FINAL PROVISIONS Section 1. Separability Clause - if for any reason, any part or section of this Rules is declared unconstitutional or invalid, the other parts or sections hereof which are not affected thereby shall continue to be in full force and effect, Section 2. Effectivity - This Rules shall take’ effect following its Publication in a newspaper of general circulation,